If you plan on scaling a wholesaling business, you will have to back out of deals. This is the reality. Hopefully you can find a buyer and close 90% of your contracts. Those are pretty good numbers. My business closes 88% of the deals we put under contract.
It will make it a lot easier to back out of a deal when you are transparent with the seller about your process. If you read Step 6: Making the Offer, you know that you will need an inspection & marketing clause in your contract. The marketing clause allows you to market the property to your cash buyers. The inspection period gives you an out if you can’t find a buyer.
This is where many wholesalers get themselves in trouble. They aren’t clear about expectations, they can’t find a buyer and have to back out of the contract. The seller finds out the wholesaler didn’t have any intention of buying it themselves. Obviously, they aren’t too happy about this.
Now, if you have a killer deal, you probably don’t need to be as transparent about the wholesaling process up front.
Set Clear Expectations Up Front
As wholesalers, we need to be very clear on our process with the seller and set expectations. Most wholesalers use “We Buy Houses” as their marketing tagline, which may seem deceptive to a seller who thinks you are actually closing on their house. If you close the deal, no one cares. But what happens if you can’t find a buyer? Have fun digging yourself out of that hole!
Most wholesaler’s use the inspection period (10-15 days) to find a cash buyer. I don’t love the terminology “inspection period,” but in some ways it’s the same thing as getting a second opinion and validating your numbers. If a wholesaler cannot find a buyer within the 10-15 day period, they usually have to resort to their out clause and can terminate the contract (or renegotiate).
When to Lead with “I Will Buy Your House”
There are really two schools of thought on how you position yourself with the seller. The first is to stick to the messaging that you are going to make the offer and buy the house. While this may seem deceptive, as long as one of your partner buyers ends up buying the house, you’ll be in the clear. It won’t make any difference to the seller as long as the deal closes with the same terms initially agreed upon.
The truth is, many real estate investors use partners and other people’s money to close deals anyway. As wholesalers, we are simply using our “partner buyers” to close the deal. Often times, I reference “my partners” several times during the initial phone conversation and appointment so they know other people will be involved.
Many wholesalers involve their partner buyers before signing a deal and already have a buyer lined up. If you are a more experienced wholesaler with solid buyer connections and you know what you are doing, this method is fine. If you have a slam dunk deal and you are 100% confident you have a buyer and will close the deal, go with this approach!
When to Lead with “I Will Find a Buyer”
The second school of thought is to be completely transparent about the wholesaling process. Tell the seller you represent a network of cash buyers and handle all the marketing and deal finding. Your process involves negotiating a fair price with the seller, writing the offer, and then bringing in your partner buyers during the “inspection period.”
Many sellers are totally fine with this process and appreciate the transparency. But you may get some pushback from other sellers. Remember your value proposition: you offer speed and convenience. You have buyers that will pay cash, close fast, buy as-is with no realtor commissions or closing costs. That’s why they are talking to you in the first place, right?
Many times, sellers appreciate the transparency. They like that because I represent such a large network of investors, I can offer them more for their house than my competitors.
For me, it all depends on the deal and in some cases the seller. As you get more experienced, you will know when you have great deal. If you have a killer deal or you already have a buyer lined before inking the deal, go ahead and lead with “I will buy your house.” If you don’t have a buyer lined up or are not as confident about the deal, be honest with the seller about your intentions to market their property and find a cash buyer.