Hi, newbie here trying to wrap my head around the basics. Would any of you flippers or wholesalers in Texas be kind enough to email me an example TREC 1-4 contract or two that has been filled out for the purpose of wholesaling and or flipping a single family home, along with any common addendums you add to your TREC contracts for wholesaling? I do not want to use the simple non-TREC one-page contracts that I read a lot of other people use, because I hear from local flippers that title companies and sometimes the sellers' lawyers like to criticize them.
I'll need an email address or contact info from you, apparently, I'm not allowed to post my email address in my first post.
I'm based out of Dallas, Texas in case you're wondering.
Thanks in advance for your assistance!
Before I was a lawyer, I used the TREC 1-4 to wholesale. I have access to lots of different contract to buy/sell real estate and a full legal education to know exactly what I need to do ...and I would STILL use the TREC 1-4 to buy/sell residential real estate. Even to wholesale.
It's a solid contract. Doesn't favor buyer or seller. Title companies know how to read it without thinking too hard about it. People are generally comfortable with it - even unsophisticated sellers.
Hey Omar, my husband and I started wholesaling last year, and I am actually a Realtor as well so I am very familiar with the TREC contracts. Right now the TREC contract is automatically assignable. You do NOT have to do anything special to it in order to assign your contract to someone else. In the first paragraph as "buyer name" you could put "name of company and/or assigns". But it's completely unnecessary and just causes alarm sometimes with the sellers. From my experience sellers love seeing documents they are familiar with, and not having a lot of stuff added to it. You will need an assignment contract though, I would advise against a short one page document for an assignment. Ours is currently like 4 pages and we have added to it after a few scenarios that we ran into. So you would fill out the TREC contract, just like you would as if you were actually purchasing the house from the consumer. Most people feel more comfortable that way anyway since you are using a TREC contract. The ONLY addendum's you will need is Lead Based Paint (if the house was built before 1978). I also give every seller a seller's disclosure, even though it's not really required I tell them it just protects them and so it can't hurt for them to fill it out and that builds a lot of good trust with them. Any other questions, let me know! The contract is a lot easier than you think, don't try to overcomplicate it or else people will get on edge and think you are trying to do something shady.
I'm in Dallas Tx too, forgot to mention!
@Ashley Hightower gave a great response. I'll add this about using TREC contracts: they're technically supposed to be used only by licensed agents. I've had unlicensed friends ask me about using these because they're readily available and I tell them to do so at their own risk, and CONSULT AN ATTORNEY. So unless you're licensed, or working with a licensed agent, tread lightly. I'm not sure how it would be looked upon if there were a legal issue that had to go before a court. I'm sure there's some case law somewhere, but I'm not an attorney.
TREC contracts are made public by TREC. They MUST be used by realtors, but can be used by anyone else. If they did not want anyone else to use them, they would NOT be made public, downloadable and fill in the blank on their website.
@Omar Luna I understand your trepidation, but dont ask someone to do the work for you. READ THROUGH the whole thing. TWICE. You will soon realize there is a lot of junk in there that is completely superfluous. Fill in the blanks.
There are many online courses that are made for realtors on how to use the contract if you really need help. BUT I would get to know it and use it.
Before I was a lawyer, I used the TREC 1-4 to wholesale. I have access to lots of different contract to buy/sell real estate and a full legal education to know exactly what I need to do ...and I would STILL use the TREC 1-4 to buy/sell residential real estate. Even to wholesale.
It's a solid contract. Doesn't favor buyer or seller. Title companies know how to read it without thinking too hard about it. People are generally comfortable with it - even unsophisticated sellers.
Regardless of the contract you use, be honest with the Seller regarding your intentions. Make sure the Seller knows you ONLY plan to assign the contract and if you can't find a buyer, you will terminate said contract. Put it in writing. Have them initial next to it. The majority of title companies I've worked with in the last 20 years will not close an assignment deal without the seller agreeing to the assignment which is why it would be wise to include this in your agreement.
@Guy Gimenez I think it just depends on the title company. I 100% agree that you need to be upfront about your intentions. But I have never made the sellers sign a separate agreement acknowledging it. I just inform them that’s what the option period and earnest money would be for. And I’ve always used the same escrow officers. She’s awesome and I’ve never had an issue with them assigning it. All they have ever needed from me is the TREC contract and our assignment contract. Our assignment contract is 4 pages though and is very specific and straightforward so that may also be why they don’t have trouble with it. But you do have to find a really good title company because every one is a little different and some don’t have as much experience with investors and wholesalers so some may need a bunch of additional documents. My advice is BEFORE you ever get a contract, talk to your title company and ask them what all they would need from you and when in order to do an assignment. The time frame is also important because some they may need a week after you give them the assignment contract before they can close. So always be aware of that and ask them for time frames before you sign contracts so you can have that planned out.
