Wholesaling REOs - Please Explain

Hello BP - I have a quick question I still have in regards REOs wholesaling. I keep seeing a few guys around my area (Tampa) that wholesale MLS properties. I have access to MLS so when I pull up the property I see they have it "pending", and they usually the price they wholesale it for is 5k to 15k less than listing price.

Im not interested in wholesaling MLS properties, but my questions are:

How do they do that? 

Do they put it in contract and they hope to find a buyer? 

What happens if theres no buyer? the contract expires and they lose their earnest money?

Finally, how they show proof of funds when they put an offer to this type of properties?

Thank you - I just want to understand the whole concept.