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A Beginner’s Guide To The Wholesale Real Estate Contract

Last updated on Wednesday - February 15, 2017

Wholesaling is an excellent entree into the profession of real estate investing. It offers powerful wealth-building benefits and doesn’t require a lot of capital to get started. The conundrum for many investors, however, are the intricacies of the wholesale real estate contract.

This is especially true if you’re new to the investing business, and not familiar with many of the contracts and legal forms required. Even real estate agents, dipping their toe into investing for the first time, find the wholesale contract a bit of challenge.

Because there are numerous misconceptions about selling contracts and wholesaling in general, the following breaks down the in’s and out’s out a wholesale real estate contract.

Wholesale Real Estate Contract: The Run Down

Real estate wholesale contract

As a wholesaler, you’re essentially setting up the game for others to play. Your job as the middleman is to locate a potential deal, secure the rights (much how a real estate agent would), and then assign the contract to a real estate investor. The concept of a real estate wholesale contract is similar to a purchase agreement, but the mechanics are much different.

To better understand how a real estate wholesale contract works, wholesalers will need to first familiarize themselves with the basics of a purchase and sale agreement. The framework of this legal agreement, which provides control of a property and documents the agreed terms between you and the seller, will include, but isn’t limited to, the following:

Purchase and Sale Agreement

Parties involved: The names of both buyer(s) and seller(s), including signatures from all parties listed on the title.
Description of real estate: The property’s address, legal description and property type.
Personal property included in the sale price: Anything not attached to the building or the land. In most cases, this will include home fixtures.
Purchase price and financing: The purchase price, deposits and financing terms.
Where deposits are held: Outlines the manner in which deposits are held.
Financing contingency: Outlines the financial terms or if paying by cash.
Conditions of premises: Highlights the physical condition of the property that will be presented to the buyer.
Inspection contingencies: If the property does not meet the standards of a buyer, as listed from the conditions of premises, this will allow for an inspection period to occur (typically 14 days), in which point the buyer can back out.
Statement regarding lead-based paint: Disclosure related to lead-based paint.
Occupancy, possession and closing date: Establishes a deadline for the closing date.
Deed type: Confirms the type of deed to be conveyed.
Marketable title: If the seller is unable to pass title or the buyer is unable to obtain title insurance, this option will reject the purchase and return the deposit.
Adjustments: This will vary by state, but typically includes modifications for taxes, water, sewage and other charges.
Buyer’s default clause: This outlines the rights of the seller if the buyer defaults on the agreed upon terms of the contract.
Seller’s default clause: This outlines the rights of the buyer if the seller defaults on the agreed upon terms of the contract.
Risk of loss and damage: Protects the buyer in case of damage to the property while under contract.
Addenda: Common disclosures and addenda of the contract.

When you sign a contract to purchase a property from a seller, you now have an equitable interest in the property. Under what is known as the doctrine of equitable conversion, this enables a buyer to become the equitable owner of the property while the seller maintains bare legal title to the property under the terms of the agreement.

Although you won’t have the title to the property, you’ll be able to control it by means of a contract. On that note, it’s important to mention that every state and county will have their own laws pertaining to wholesaling and the formalities of the real estate wholesale contract.

The next step will then be to assign your contractual rights to an investor, which will require an Assignment of Real Estate Purchase and Sale Agreement. This contractual document will basically state the new buyer is assuming your responsibilities, including the purchase of the property to the agreed upon terms in the purchase and sale agreement.

It is vitally important the new buyer is informed of the stipulations and layout of the original contract, agreeing to all prices, terms, conditions and contingencies. That’s why wholesalers should attach a copy of the purchase and sale agreement to the Assignment of Real Estate Purchase and Sale Agreement. This will ensure the new buyer is not only aware of the original sales agreement, but has a copy that discloses all addenda that were made in the deal.

As part of this contract assignment (wholesaling), wholesalers will collect a profit for their work. The terms of how they get paid will be included in the Assignment of Real Estate Purchase and Sale Agreement. Generally speaking, wholesalers are typically paid a deposit when the Assignment of Real Estate Purchase and Sale Agreement is signed; the rest of the profit comes after the transaction closes. As a reminder, it’s best to have an attorney review the documents and contracts to ensure they’re correctly written for what you’re trying to accomplish.

The Importance Of A Wholesale Buyers List

Wholesale buyers list

The one thing every wholesaler will need to begin considering is a wholesale buyers list. Success in wholesale only works if you have investors in place to call upon, and a wholesale buyers list with ample prospects will serve as an invaluable tool.

Everyone you come across is a lead. Whether it’s through casual conversation at a coffee shop or dedicated real estate networking events, the people you interact with have potential to become a customer. In order to go from interacting with people to incorporating them into your business dealings, and eventually into a sale, it takes marketing. A wholesale buyers list acts as your audience; give them what they want. When adding to your bank of prospects, it’s important that you take down information on your lead, which will typically include:

  • Buyer’s First & Last Name
  • Phone Number
  • Email Address
  • Buying Criteria
  • Type Of Funding
  • Personal Information
  • Source Of Referral

Once you have the basic information on your contacts, it will then be time for the real estate lead generation campaign to begin. The three most common types of lead generation outlets are through networking, marketing campaigns, and social media/web presence. For those looking to get started, the following breaks down each individual marketing strategy for generating wholesale leads:

Networking: One of the cornerstones of real estate investing is networking. This process of meeting contacts with the thought of working together down the road is what has fuels the industry for years. Although it may appear like a slow process when first starting out, real estate networking can significantly improve an investor’s results.

Marketing Campaigns: A real estate marketing campaign aims to get both your message and word on your business out to the public. In most cases, a marketing campaign will consist of tools like email, direct mail, and even business cards to reach your target audience.

Social Media: Online marketing has the power to pull the shades back on you and your business and expose your brand to millions of people. With access to such a vast and diverse audiences, the one outlet almost everyone uses is social media. Whether for business or pleasure, site likes Facebook, Twitter and LinkedIn are home to billions of active users on a daily basis, which is a goldmine for wholesalers. Done right, social media has the ability to produce endless streams of leads to your wholesale buyers list.

What It’s All About

A wholesale real estate contract is the central component to an investor’s wholesaling strategy and the factor that plays the most significant role when looking to get paid.

So even if you’re not a complete wholesaling expert — and born with legal mind — make sure to dot your I’s and cross your T’s to ensure this complicated, though powerful, form of investing doesn’t leave you in the dark.

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