WHOLESALE REAL ESTATE CONTRACT: Understanding Wholesale Real Estate Contract

Wholesale real estate contract
Photo Credit: Think Realty

A wholesale real estate contract is an investment strategy that allows someone to act as a middleman between a seller and an end buyer. This real estate contract between an investor and a home seller allows the investor to purchase rights to the home in the hopes of selling these rights to the ultimate end buyer for a higher price. The investor’s total profit is the difference between the wholesale purchase price and the end buyer’s purchase price. Some wholesalers will buy a mortgage note from a buyer who wants to get a large sum of money upfront. The wholesaler then sells the mortgage note for a commission. To understand more about wholesale real estate contracts and how they work, we’ve put together an article that talks about how to make and purchase agreement wholesale real estate contract. Enjoy!

What Is Wholesale Real Estate?

For real estate investors who enjoy finding undervalued properties, wholesale real estate is a good short-term investment strategy. As part of their real estate investing strategy, wholesalers locate properties and negotiate contracts with sellers.

They then find an investor who is interested in the property and sell the contract for a fee to the investor. This investor will buy the house, make the necessary improvements, and either sell it or rent it out.

What Is Wholesale Real Estate Contract?

A wholesale real estate contract is a short-term investment strategy in which the wholesaler hopes to profit within 30 days. Though wholesale real estate laws vary by state, the process always involves the wholesaler acting as a go-between for the seller of a home and an end buyer.

The wholesaler negotiates with the seller for the exclusive right to purchase the property for a set price. The contract is then reassigned to another potential buyer for a higher price. The wholesaler’s profit is the difference between the two prices.

The wholesaler and seller agree to the equitable conversion doctrine at the time of the contract. This means that the wholesaler becomes the property owner with the authority to transfer the contract, but the seller retains ownership of the home. The end buyer completes the real estate transaction directly with the seller after the wholesaler reassigns the contract.

How To Make A Wholesale Real Estate Contract

Looking for purchase agreement wholesale real estate contract templates online is the simplest way to write a wholesale real estate contract. These provide a solid foundation for you to modify to meet your specific requirements.

A real estate lawyer can also help you draft a wholesale real estate contract for properties. You can use this contract to approach buyers who are interested in purchasing a property from you in the future, editing it as needed to fit the circumstances.

If you decide to write your wholesaling contract, you must first research the wholesaling real estate laws in your state. You can draft your contract once you understand what you can and cannot do in your wholesaling process.

Your Contract Should Contain the Following Items:

  • Your given name.
  • The seller’s legal name.
  • The property’s address and a description
  • The agreed-upon purchase price for the property rights.
  • Earnest money deposits.
  • Deposits, storage facilities, and financing terms
  • A contingency contract that includes information about inspection, financing, and other contingencies.
  • The contract should also include information on the type of deed and a marketable title. If the seller cannot pass the title or the buyer cannot obtain insurance, a marketable title allows the buyer to receive their deposit back and waive their purchase rights.
  • A buyer’s and seller’s default clauses should also be included, outlining how the parties will proceed if the buyer or seller fails to meet their agreed-upon terms.

Who Makes Use Of A Wholesaling Contract?

A wholesaling contract is used between an investor and a buyer, as well as between an investor and a final buyer. The person who buys the right to buy a property from the wholesaler is known as the end buyer. This is the person who finally closes the sale with the original seller and becomes the new owner.

While the wholesaler does not own the property, they do have title rights. To negotiate a price with their buyers, they use their assigned real estate purchase and sale agreement.

It is important to note that each state has its own laws and restrictions regarding wholesaling and contract assignment. As a result, carefully review these regulations and, direct any questions to a local real estate lawyer.

Wholesalers frequently seek distressed property that requires repairs and renovations. The wholesaler, on the other hand, looks for a buyer eager to close on a good deal, as opposed to someone who buys, renovates, and sells a house after it’s been flipped.

The buyer can purchase a property in need of repairs for a reasonable price, which they can then flip and resell, rent out, or live in.

Where Do I Get A Wholesale Real Estate Contract?

A real estate attorney in your state is the best place to get a wholesale real estate contract. Because real estate investment and wholesale laws vary across the United States, consulting with a lawyer is the best way to get the most up-to-date information.

You can also look online for wholesale real estate contract templates to modify and send to a lawyer for review. Consultation with a professional real estate attorney speeds up the wholesale process tenfold, allowing you to proceed with complete confidence in the legality of your contract.

Purchase Agreement Wholesale Real Estate Contract

There are numerous moving parts in a purchase agreement wholesale real estate contract. Below is a breakdown of how a Purchase agreement wholesale real estate contract works :

The Basics:

  • The parties involved are the new buyer and seller.
  • Real estate description: The address and legal description of the property must be included.
  • Deed type: The type of deed that will accompany the sale of the property should be specified.
  • Premises condition: This section describes the physical condition of the property, including existing damage and needed repairs.
  • Finance and purchase price: The agreed-upon price and financing terms are recorded, as well as the location of deposits.
  • Closing date: The day when the real estate transaction is completed.

Contingencies, Clauses, and More:

  • Financing contingency: This clause allows the buyer to withdraw from the transaction if they are unable to obtain the necessary financing. However, if you have a cash buyer, this will not be an issue.
  • Inspection contingency: This contingency allows the buyer to back out of the wholesale deal if the results of a home inspection are not satisfactory.
  • If the buyer is unable to obtain title insurance, the deal can be called off.
  • Buyer and seller default clauses: This section specifies what happens if either party fails to fulfill their obligations under the sales contract.
  • The risk of loss and damage clause protects the buyer in the event of property damage while the contract is in effect.
  • Adjustments clause: Depending on the state, this section may include accounts for property taxes, utilities, and other charges.
  • Statement on lead-based paint: This disclosure specifies whether the property contains lead-based paint.
  • Addenda: At the end of the contract, the document includes standard legal language as well as any additions made after the initial signing.

Conclusion

Wholesale real estate contracts differ from traditional real estate contracts. Wholesalers can profit from real estate without ever purchasing anything; the profit comes from the service provided. They simply sell the contract and profit. A quick transaction can benefit both buyers and sellers.

However, while this contract may be a good investment, it does have some drawbacks. They can be difficult to understand, especially if you’re new to them. That is why, before signing on it, you should consult an attorney, a licensed real estate professional, or both. They can give you personalized advice based on where you live and your specific situation.

Wholesale Real Estate Contract FAQs

Can a wholesaler draft wholesale real estate contracts?

With the assistance of a real estate attorney, you(the wholesaler) will draft a contract for the seller to sign.

Can a seller cancel a purchase agreement wholesale real estate contract?

It depends on the contract and the situation, but in most cases, sellers who have included clauses in their contract and are motivated to void the agreement can find legal justification to back out of a deal. Some reasons that can result from this :

  • Outside of the wholesale contract, the owner received a higher offer from another buyer.
  • The seller was unable to find a suitable replacement home in which to relocate.
  • They are suffering from seller’s remorse and do not wish to sell their property.
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