You’ve got a deal, you’ve got a buyer. You are almost there! The next steps in the wholesaling real estate process are pretty straightforward as you take this deal to the finish line. For the last step, you will need an assignment contract signed by your end buyer. Once you have that, you can send to your local wholesale friendly title company.
Wholesale Assignment Contract
The wholesale assignment contract is simply a one page document assigning your rights to a new buyer. If your buyer is not familiar with the assignment process, you may need to walk them through it. Below is the wholesale assignment contract I use for my deals. Please consult with your attorney before using this as laws differ state to state.
Assignment of Residential Purchase Agreement
For the Assignment Fee set forth below, and other good and valuable consideration, and the mutual benefits to be delivered by all parties to this agreement, the undersigned ____________________ (Assignor) does hereby assign unto __________________(Assignee) all rights, interest, suits, claims, and title to a contract of sale concerning such property known as _____________________________________ with an APN _______________________ of (the “Subject Property”).
Provided, however, no warranties of any kind whatsoever are made incident to this Assignment and the Assignee accepts all rights, obligations, and responsibilities of the Purchase Agreement concerning the Subject Property and agrees to close on or before the date set forth therein. If escrow fails to close on or before _____________________________ all rights to the Purchase Agreement immediately transfer back to Assignor.
Assignee herein agrees to deposit Assignment Earnest Money of ____________ by ______________________ to _______________________________ upon execution of this Assignment in the form of cashier’s check or wired funds into escrow.
Disbursement of Fees, Purchase Contract Earnest Money and Assignment Earnest Money shall be as follows: The Assignment Fee will be calculated as the difference between the Sales Price of the original Purchase Agreement, which is the subject of the Assignment, and the amount of $________ The Assignment Fee will be disbursed to Assignor at the close of escrow and paid through escrow.
The Assignment Earnest Money is to be credited towards the Assignee’s purchase costs at the close of escrow. Assignee will forfeit all Assignment Earnest Money to Assignor if escrow does not close due to Assignee’s cancellation or failure to perform under the Purchase Agreement or this Assignment for any reason other than seller’s inability to provide clear title by the closing date or breach of the Purchase Agreement by seller.
In the event of a dispute between Assignor and Assignee regarding the Assignment Earnest Money deposited with _________________, Assignor and Assignee authorize ____________________, to release the Assignment Earnest Money pursuant to the terms and conditions of this Assignment in its sole and absolute discretion. Assignor and Assignee agree to hold harmless and indemnify ____________________, against any claim, action, or lawsuit of any kind, and from any loss, judgment, or expense, including costs and attorney fees, arising from or relating in any way to the release of the Assignment Earnest Money as provided herein. The Earnest Money that was deposited by Assignor for the Purchase Agreement shall be refunded back to Assignor upon the close of escrow between seller and Assignee. Assignee permits ___________________, to provide Assignor with a copy of the settlement after Close of Escrow.
Discussing Expectations with Your Buyer
Before you send this to your buyer, make sure you have discussed expectations. I always have a phone conversation with my buyer and go over key details of the transaction before sending over the assignment. Here is what you want to discuss:
- Price. This may seem obvious, but make sure you are both in agreement on the price!
- Earnest Money Deposit. We ask for $3,000 non-refundable EMD for wholesale deals. Make sure your buyer understands if the EMD is refundable or not, when it’s due and where to drop the check off.
- Close Date. You should already have a close date with the seller. Make sure your end buyer understands the timeline so he or she can line up funds (especially if they are using a hard money lender).
- Payment Terms. Wholesale deals work best with cash, hard money or private money loans. While it is still possible to close on a wholesale deal with financing, cash will make your life easier!
- Inspections. Because my EMD is non-refundable we will not accept an offer that is contingent on inspections. This is pretty common with wholesale deals.
- Closing Costs. We usually agree to pay for standard seller closing costs such as title insurance, transfer tax and closing fee. Make sure your buyer knows who is responsible for seller closing costs.