So no requirement to tell seller that:
1) You're probably not the real buyer and
2) That you don't know who that'll be and the seller never will and
3) That the seller will never know what the true buyer pays?
I guess disclosure doesn't apply to TX real estate agents?
Regardless of the contract you use, be honest with the Seller regarding your intentions. Make sure the Seller knows you ONLY plan to assign the contract and if you can't find a buyer, you will terminate said contract. Put it in writing. Have them initial next to it.
Ha-ha, you know most wholesalers won't.
That's why I said "most" title companies. And you don't need a separate agreement, but such notice should be included in the contract, either as "or assigns" in the buyer information, or similar language included in special provisions. DTPA is real.
@Guy Gimenez Yeah, I'm sure. I was just speaking on my experience with our title company. So far we have only used this one title company. But I have heard that some will want additional things. Is it really considered DTPA is you assign your contract? I know there are wholesalers out there who definitely do shady stuff, and we always make sure that we do business on the up and up. But I hadn't heard of DTPA applying to assigning a contract though. My thought process on it is that you are not lying or breaking the contract. I didn't think having your company as the "buyer" would automatically be considered deceptive. Because who's to say that I didn't or couldn't have decided to purchase it myself and then later decide that I wanted to assign it instead. Because we do not put "and/or assigns" in our TREC contract and I was curious if that would automatically be considered deceptive then? And I'm curious if it is considered Deceptive exactly how it would considered that. Not saying you are wrong, I am just curious since we are newer to the business as well.
Assigning a contract is not, in itself fraudulent. When an a party enters into a contract by deception, as when an investor entices a seller to sign a cash sale agreement, and the investor has no intent or ability to perform on said cash contract (and does not disclose to seller that investor ONLY intends to assign the contract), that's a classic case of fraud. (fraud of inducement). Granted, the TREC form affords the buyer multiple exits without penalty IF one knows how to draft such a contract form and as long as the exit is provided for in the contract, there's no problem. But if an investor (and I'm privvy to this very thing happening in my market) executes a cash purchase contract with a seller who will lose their home to a foreclosure, and the investor has no intent or ability to perform (investor has no cash reserves) but still strings the seller along right up to foreclosure and never in fact closes the purchase, this would likely be considered an unconscionable action under DTPA because the had they seller known in advance the investor could not perform, the seller would not have otherwise entered into the contract with the investor. This is why I say it's wise to disclose, in writing, one's intent and have the seller initial that area so the seller can't later claim they had no idea the investor did not intend to close the purchase.
That is exactly my point. If I sign a cash purchase agreement and I have no cash available to actually complete said purchase, that is skating on thin water. But REI gurus don't teach that stuff, they just tell them to get it under contract and walk away if you can't find a buyer. Just had an investor get spanked for a $5K fine for doing the same thing that hundreds of other investors are doing. It's only a problem when they get caught...but when they do, the state will get your attention.
@Guy Gimenez Ohhh okay that makes more sense. But as long as we can prove that we have the cash to purchase it if we wanted then we should be good? For example we just dispo’d a deal in Ft Worth that some roof damage and foundation damage ended up being SOOOOO much more than our GC had originally anticipated. So we were barely able to get it assigned and we wouldn’t have personally bought it since even our numbers were way off. So if we ended up cancelling in that scenario we would have been okay as long as we were able to show proof that we had the funds to close? Even if our intention was to wholesale it?
@Steve Morris I'm an agent in Texas and I disclose certain things. My husband is the one who actually handles acquisitions, and we always disclose that I am a licensed agent and a member-owner of the company purchasing the property. But I try to stay away from directly soliciting anyone. My husband always tells people that he intends to have some other investors look at it and may have one of them end up buying it or doing a JV with one of them. We don't say that it will 100% be wholesaled, but that's true of our intentions. We could buy it or JV it if we wanted to but most cases it we prefer to assign it. We do disclose that there is a new buyer, but we do not disclose what they are paying for the property. I don't know what disclosures are required by a realtor, because I'm not representing anyone. But I always disclose I'm licensed. What additional disclosures are required in your state?
