Wholesaler Essentials: Which Contracts T...

curve In my position as a blogger and long-time investor, I hear a lot of the same questions from newer investors – and why wouldn't I? After all, everyone has to go through the same learning curve.

I thought I would answer one of the more popular questions today. I will follow up with future lessons that answer other common questions. The question goes something like this:

"In a regular wholesale deal with a private seller, do I use the standard purchase and sale agreement and make it assignable? What contract does the end buyer sign - same one or different one? Also when do I collect my non-refundable deposit?"

Ok, ok - I know - that's three questions. But it's the same idea - buyer's want me to walk them step-by-step through the contracts I use in wholesaling.

So take my hand. Let’s go for a walk…

The Purchase and Sale Agreement

Let's say you found a motivated seller (Nice job!) who has agreed to sell their house for $80,000. As you can read from my previous lesson, you want to have that seller sign your purchase and sale agreement ASAP!

With a signed P & S agreement in hand, you can head right over to your title agency and have them get to work. You want to know right away whether there are any liens or other crazy stuff on the title.

Title problems will make it very difficult to sell the house. You don't need any surprises later on that might spoil your deal!

Flipping the Contract To Your Cash Buyer

Once you have the house under contract, it's time to sign a contract with a cash buyer. Say you found a cash buyer who is willing to buy the property for $90K (Cool!). That means $80,000 to the seller and $10,000 to the most important person in this deal - you!

Don't use the Purchase and Sale Agreement with the Buyer.

Have the buyer sign an "Assignment of Contract" Agreement instead. The assignment agreement can be a simple document that sells or assigns the Purchase and Sale Agreement to the Cash Buyer.

Here is some example wording:

"I, Stephanie Davis, hereby assign all rights to Billy Buyer for $10,000"

Oh, if it were only that simple.

You will also want to have a line in the Assignment agreement stating the the Buyer will give you a non-refundable deposit upon signing. Sometimes the Buyer will want to put the check in escrow with a title agent or attorney.

No problem - as long as they write the check.

Remember that banks have allergic reactions to assignment agreements - so don't use them with an REO or other bank-owned property. This lesson is just about the paperwork for private sellers.

Cash The Check

Now comes the most important part of the paperwork – cashing your check.

When you have the Assignment Agreement signed by the Buyer, hand it over to your title agent. The title agent can then prepare all the documents and make the closing happen.

You won't need to show up to the closing in most cases. To keep my example going, the Buyer will show up with a check for $90,000 and the title company will cut a check for $10,000 to you. If the Buyer wrote the $2,000 deposit to you, the Buyer will have a check for $88,000. Either way, you get your $10,000 total.

One last tip. Once the property is under contract, stay in contact with all parties until the deal closes. You want to make sure everyone makes it to the closing table, the deal gets done, and you get paid!

Review the Contracts You Have – Do you have all the paperwork that Stephanie recommends? If not, make sure it is in place before you find sellers and buyers. Both sellers and buyers want to deal with professionals, and not having paperwork screams out ‘Amateur’!

Talk to Your Title Agent – See if your paperwork is acceptable for your title agent to close the deal. If there are any problems, fix them before you find a deal.

Consider an Attorney – Besides a title agent, it may be good to have a lawyer review your contract to make sure everything is kosher in your state. States have different laws about real estate and it is important to follow them.