Can You Wholesale Before You Have a Contract? (This May Surprise You)

2015-6-30-260Howdy, folks. Today we’re going to tackle a great question from one of our fellow Insiders. Kenneth writes:

“Help! I came across a property I think is a good deal and put the deal to a couple investors. One replied for the address. I don’t have it under contract. Will the investor be able to cut me out? The asking price includes my profit. Any help would be appreciated. This would by first deal.”

patrick-round-240Patrick’s Perspective

Kenneth… Awesome! Awesome! Awesome! Love it. Love that you’re taking action and coming across the deals here.

Me, personally, any time that I am wholesaling a property, I always put it under contract prior to telling anyone about the deal. And then, once the property is locked up under contract, we’ll then be passing that to any perspective investor buyers.

If you didn’t have it under your contract and you told some potential buyers, could they cut you out in the deal? Uh, sure. Yes, they could. They could make an offer directly to the seller and get the property under a contract.

Let me step on my soapbox for a sec – some people are jerks, and we run across them from time to time especially in this business. Just sayin. Okay, stepping down…

From the start, I think it’s best to make sure you’re working with people that you trust and feel that would do the right thing.

But, I would highly suggest that if you think that you’ve got a potential deal, put it under contract. Also, include an escape clause (just as if you have to do your due diligence) saying “pass it by buyers.” If you’re just going in and planning on wholesaling it, you could put a clause in that says, “This agreement is subject to finding a qualified buyer within XX days.”

That’s just one example of a clause that you could put in there, which will allow you to control the property by having it under a contract, and also being able to walk away if you don’t find a buyer.

JP, any other thoughts on that one?

jp-round-240Jp’s Take

Yeah, just a couple things that I’ll springboard off of the platform that you’ve already nicely set up there.

Let’s clearly establish that legally (unless you are a real estate agent or unless you’re licensed to practice real estate in your area) you have to have a contract to purchase or an option agreement in place before you market a property to sell, okay? In other words, if you do want to be totally legal, then you should wait until you have a contract or an option agreement before marketing.

For those of you who want to go ahead and market without a contract…

It’s worth noting that that’s not to say that there’s a letter of the law and there’s the intent of the law, in my opinion. And, I tend to go more with the intent than the letter, and you have to choose your own comfort level for that.

And, this is actually something where my partner, James, and I diverge and just don’t quite see eye to eye. He always wants to sit. He won’t talk to anybody about a deal until he’s got some kind of contract on it, and I respect that. But I feel like, if we see a deal that we think is maybe a deal – but we’re not sure and we think we might know who on our buyer’s list it would be a good fit for – then I ask myself:

Do we want to take the time to really go out, get a contract signed, and kind of jump through the hoops that you have to? Only to find out immediately that it’s just not going to work for us because our buyers aren’t interested?

Ultimately, your buyers dictate whether or not it’s a deal if you’re a wholesaler. So, what I would do and what I have always done historically is do an ambiguous soft pass, kinda like what you did, Kenneth. But, you go armed with a little bit more ability to buffer the situation because you don’t have it under contract yet.

So, here are the magic ingredients that I think make it okay for me to do a deal this way:

“Mr. Buyer, I’m telling you right up front – we don’t have this signed up yet, and I’m not going to give you an address until we do. But, here’s the area. Here’s the numbers… they still have to be verified. But if they verify okay, is this something you’re interested in?”

2015-6-30-signOr, maybe if you were to spit out some numbers that are typically in the range of what investors look for in a deal, then, if I’m an investor and I’m active, I might already be doing a deal in that neighborhood and I’ll know if the numbers make sense…

Most investors who are active have their core niche, and if you know your buyer’s list people well, you’ll know which buyer to be in touch with.

So, offer them some information and gauge their interest and ask, ‘If we get the contract, how fast could you potentially close?’ Ask if he thinks whether the deal would work for him. Then, you can go ahead and find out if he has the funds available to immediately close.

Here’s the rub… They love this because to them – they feel like you’re giving them the concierge treatment. They’re obviously the VIP because you thought of them first. You called them first. And whether that deal happens… that has value to you.

The bottom line is to do what you’re comfortable with and work with people you trust. Or, if you want to be able to make soft passes and keep a healthy conscious, be up front with people. If done correctly, this can also work to your benefit.

Talk to Us

What experiences or success can you guys share about no-contract deals? Which method works best for you? Chime in below!

No comments yet... Be the first to leave a reply!

Leave a Reply