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Wholesaling FAQ for the Educated but Scared | By: Vena Jones-Cox

If you’re like most people, you’ve been wondering all along when we were going to discuss all the awful things you’re imagining might happen to you as a wholesaler. And I have no desire to sugar-coat things for you, but the truth is most of the things you’re imagining are extremely rare, and easily overcome. Here are some of the most frequently asked questions about such fears:

 What happens if I can’t find a buyer for a property I have under contract?

If you can’t find a buyer, one of three things has happened:

  • You’ve made a bad deal, in which case your buyers have certainly made you aware of this or;
  • you haven’t marketed the deal hard enough to get the right buyer or;
  • you didn’t given yourself enough time to get your buyers into the property before your inspection or partner approval clause runs out.

  As you’re probably already aware, any of these 3 failures is unlikely to harm YOU, if you exercised the recommended inspection clause. You’ll simply void the contract under that clause, or renegotiate for a lower price or more time, or in a worst case scenario, let the seller keep any earnest money as per the liquidated damages clause.

   In the first case, you might try renegotiating the contract price or option price—you’ll know what to re-offer after you’ve shown the property to 4-5 people. In the other two cases, if you’re certain that you’ve created a good deal, you might consider paying the seller an additional, non-refundable option fee or deposit to extend the period of the contingency and closing. A third possibility is to buy the property yourself, although that is outside the scope of this course. Remember, as long as you have a liquidated damages clause, you’ll lose only your earnest money; if the property is controlled via an option to buy, you’ll only lose your option fee for not closing. But don’t make it a habit.

  In any case, it’s important, as an ethical wholesaler, that you let the seller know as soon as possible that something has gone awry, and that you won’t be closing as promised.

  What if the buyer backs out before closing?

  This is far more rare than you might imagine, especially once the buyer has paid the assignment fee. In my decade plus long wholesaling career, I have had “lookers” (those are the guys who tell you they’re interested, but they have to line up money or bring their father-in-law by to take a look or come up with the assignment fee or whatever) back out dozens of times. I’ve had actual buyers—those who had actually paid the wholesale fee—back out exactly twice.

  There are three important things to remember about this, the biggest fear that most new wholesalers have. The first is that, bottom line, even if your buyer walks away on the day of closing, the only thing you have at risk (assuming you used the recommended clauses in your original purchase contract) is the amount of your earnest money.

  The second is that until a buyer actually puts money up front and signs a contract to buy the property, it is not sold. Never stop marketing a deal just because a buyer SAYS he wants it.

  The third is that assuming you did the right thing and collected the wholesale fee up front, you have a powerful way of negotiating an extension with your seller for the purpose of finding another buyer. Simply offer the seller additional, non-refundable earnest money in return for an extra 30 days to close.

  In the rare instance in which an actual buyer backs out, try to get him to sign a release saying that he does not intend to close. But whether or not he’ll do so, begin to market to your secondary buyers and, if necessary, let your seller know that there may be a snag in the closing.

  What if my SELLER backs out?

  This is, believe it or not, the slightly more common scenario in my experience (It’s happened to me 4 times vs. 2 for the buyer backing out).  If the seller tries to back out (or renegotiate after he’s already signed the contract, which also happens from time to time), you and your buyer have two choices.

  The first is, let him. This is often the wisest choice when the seller wants out because of a death, illness, or other tragedy. It’s just not worth it to pursue a seller who’s grieving or otherwise involved in some major life change, even if it means walking away from the deal and associated profits.

  The other is, refuse to let him. By virtue of the signed purchase contract, you have the right to force the seller to honor his side of the contract. When the seller just “decides” not to fulfill his contract—often because he just doesn’t want to, or decides that the money isn’t enough, or whatever. Usually the threat of a “specific performance” suit, where you sue the seller to force him to honor the contract, is enough to make a seller sit down at the table.

      Just a note: remember that, once you’ve assigned your contract, it’s not really up to you to decide how to handle this situation any more—it’s up to your buyer. And if the buyer can’t or doesn’t want to try to force a reluctant seller to the closing table, you’ll need to refund any assignment fee that you collected.

  What happens if I make a mistake in the value or cost of repairs of a property? No real tragedy; everyone does this from time to time, especially when trying to estimate a repair you’ve never seen before. Assuming that you used an inspection or partner approval contingency, you’ll exercise it and get out of the contract. Or better yet, try renegotiating the price. But in either case, if you inform the seller before your contingency time runs out, you’ll be able to set things back to rights without even losing your deposit.

  Learn all about the realities of the wholesaling process and how to do it RIGHT when Vena Jones-Cox presents at our June meeting!


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