Question about buying from a wholesaler

When you want to enter into an agreement to purchase from a wholesaler are you typically required to give the wholesaler earnest money or do you replace the wholesaler’s EMD already on the property? Is this normally handled through a title company or real estate office? and does the assignment happen before or during closing? One more question, once you have an agreement to buy from a wholesaler if there is a clause in the original contract which gives the buyer a due diligence period does this time start over upon assignment for the new buyer and does the new buyer now have a right to deal directly with the first seller?

(I know that was quite a few questions)

Hate to say it but “It depends. . . .” Lots of ways to structure a wholesale deal depending on the situation. The easiest deal is when the wholesale has the property under contract, title is opened by the Title company and found to be clear, then you come in and sign an “Assignment of Contract” putting up non-refundable earnest money to the wholesaler. The original seller should be aware of what you are doing and OK with the wholesaler selling the deal and making a profit. The Title company prepares all the paperwork, you are taking over the wholesaler’s place on the contract for a fee. The closing takes place with you bringing the remaining purchase and wholesale funds to the Title company, the Title company then pays the original seller and the wholesaler from those funds. Like I said - that’s the easiest, straight forward way to do it. BUT. . . . there are a ton of variables that keep such an ‘easy’ deal from happening.

ALWAYS, always get Title insurance is time allows, otherwise you can have issues selling the property later. You can close at an attorney’s office, real estate office or kitchen table without it but it’s a big risk. When I wholesale properties (feel free to email me for current deals), I ask for at least $1000 or $2000 NON-refundable earnest money to lock up the deal from my buyer. That shows they are serious and have done their due diligence. I get the fee if they back out as I often have my own earnest money at the Title company in the deal.

The assignment can happen before or at closing but it’s best to have it before so all the paperwork is in your name, not the wholesalers. What ever terms are in the original contract you are buying (which is what you are buying really) are your terms from the day you take over the wholesaler’s place. So if there were originally 10 days due diligence and it’s day 9 or 10, you only have 1 day left. Nothing starts over in an assignment, you have to work under the original terms or try to step in and then negotiate for better terms.

Some wholesalers insist on the entire fee upon the assignment. Works great for the wholesaler but if for any reason the deal does south after that, you’ve just paid the fee and get no property closed. Also, some sellers have an issue with the Assignment Fee once it’s shown on the HUD, especially if the fee is particularly large. There are ways around that but that’s another topic.

Good luck!

I always require $500 deposit as a minimum… i don’t have any problem if the buyer does not feel comfortable giving me the $500… However, it must be put in scrow at the title company of my choosing… the assignment of contract is done before closing… I want my buyer to be tied down with ernest money so he shows up at closing… Because i usually don’t go to closings, buyers deal with sellers usually at closing… Buyers don’t have to deal with the owners of the house at all…

Some wholesalers require you to put all of their assignment fee upfront before closing… I’d advise you not to…

anything could happen before closing and you could lose that money pretty easily…

The closing should always go through a title company. Not all title companies are willing to handle an assignment of contract - but that is your wholesaler’s problem. They need to get that all arranged before hand.

The title company will not only provide you title insurance (absolutely critical) but they will also properly record all of the documents. This is a primary reason why the assignment of contract should happen as soon as possible. It gives the title company time to put the closing documents in your name plus it gives you more due diligence time.