How to Get a Wholesale Property Under Contract?

Novice and even experienced real estate investors know that completing real estate transactions is often a complicated process – and that’s not even taking into account the capital that’s required to acquire or secure financing for commercial and residential investment properties.

Wholesaling real estate is one way for some investors, especially those that lack the financial strength to acquire investment properties on their own, to kick-start their careers as real property investors. Wholesaling is the process of buying real estate assets without putting up a down payment or committing to buy the property yourself. In a wholesale deal, the wholesaler enters into a purchase contract with the seller but then offers the deal to an investor at a premium.

Wholesalers basically act as matchmakers by pairing investors with sellers and banking a profit for their efforts. In this article we’ll outline how the wholesale contract process works to give you a better understanding of how wholesale properties get placed under contract.

4 Steps to Completing a Wholesale Real Estate Contract

Wholesaling real estate is a short-term investment play, with the wholesaler hoping to have a buyer complete the purchase within a month’s time. Wholesalers often scour popular real estate marketplaces searching for properties with extended listings in the hopes of finding motivated sellers. Others use direct mail marketing to attract prospective sellers. Real estate wholesalers also may seek out distressed properties that have sellers motivated to exit the property prior to foreclosure since these sellers typically want to avoid the time associated with traditional real estate transactions.

Once the wholesaler finds a suitable property, he or she negotiates a purchase price with the seller and may secure the deal with a small amount of earnest money. Now it's time to create a legally binding contract.

Wholesaling laws vary from state to state, but here are the basic steps.

1. Create a wholesale agreement for the purchase and sale of the property. This initial document outlines the terms of the agreement between both parties. It should list the exact property information, names of the wholesaler and seller, expected purchase and closing dates, as well as an assignment clause. This las t is a crucial piece of legal protection for wholesalers. Beginners may want to use an attorney to draft this document, while experienced wholesalers can find online templates to create a much cheaper wholesale agreement.
2. Draft an assignment clause. The language in this document is what allows the wholesaler to assign the contract to an investor or buyer. This agreement states that the wholesaler will be assigning the right to purchase the asset to another party and will charge a fee for the service. Wholesalers negotiate this fee directly with the buyer or investor.
3. Complete an assignment of contract agreement. Before crossing the finish line in a wholesale deal, you’ll have to assign the signed purchase agreement to the end buyer through an assignment of contract agreement. This document states that you’ve assigned the purchase agreement of the property over to the buyer for the sum you negotiated. This document is also the buyer’s legal agreement to purchase the property.
4. Wrap it up. Once all these documents are signed and completed, the buyer pays the wholesaler for the property, along with all associated transaction, recording, and closing fees. The wholesaler transfers the funds to the seller less the agreed-upon fee. The deed for the property is transferred out of the seller’s name and into the buyer’s.

Putting it all Together

Wholesalers function as middlemen in real estate transactions between motivated sellers and interested buyers. Wholesalers charge a fee for finding properties, creating a purchase agreement, and bringing in a buyer to complete the transaction.

The wholesale agreement for the and sale of the property and the assignment agreement are the documents that give the wholesaler the right to secure the asset from the seller and assign purchase of the property to the buyer. If you have additional questions about completing a wholesale real estate contract, consider consulting with an attorney versed in real estate law.