I am working with a fellow wholesaler on a deal. The other wholesaler has the property under contract and I am working on bringing a buyer. The agreement is to split the profit 50/50. I do not know what the original P&S agreement price is, but I did ask the other investor what the spread is.
How do I protect myself from being given a percentage shorter than 50%? The investor mentioned I would be given a Finders Fee, while still splitting the deal even. I want to be as optimistic as possible and trust their word, but I still want to protect my interest and not be shortchanged if I bring the buyer.
Maybe I’m missing something, but hasn’t the actual fee amount been established? If not. establish that fee amount in dollars (not percentages of the deal).
Invoice escrow for that fee in dollars, and then wait. It doesn’t depend on the honesty of the other wholesaler at that point, it just depends on if there’s a closing, or not.
Or…establish both the actual fees and splits of the deal in dollar amounts, and either collect your fee from the buyer, up front, or invoice escrow as suggested earlier.
Again, once you establish the fees and splits in dollar amounts, simply invoice escrow for the split, and wait for a closing, and/or collect your finder’s fee from your buyer up front, or invoice escrow for that fee also.
I like collecting my fees outside of escrow so that if there is no closing I collect my money anyway. I’m charging for the right to close, not the requirement to close, if that makes any sense.
Of course the other wholesaler, too, will want his money out of the deal regardless if your buyer performs or not. So, that’s something to consider.
Yes, the wholesaler told me his spread was $40k, and we would split that via him paying me a “Finders Fee”.
It will be an A-B-C , excluding me because I will split B via “Finders Fee”.
The optimistic side of me wants to just say ok to $20k and take his word for it. The business savvy side is saying do my due diligence and ensure that I am getting an even split. We are both equally bringing 1 major component to the deal and want to be compensated as such.
I’m not very clear on what invoice escrow is, but it sounds like it could be the solution. Can you help clarify what invoice escrow is?
Forget being “optimistic” this time around. We want hard numbers. What is the finders fee and what is the split, in dollars?
Invoicing escrow is simply sending an invoice for “x” dollars, payable to you, to the title company handling the title work/insurance/escrow.
This is better done by first inserting the terms of your payment into the referral agreement you have with the other wholesaling party which I’ll expand on in a moment.
Meantime, written instructions are not a must. You can simply send the title company a bill/invoice against that certain escrow.
Meantime again, it’s exactly like billing for services rendered. Download an invoice template with WORD, fill in the blanks for “services rendered” and give it to the title company.
The title company will verify the bill/invoice with the one initiating the title work, and it goes from there. We get paid at the same time the remaining escrow funds are distributed.
We might ask the title company what is the best way to invoice escrow for our fee(s). They will tell us how it’s done, or provide an example of how it’s done. It shouldn’t be complicated.
If our wholesaler buddy isn’t expecting us to bill the escrow, and/or has something else up his sleeve, or a different way planned to pay us (if he’s intending to pay us at all) this might cause friction.
The way to introduce what we want to do is simply to say, “We have a company policy to either bill escrow for our fees, or be paid our fees immediately, in cash, prior to closing. Which way would you prefer?”
Of course everyone says, “Bill escrow.”
Problem solved.
Now, billing escrow isn’t exactly the preferable way in most instances.
We prefer to be paid immediately upon delivery of the buyer, whether it’s delivery to our own deal, or someone else’s, regardless if the buyer closes on the deal, or not. The justification for collecting money now, instead of through escrow is that “We’re collecting a fee in return for providing the right to buy our property.” Not, “We’re collecting a fee IF you close on the deal.”
Think about this: If you’ve given the seller a non-refundable deposit, and your buyer flakes out at the last minute, who’s mostly at risk of loss? You are. Forget that!!!
So we want our money now, in exchange for the right to close, not the obligation. In the worst case scenario, if the seller keeps our earnest deposit, we’re covered.
That doesn’t address the concerns of the other wholesaler of course. If our buyer fails to close, the other other wholesaler will want “deal protection” as much as we do. So, it’s a negotiation.
Meanwhile, billing escrow always seems to be other people’s preferred payment method, for obvious reasons; there has to be a closing before they have to pay. FWIW
Whatever “policy” we adopt, we simply state what it is, and stick with it confidently.
@Javipa yes that clarifies a lot of things! Thank you! I also see the angle you are taking by getting paid for the right to purchase vs getting paid IF the deal goes through.
