Originally posted by @Account Closed:
@John Thedford
You are the one deceiving readers on here by putting out misinformation.
A contract assignment is a legal procedure where one person or party involved in a contract hands over their contractual obligations to a third party. ... The specifics of a contract assignment largely depends on the contract. However, no matter how a contract is assigned, the original terms and obligations still apply.
Oren, you are correct in that contract assignments are legal and the buyer of the contract assignment is bound by the original terms of the contract. That said, when a contract assignment involves real estate, real estate laws come into play and in most, if not all states, if you negotiate the purchase price with a seller, publicly market that property for sale (without being on title) and receive a fee for brining buyer and seller together via the contract assignment, you have performed the duties of a licensee and as such, violated the law. There are several ways to wholesale legally and in the format you have laid out, it is illegal. That is a simple fact, regardless if you or others like it or not.
I agree that some approaches in this thread may be harsh or leave little to be desired by any wholesaler and would be wholesaler, but looking at it from the other side of the fence, when people get scammed, they get hurt and other people do something about it.
To your original post and in the attempt to educate you since you stated you are new, a $10 EMD (earnest money deposit) is a typical guru education point and is not a legitimate EMD on any property. An EMD is for the purpose to show a seller thatbof buyer is serious and $10 does. It show much seriousness, with all due respect. A standard EMD in CA is 3% of the purchase price and for purchase prices of $10k, as a seller, I would want to see at least 5%.
A 30 day inspection contingency is almost double the standard 17 day here in CA so one should ask, why would a buyer need that long to inspect a single family residence? In a large apartment building, yes, 30 or even 60 days is common but not on a SFR.
You stated that you disclosed to your sellers that you would be or maybe assigning to another buyer. Did you do that in writing? Can you show us the copy of that disclosure? If not, you have not properly or legally disclosed that portion. Secondly, did said disclosure spell out exactly what it means to assign to another buyer and what happens if another buyer does not come along? These are the things that most wholesalers do not disclose and if you did not, then you have not properly done your job to this point. That said, this is for you to learn, not to bash you.
Lastly, think about this: your family member dies and leaves you a home that is this exact home. I come along and offer you $10k (or so). You have not had the opportunity to speak with a real estate agent yet so you are not aware of the exact value yet as nobody has shown you a CMA (comparative market analysis). I tell you I will assign the deal to another buyer for a fee and you agree. I then sell your property for $34k and pocket $24k for doing so. Had you spoken to a realtor, they may have informed you that on the MLS, they could attract many cash buyers looking for their next project and list it for $30k with a 6% commission fee. Let's say it only sells for $25k. Less the 6% commission, your net is $23,500 instead of $10k and it all happens inside of 30 days. Do you really believe it is fair that a wholesaler makes $25k fee and seller loses out on an additional $13,500 or more?
Point being, a wholesale fee of almost 3 times the sale price is exorbitant and what I would call ridiculous. I see wholesale fees of $10k here in CA on $300k properties!
To wholesale legally without violating brokering laws, you need to buy and close the deal with your cash or borrowed funds, then market and resale as you are then the owner of record on title or you need to have your buyer in hand upfront, form a new entity with you and your buyer as owners, vest the purchase contract in the name of the new entity and at closing, sell your shares to your buyer/partner for a fee or price per share. That too is legal in all 50 states.
I hope these words help you better understand the issues at hand and how to properly and legally do a wholesale deal.