Posted by JoeB(Atlanta) on January 27, 2000 at 21:51:08:
John, wholesaling/quick flipping can vary widely in the implementation and logistics from investor to investor, but here’s how we handle it.
When we find a retailer (investor buyer) to buy our contract we assign it to her, by filling out an ‘assignment of contract’ and she gives us an earnest money check of around $1000. Some wholesalers collect the whole assignment fee/profit right now, we don’t, we wait until the retailer’s closing.
She (the retailer) then inherits/takes over EVERY single term and condition of the underlying contract which I filled out and signed with the original Seller/homeowner. This includes whatever I negotiated about who pays closing costs (we usually say: Buyer pays all).
We run title exam as soon as we have contract, so we can usually sell the title exam to retailer’s attorney (and have already cleaned up title), by the time the retailer is ready to close. The retailer arranges closing/attorney/etc, since it’s their money being used for the purchase.
If you use this assignment method, the retailer WILL SEE your profit…if you’re uncomfortable with this you need to be confident that you’ve found a good deal at a fair price and explain this intelligently to your retailer…or you can hide your profit with a double/simultaneous close (using 2 contracts, no assignment).
Yes, unfortunately the retailer CAN back out of their assignment with you…you can state that their earnest money is non-refundable or whatever penalties you want, but it puts you in a tight spot because the seller/homeowner still wants to close and you have no retailer/funder anymore.
We do ask for written ‘proof of funding/cash’ from the retailer (ie. letter from money partner, checking or stock account statement, etc.). But ultimately, we keep spare cash (and a no-questions-asked private lender) for this type of scenario, because it happens to us about 10-20% of the time.
Hope this helps,