As long as your termination is provided for in the contract, you'll be fine legally. But I don't want to get into the minutiae. The bottom line is in Texas, it's best to disclose your intentions in writing in the contract and not work on a verbal basis regarding assignments. A savvy buyer working with an unsophisticated seller can lead to legal issues than none of us would wish upon anyone. I'm proponent of solving a problem before it has a chance to be created.
@Guy Gimenez Haha yea, I know there are a million hypothetical's out there. We always strive to stay up to date and make sure we are doing business on the up and up. So I appreciate your insight on that because I had not heard of the DTPA applying yet so I am glad that I came across that. We already take extra precautions since I am part owner of the company and I am a Realtor. There aren't too many rules about that, but I know that just like you said people won't side with the savvy buyer over the owner who believes they were taken advantage of! Will definitely do extra stuff like that in writing movign forward so that we can avoid potential issues.
You will need an assignment contract though, I would advise against a short one page document for an assignment. Ours is currently like 4 pages and we have added to it after a few scenarios that we ran into.
Would you be willing to share a copy of the 4 page assignment contract that you use?
"I don't know what disclosures are required by a realtor, because I'm not representing anyone. But I always disclose I'm licensed. What additional disclosures are required in your state?"
Lotta BS and WTH does I'm not representing anyone mean? Maybe you should read/understand the TX rules before.
Since it's a net listing, simple Google search on TX rules:
A broker may not enter into a net listing agreement unless the principal requires a net listing and the principal is clearly familiar with the current market values of real property. [Rule 535.16(b)]
Since your intent is to transfer it at a higher price than you're paying the seller, pretty sure you hide that price and don't tell the seller what FMV is.
Then again, wholesalers use all sorts of justifications for their behaviors. I've turned them into the OR REA before and get pretty s****y calls back from them.
It'd be so simple if you would just disclose (exactly what a dual escrow hides) and be honest with all parties.
@Marci Mayes we got our assignment contract here https://sellfy.com/propelio/p/...
@Steve Morris I do disclose our intentions. But in order for it to be a net listings, I have to actually have a signed buyer's rep agreement establishing a client relationship and fiduciary duty. I never represent anyone nor am I even the one who meets with the customer. My husband is a legitimate investor who chooses to either wholesale or the keep the property for himself. He always discloses if he is going to be assigning it, but that's not always the case. But we don't have to disclose how much we are assigning it for. Texas does have a law that states if a licensed agent takes place in wholesaling they are required to disclose they only have equitable interested when marketing the property (which we do). The net listing laws in Texas only apply if I am representing that person and plan to actually advertise their property for sale. The Texas law does specifically separate the two. I even met with my broker and made sure that I was not misinterpreting those laws. But I never even speak with the client because I do not want the fact that I am a Realtor to sway the seller's decision on if our offer is acceptable or not. Again, we always want to stay above the board but those are the current laws in Texas on the matter, and I spoke with multiple brokers about it. As thing's change it might turn out that it is automatically classified as a net listing, which we will then have to adapt our business to those new rules.
@Marci Mayes we got our assignment contract here
Great idea - Free contracts on the Internet work out pretty well. Maybe you should spend some real money since you're rolling large and then call the TX REA and then hire an attorney.
Another of my personal vendettas - I get clients that use free stuff they download and get really screwed over, so if I don't endorse it, understand why.
"The net listing laws in Texas only apply if I am representing that person and plan to actually advertise their property for sale."
BS - You've established a de facto agency relationship by putting his property in contract, telling them your a licensed RE agent and then walking it around in expectation of a fee/skim. Since you're licensed in TX you're still bound by TX RE rules, right?
Again, that is so weak an excuse I'd run it past the TX REA and prove me wrong since I'm in OR. Better yet, tell your managing broker what you're doing since he's responsible for your activities.
we did not get it for free, that one costs $100 and we used that as a starting point. We had an actual attorney look over the contract and make a few changes for us. There are so many free one page contracts online and I definitely would not use one of those. Ours is over 4 pages and pretty extensive. I was simply trying to offer a starting place for someone who may just be getting started. Most wholesalers starting out can't afford to pay an attorney $300 an hour to get an assignment contract. If you want to pay the $100 you can check it out yourself, but this one is by far the best assignment contract that I have seen online. Again, we did have an attorney make a few changes to it but as is it would do. I'd rather have her start here than some "wholesale guru" on Youtube who has a one page contract you can "get for free for a limited time by entering your e-mail here and buying my software".