So you’re thinking about getting into wholesale real estate? This option is a smart one to choose — it can be realized quickly and profitably when played well. However, before we get in too deep and complicated, there is one key concept that you need to understand: The wholesaling contract.
Contracts may not be the most exciting thing about real estate, but let’s be honest: they are the linchpin of every successful transaction. Picture them as your GPS; without a destination in mind, you’re lost, wandering clueless, looking for some guidance.
Real estate: What is a wholesale real estate contract?
Purpose and Definition
What is a Wholesale Real Estate Contract? An agreement between a seller and an investor (the wholesaler) that specifies the wholesaler’s right to purchase a property and subsequently sell it to another buyer is known as a wholesale real estate contract. Since you are the intermediary in this situation, it is ultimately what you do.
Key Differences from Traditional Real Estate Agreements
Wholesale contracts are not like traditional purchase contracts; they are designed for assignment. You do not have any desire to purchase the property yourself, but rather you want to assign or wholesale the contract. With this in mind, the need for speed, brevity, and ensuring that the agreement covers off on the relevant clauses is paramount.
Key Aspects of a Wholesaling Real Estate Contract
Involved Parties
At a minimum, the important players are:
The Seller – the owner of the property.
The Wholesaler (You) – You are the one locking the property under contract.
The End Buyer, to whom the deal will ultimately be flipped.
Property Description
This section should include a complete and concise statement of facts about the property, including the legal description, lot number, and/or other unique identifying information. It is important to note these details as they can contribute to problems down the line.
Price and Payment Terms
This section should include:
Agreed-upon purchase price
How you’ll be paying (cash / financing)
Deposit amount
Closing date
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Assignment Clause
Wholesale contracts largely depend on the formation of this clause. Without it, you may not legally assign the contract to another buyer.The capacity to transfer the agreement to another person should be mentioned.
Wholesale Real Estate Contracts: What Is That?
Contingencies and Inspection Contingency Period
To protect the deal, Smart wholesalers will have inspection periods to back out of a deal if needed. Standard contingencies include:
Inspection approval
Title clearance
Buyer’s due diligence
Earnest Money Deposit
This deposit proves your interest in the seller. And although it can be $10–$100 in most wholesale deals, it needs to be explicitly put in the agreement.
Understanding Contracts for Assignments
An assignment contract is a separate document that transfers your right to purchase the property (as described in the wholesale contract) to another buyer.
Applicability in Wholesale Contracts
Once you have property under a contract, you use the assignment agreement to delegate your purchase rights to a cash buyer, who will, in turn, pay you a fee (your profit). Pretty simple, right?
Wholesale real estate transactions are legal?
Wholesale Real Estate: Is It Legal?
Of course—but it varies by state. In some states, wholesalers are required to have a license; in others, the requirements are less strict. Note: It is always a good idea to double-check the local laws in your area.
Necessity of Disclosures
Maintain transparency. Tell the seller and buyer you are a wholesaler. Openness helps reduce legal entanglement and build trust.
Specific Regulations by State
States, including Illinois and Oklahoma, have escalated their oversight of unlicensed wholesaling. It is a good idea to consult a local real estate attorney or to check with your state real estate commission.
How to Use a Wholesale Contract: A Step-by-Step Guide
The first step: Find a motivated seller
Target people in distress: those in foreclosure, those with inherited homes, those who have vacant properties, etc.
Stage 2: The Property Contracted
This second step refers to the property under contract
With your wholesale real estate contract, you can seal the deal. Make certain that the assignment clause is in there!
Step 3: Assign the Contract to a Cash Buyer
Market the offer to your buyer list. Use the assignment agreement to transfer the deal as soon as you have an interest.
Step 4: Collect Your Assignment Fee
So at closing, the buyer is responsible for paying you the purchase amount, and you will be credited the amount of money that is owed for the assignment fee! Great news! You have made money without actually owning any property.
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Common Mistakes in Wholesale Agreements
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Using a suitable contract template is essential: Even in a typical contract, an assignment clause is frequently absent.
Don’t Forget the Assignment Clause: This is a requisite for legally transferring a contract.
Consult with a Real Estate Attorney: A small fee may save you from large legal problems down the road.
How to Create a Strong Wholesale Real Estate Contract
Use simple, clear terms: Leave out fluff, just be clear and direct.
Be Transparent: Sincerity creates trust, and trust creates partnerships that last.
Keep Up With Local Laws: Rules can shift in your area of residence, so make sure you are in the know.
Wholesaling resources, in addition to our wholesale real estate contracts.
Look into Legal Platforms: Sites like Rocket Lawyer, LegalZoom offer contract assistance.
Templates: Find the right contract for your state at your local REI group or online.
Seek Legal Counsel: For long-term wholesale success, invest in a lawyer.
Summary
A carefully worded wholesale real estate contract is key to your success. It is your passport to money-making deals without having to own the property. The contract must be accurate; missing the legal effect may destroy the entire deal.
For this reason, learning wholesale real estate contracts is an important step toward real estate success, no matter how many deals you are working on.
FAQs
What’s Different About a Wholesale Contract?
For a price, the wholesaler can assign the contract to another customer thanks to its assignment clause.
Is it Possible to Wholesale Real Estate Without a License?
Yes, in several states, but check local rules in advance because some states have restricted marketing deals without a license.
What is the Average Wholesale Profit Margin?
The average wholesaler hopes to earn between $5,000 and $25,000.
Do I Need a Lawyer to Write Contracts for Wholesale Deals?
Although it is not required in every case, having a local real estate lawyer look over your contracts is a good idea.
How can I get reliable cash buyers?
Leverage local meetups at wholesalers and/or real estate investor groups and social media platforms, including Facebook and BiggerPockets, to generate a list of potential buyers.