Just in the process of setting up a Wholesaling venture, I have been running my basic planned method of ops past past a few lawyers including my “usual” real estate attorney–
My basic plan–typical I believe:
–find motivated buyer
-enter into purchase agreement with him/her
-earnest deposit of ~1000
-due dilligence period of XX days whereas my
investors have access for inspection/refusal
-clause states earnest deposit is only remedy
-clause stating contract is assignable
-assign contract to investor or enter into new sales
agreement and double close with investor
My attorney had an issue with me entering into the purchase and sales agreement with the motivated seller. His main issue was that it would be next to impossible that any attorney (should the seller seek one out) recommend that their client enter into such an agreement.
His strong suggestion was–enter into an Offer To Purchase only with the Seller–assign that to the investor–take an assignment fee–walk away.
I can think of a few pros and cons right off, but was wondering how you experienced Wholesalers/rehabbers might feel about it–Purchase Agreement or Offer?
If you were a Real Estate Broker or agent the seller would even have more fuel to add to the possible lawsuit. Perhaps some language in the contract that the seller is aware that they are motivated and could sell the property for a higher price if they had the time or money to fix up the house. I have had a similar situation but the seller could not find a lawyer to take the case on contingency and they did not have the money to hire one otherwise.
There are 100 other reasons why most folks do not get started in REI and this is just another one of those. I posted a list a while back, maybe I will post it here too later when I have time to look it up.
Thanks for the input Ted,
I don’t look at this as a reason not to Wholesale, I was looking for inputs on people’s opinion and/or experience on getting a signed “Offer to Purchase” from a motivated Seller vrs a “Purchase & Sales Agreement”.
I would then be assigning an Offer to Purchase to the rehabber, and not a P & S.
Although I am admittedly a beginner (only three deals under my belt), all of my deals have been done using an agreement of sale. I started off with the “standard” realtor’s agreement of sale and retyped it, adding and deleting clauses as necessary to suit my needs. For example, I added a buyer checloff to waive some of the usual contingencies such as mortgage financing, termite inspection, home inspection becuase I am self financed and have done my own detailed inspections before signing. However, it gives the seller the confidence I’m not going to try and wiggle out of the sale and possily ruin the sale that is the basis of his motivations.
Also, I modify the section on “Settlement Costs” so that most of the costs come from the seller. Additionally, I have made other minor modifications to the standard agreement for my benefit such as making the contract assignable.
This has worked out well for me in that all of my properties so far have been either for long term hold or for rehab (by myself) with later resale.
Your attorney MAY be right and the average attorney MAY advise his average clients to not sign the contract. However, the attorney MAY also be intimately aware of the seller’s situation and motivations and realize the buyer and the buyer’s funds are his clients lifeline.
Since this is such a litigious society, it is possible, as tedjr states, you could be sued by a seller and as he further notes, if you never do a deal you will never be sued but you will also never be a successful real estate investor.
My best advice: be agressive in terms and pricing but be fair.
Since I assume you arepaying your attorney I suggest asking him for details that actually justify his salary!
Something I forgot on my previous post:
My first seller had a lawyer. We signed the AOS in the lawyer’s office. At the settlement table the lawyer objected to the seller paying nearly all of the settlement costs but I pointed out that these costs were absolutely clearly defined as seller’s responsibility in the contract that he reviewed and approved. We settled 2 minutes later.
My last seller was a lawyer and he signed my contract with no modifications.
I provided only $100 of earnest money and settled in less than 10 days in both cases.
“this contract is subject to approval by buyer’s partner”. should be all u need.
TonyDicorpo: Is that really all u need? How long of a think over period should you have? I’ve used contingencies for inspections/apprasils too.
30 days? 60 days? ur choice. ur contract should specify the date u are to close by, unless the contingencies are not met.
ever know anyone that tried to buy a house and thought they were approved from day one, but in the end, 2 mos later they still have not closed becuz the lender says they want more $ down and they don’t have it? then they back out? think about it.
I would continue to enter into the purchase agreement that is assignable. Just put in there that they have three days of attorney review and/or waive their right to attorney review. Not sure what state your in, but that should be fine. Most likely they won’t even consult a lawyer and if they do who cares. A lawyer isn’t going to care if the contract is assignable. Lawyers are not real estate agents and might not even know what the house is worth.
You will find consistantly on these posts that YOUR exit stategey is how you decide which house to buy. If your ES is to sell a contract for quick cash, then make sure you get one that a Wholesale Buyer/Rehabber wants and will close. Do the homework and have several Buyers of your contracts ready go.
Why you enter in a Sales Contract is that once the contract is accepted by the Seller, you now have an Equitable Interest in the property. ALL contracts are assignable by default and do not require special language or escape clauses. Do not sign a contract the Seller says you can’t assign (duh). It’s a normal and acceptable business practice to sell your Interest as long as the new Buyer agrees to honor all the terms of the contract. NOT having a Contract means you had no legal interest. If you accept money from a Buyer for just finding the deal, you are practicing Real Estate sales without a licence.
REI is about taking positive honest actions. It’s not about just obeying laws, it’s about understanding and following the intent of the Laws and dealing openly with full disclosure. You will not scare of Sellers that you treat honestly. They don’t care how much money you might make, they care about you fixing their house problems.
Only sell your Contract to a someone that is going to actually close. Otherwise it’s a waste of a good deal and unethical of you mislead the Seller. The best thing to do is be prepared to buy it yourself. You can always wholesale it after you take control. Doing the right thing is always preferrable over the “legal” thing.