Some of you may be asking yourselves “What exactly is Real Estate Wholesaling?”  Actually, that’s a pretty good question. Those people involved in real estate wholesaling (the wholesalers) act as the middleman between the buyer and seller of the property. The wholesaler enters into a contract with the seller of property; then markets that property to potential buyers, subsequently entering into a contract with the buyer. 

 

It’s this dual-contracting aspect of wholesaling that leads to it also being referred to as ‘Contract Assignment’. In effect, it’s the same contract the wholesaler had with the seller; just passed on to the buyer without having to use any of their own funds. Remodeling of the property becomes the responsibility of the buyer, not the wholesaler.  How do wholesalers make money on this? Simple, they mark up the seller’s contracted price and pass that on to the buyer, taking the difference as their profit. The bigger the mark-up is, the more profit the wholesaler makes. What’s key to maximize profit, is to find a seller who will sell low and a buyer who will buy high. Also critical is speed, if the wholesaler takes too much time to find a buyer, they may be liable to pay from their own pocket. This depends on how the contract is structured.

 

There is another type of real estate wholesaling that is worth talking about; Reverse Wholesaling. The mechanics of the deal are pretty much the same as with a regular real estate wholesale deal, apart from the order being in reverse. So, a wholesaler will secure a buyer first, then look for a seller. With reverse wholesaling, the wholesaler is at the advantage of knowing exactly what type of property to look for to meet the buyer’s needs.

The great thing about both systems if done right, there is no need to use your own money. You can also choose to use whichever strategy works for you, or a combination of both.

Assigning and Double Closing Contracts 

Those of us who have been involved in Real Estate Wholesaling for a while already know about the two ways to profit from a wholesale contract.  Now you are about to find out too. The two ways to close the deal are by selling the contract (also known as Contract Assignment, as I mentioned earlier), and what is known as Double Closing.

The two may appear to have many similarities, but it is the small difference in them that is well worth noting. This could be the difference between success and failure. So, if knowing this is something of interest to you; you may want to get your head around the differences between Contract Assignment and Double Closing. 

What Is Real Estate Wholesale Contract Assignment?

Assigning a contract in Real estate Wholesale is started when the property owner agrees to sell that property to an investor (the wholesaler) and enters into a contract stating such. Once the contract is agreed, the investor basically has the right to BUY the property. The investor can then sell on these rights to buy to another buyer. This point is key; the investor is not selling the property, they are selling the rights to BUY property. 

So, you as the real estate wholesaler, are not selling the property; you are selling the contract that you will have entered into with the property owner(s), on to another buyer. This makes Contract Assignment, typically, a wholesalers best option. Equitable conversion is a doctrine pertaining to the law of real property. Under this doctrine, once a purchase agreement contract has been signed, the property becomes equitably owned by the buyer. This allows the wholesaler to have an equitable interest in the property in terms or purchasing it. It also allows the wholesaler to sell on these rights to a third party buyer.

When assigning a contract one should never see the wholesaler take the title of the property and there will be no record of it in the property’s title deeds. Wholesalers will not be responsible for funding the deal; this will be the responsibility of the party buying the contract from the wholesaler. The buyer will pay the wholesaler a profit, the difference in their price agreed with the wholesaler compared to the wholesaler’s agreed price with the property owner. They will then pay the owner the price originally agreed between the owner and wholesaler. In essence, contract assignment allows investors to be the middleman between sellers with buyers. Now, this is an important point. The terminology of the contract between the wholesaler and the owner is critical. Any property sale agreement can be sold on to a third party unless it expressly states otherwise in the contract. For this reason, it’s imperative that you make sure that your contract states exactly what you need it to state so that you are able to wholesale the property. If there’s any doubt, consult with an attorney who specializes in real estate contracts and conveyance.

What is a Contract Assignment Fee?

This contract assignment fee is the wholesaler’s profit on the real estate wholesale deal, for acting as the facilitating middleman. How this fee gets paid, is detailed in the Assignment of Real Estate Purchase and Sale Agreement between the buyer and the seller.

It can be settled in various ways, as negotiated by the buyer and the wholesaler. The same applies to the figure the fee amounts to. Usually, the wholesaler will be paid a deposit as soon as the Sales Agreement has been signed between them and the buyer, with the remainder paid on closure of the deal. This is all negotiated beforehand.

 

Common Misconceptions About Wholesale Real Estate Assignment Contracts:

So there have been a few wild accusations and misconceptions about Real Estate Wholesaling recently. Some have even claimed it as illegal, or the wholesaler is just an unlicensed agent. These have generally originated from a point of view that is ignorant of the law and unfamiliar with wholesale real estate procedures.

Firstly, selling a contract is perfectly legal. Secondly, all the wholesaler is doing is selling a contract that they have entered into; there’s nothing to be ‘unlicensed’ about that! Let’s substitute the word wholesaler for the word investor; with plans to buy their investment and sell it at a higher price. Different terminology, same outcome. That’s just what you, as the wholesaler will be doing. Not listing the property for sale for a commission like a real estate agent would do. Of course, there is an element of transparency in this as the strategy needs to be divulged to both the seller and the buyer.

Real estate wholesaling can be tricky for some people to get their heads around.  It is always a good idea to work with an attorney that is well-versed in the process. This is particularly the case if you intend to operate independently. Those new to wholesaling have a high risk of falling into some of the many legal pitfalls involved in the process; so, until you have a decent attorney, proceed with caution.

What Is Double Closing?

Double-Closing or Back-To-Back Closing is simply when a property is purchased and then sold again in a relatively short timescale. This could be a few hours, days, or weeks; which in many ways makes them quite similar to a traditional real estate transaction, but just a lot faster. There are two transactions that occur during a double-closing process; that between the Seller and the Wholesaler, and that between the Wholesaler and the Buyer. Each of these will have their own agreements for holding funds in escrow and settlement statements. The two transactions are totally independent of each other.

  Settlement statements summarize all fees and charges incurred by both the buyer and the seller over the course of the wholesale transactions. Under the United States Department of Housing and Urban Development (HUD) jurisdiction, a settlement statement is also known as a HUD-1. Both settlement statements (between seller/wholesaler and wholesale/buyer) are integral to each transaction. The main difference between a contract assignment and a double closing is that the latter will actually see the wholesaler take ownership of the property. This means that the wholesaler will appear on the chain of title deeds. They will also be liable for the costs associated with purchasing real estate: escrow fees, closing costs, and so on. It is your choice, the route that you take as a real estate wholesaler.