With this scenario, to get the hard numbers, am I relying on what the wholesaler tells me or can I find out total for Finders Fee and then simply invoice for half?
Does this differ per state? I’m in California.
Then lastly, will I need to have parties sign NCND?
Whether or not the other wholesaler is fudging numbers, or not, you need a bottom-line, fixed number to work with. If the number isn’t good enough for you, don’t bring in your buyer.
Otherwise, take what you can get, realizing that you’ve got hundreds of profitable deals ahead of you, and you can learn how to arrange deals in the future so that everything is done as agreed, and on the up and up.
Right now, you didn’t set this transaction up very well, and left yourself open to the ethics of another party. As a result, you’re only going to get a strict dollar amount settled, and not necessarily based on the actual prices paid. If the figure is close, just go with it, pocket your money, and move on.
Without attempting to be too tough, or mean, shame on the other wholesaler if you get gypped for failing to nail down the details and control the transaction from the get-go. But next time you fail to get everything nailed down beforehand, shame on you.
Ask yourself if the dollar amounts are enough to make the deal worth closing. If so, just accept it and move on. Forget trying to get the last two grand out of this one deal. You’ve got hundreds of thousands of dollars coming down the pike, to get all tripped up over some shortage situation that you caused in the first place.
Chalk up any potential losses to the cost of your education. Otherwise, you maintain a scarcity mentality. Don’t slow your progress with that kind of limited thinking.
:beer
Non disclosure/compete contracts are only as good as the characters signing them. It keeps the honest people honest, and it does nothing with the rest. So, suit yourself.
California has no special laws regarding distribution/assignment of fees, except if you’re a licensed agent. Then I have no idea what ridiculousness is involved.
It sounds like there is still some question as to what was the original P & S sales price. I would do some due diligence to find out what was the starting price. In real estate you should never assume that the other party is being honest. You need to do your homework so you can feel confident of your cut in the matter.
As with all business dealings, real estate or not, you need to put your agreement in writing and have it signed by both parties. In this way, you will have evidence to support the submission of an invoice to the title company.
For this kind of situation, if you’re not sure about the person you’re partnering with but would want to proceed with the deal, you can do a Joint Venture Agreement.
I say, if you think you can trust them sign an agreement with them, maybe even a no disclosure agreement. If you feel that you cant trust them, don’t even waist your time. So many deals out here. :smile
If you can’t trust them, no need to partner with them.Your focus should be on finding a buyer but if you do not trust your partner you will not be settled to do this.
The best way to handle this deal is to have your partner assign the deal over to you and you assign the deal to your buyer this way your interest is protected in the deal. No the most important thing is this can only happen if your partner arranged the original sale and purchase for the contract to be assignable. If so you can use this strategy.
Your other option is if your partner does not have the original sale and purchase as being assignable, then what you must do is ask your partner for a copy of the original sale and purchase agreement between him and the seller, so you are able to identify what the potential profits may be. If your partner is reluctant to do this then watch out you may be dealing with a shady partner.
There is another way if he doesn’t want to show you proof of what he got the property under contract for with the seller. Write up an seperate addendum stating your interest in the deal and how much you will like to get paid. Both you and your partner sign it and give to the title company with your other paperwork. Depending on who you are using as your title company. Have them dsiburse the monies accordingly.
mrflippahouse…you mentioned the best way to handle this deal to protect your interest in the deal is to have your partner wholesaler to assign the deal over to you and then you assign the deal to your end-buyer.
My concerns are if you are marketing and showing the property to your prospective end-buyers
a) won’t the property be tied up and your partner wholesaler will not be able to continue to market/sell the property?
b) won’t the wholesaler require something like a $5k or $10k EMD from you when he signs the assignment to you?
I partner with another wholesaler that is always fudging the price when we do a 50/50 split I’m never sure its really a 50% split.
But, all I do is make an email to my buyers and I walk away with thousands, if I get $2,500 and I found out later he got $2,800
Why shud I care? He will say it was an earnest deposit or other expenses that I can’t or care to verify.
I have him sign my agreement that he’s paying me $2,500, the purchase contract and assignment stays in his name, but I make sure our separate agreement goes to the Title company before closing.
No need to make a simple process more difficult. Use the Kiss method, keep it simple stupid.