Any property seller that seeks to sell a house “as-is” for cash will almost certainly encounter a wholesaler along the way. So, what is “Wholesaling”, and why should you care?
The reason you should care is that selling to a wholesaler could very well (a) not close on time, (b) be a lot of hassle, and (c) sell for a lot less than you originally agreed. Before I explain how to avoid these pitfalls, let’s take a look at what and who wholesalers are.
To better understand wholesaling, check out this post on a popular real estate investing website called “Bigger Pockets” which is designed to recruit “investor-wanna-be’s” into becoming a wholesaler:
1. Get started with very little (or no) money
2. You don’t actually buy the house
3. Make a lot of money FAST
4. Learn how to recognize a good deal
5. Build a network of actual investors
6. Become good at finding good deals
7. You can wholesale part-time
(Sounds like an info-mercial on late night tv doesn’t it? Guess what … lol … it is!)
There is nothing wrong with wholesaling when done correctly, and in full disclosure, The Trusted Home Buyer has also assigned contracts in the past when the situation warranted it.
What is wholesaling? In a nutshell, a wholesaler generally does not have any money to buy your property. They negotiate the best price they can with you, and then they hope by networking with actual investors that they can get a real investor to pay more for the property then they agreed to pay. And then they “assign” their purchase contract to the real buyer for a fee.
You may ask, “why should I care, as long as it sells?”
(1) The wholesaler promises that the sale will be fast and easy. But because they have to go find a buyer – it often means that they don’t close on time.
(2) The process to find a buyer requires the wholesaler to run “open houses” at your property to show it to the other investors in the hope that they will buy.
(3) If no buyer is willing to pay more for the property, then the wholesaler will go back to you and try to “beat you up on price”. The problem is that often at this point the seller has often already made financial decisions assuming that the property is sold and so feels forced to accept a lower price, or deal with the consequences of a cancelled contract and starting all over.
So, how to avoid these pitfalls? Do these 3 simple things:
- Require at least, but preferably MORE than $1000 Earnest Deposit
- In the purchase contract state specifically: “Earnest Deposit is immediately non-refundable.”
- In the purchase contract state that “This contract is NOT contingent upon Buyer inspection.”
No wholesaler will agree to those 3 items. Why? Because wholesalers are taught to get the contract, at the lowest price they can, but even if they have to pay too much, to get the contract anyway. From their perspective, maybe they’ll get lucky and find someone who can pay more, and if they can’t they now have leverage to re-negotiate the price with you.
What can you expect differently from The Trusted Home Buyer?
Very simply, The Trusted Home Buyer Guarantee: “The Trusted Home Buyer will close on the date of your choice or we pay you an additional $150/day”. Of course that only applies if the delay is caused by The Trusted Home Buyer, as the seller you can choose to extend the closing as needed.