- LLC or Personal Name? Many of my buyers will use an LLC for the purchase. Ask your seller what name to use for the assignment contract.
Finding the Right Title Company
Hopefully you didn’t want until the last minute to find a wholesale friendly title company in your area. The easiest way to do this is search your FB groups for title company recommendations. Or simply ask the question yourself. It’s important you identify yourself as a wholesaler. You will get many recommendations but you want referrals from other wholesalers.
The reality is, any title company can close a wholesale deal. But many title agencies will require the seller to sign a document disclosing your assignment fee. In some cases, this might be ok. However, if you are making a $40,000 assignment fee, you may not want to share that with the seller.
The buyer will always see your assignment fee. It shows up on their settlement statement. If you chose the right title company that plays nice with wholesaler’s, you can avoid some difficult conversations with your seller and have a smooth closing.
Call around and ask their process for wholesale deals. Ask if they require the assignment fee to be disclosed to the seller. There are many title agencies that do not require this.
The way I see it is the seller accepted your offer and is good with the price. They chose to work with you because of speed, convenience, or some other reason. They are happy about the end result and there’s no reason for them to know what your buyer paid you for the deal.
Escrow Period and Scheduling Closing
When you get the purchase agreement signed by the seller, send it to the title company right away to avoid delays with title work. Once you have the assignment contract signed, send that next. As a wholesaler, you also act a transaction coordinator. Don’t get overwhelmed, it’s really not that much work.
Many seller’s will have a mortgage balance and they will need to fill out a mortgage payoff authorization form. You will see this when you get the title commitment. This form gives title authorization to request a payoff from the seller’s lender.
Other things you may run into:
Delayed Possession: Even though it’s not in your contract, the seller may ask for delayed possession a few days before closing. Typically, this happens when they are moving and need extra time to move out. So how do you handle that? Talk to your buyer first. Most buyers will be ok with a few days of delayed possession. I will put together an addendum that says something like this to protect my buyer:
Buyer will give Seller 1 week to vacate the property after close. Seller will pay Buyer $100/day for each day the Seller occupies property past the 1 week period. Title will hold back $5,000 of Seller’s proceeds in escrow and release the funds back to the seller minus any daily fees when keys are delivered.
Buyers will appreciate you looking out for them!
Delinquent Taxes, Other Liens: Every once in a while, the seller will have delinquent property taxes or other liens on the property. Make sure it’s clear that you are not responsible for any back taxes, liens or past due utility bills. Of course, if you are making a big assignment fee you can always offer to pay to help seal the deal. Just be specific when you talk about paying their closing costs and spell out exactly what those are.
Documentation for Trusts and Inherited Properties: If the property is in a trust, the seller will need the trust certificate or other documentation (depending on where you live). With inherited properties it’s common for ownership to be settled in probate court. The seller will likely need letters of authority (LOA) and a copy of the death certificate for the deceased individual.
The reason I bring this up is you want to make sure the seller is aware of what they will need to sell the property. You don’t want to waste your time on a deal that won’t close because the seller doesn’t have they need.
Closing the Deal and Getting Your Check!
If you have a good title company, they will move quickly and tell you what the buyer & seller need to get the deal done. If you need to close fast, let the title company know and they can put a rush on the title work. I’ve been able to get title work back within a few days and close in less than a week.
Don’t think you have to lead the way with the transaction at this point. A good title company tell you exactly what you need. They will send you settlement statements for both buyer and seller a few days prior to close. Make sure you review and send to both parties before closing.
Closing day is finally here! You have followed every step of the 10 step process and it’s finally about to pay off. Time to get your check and rinse & repeat. Hopefully you have already been marketing and have another deal or two in the works.
If you are serious about wholesaling and turning this into a business, I highly suggest you reinvest a good chunk of that money into marketing. Here are some highly effective marketing strategies I recommend.
Don’t forget to check out my ebook available now on Amazon!