What You Need to Know about Wholesale Real Estate Contracts

(STL.News) – Wholesaling real estate is one of the best ways to break into the real estate investing industry.

Hate it or love it, wholesaling offers lucrative wealth-building opportunities, and doesn’t require much capital to get started.  The conundrum for many beginners, however, is the intricacy of the wholesale real estate contract.

You may now be wondering, what is the contract for, and do I need it?

Well, Yes!  You need it.

In fact, without a contract, real estate wholesaling can’t be deemed valid in the eyes of the law.  In this post, we’ll cover everything you need to know about wholesale real estate contracts.  But first, a primer on real estate wholesaling.

What is Real Estate Wholesaling?

Real estate wholesaling occurs when one party (the wholesaler) gets into a contractual agreement with another party (the home seller) to sell their home to a potential buyer.  The wholesaler then assigns the contract to the buyer.

In doing so, the wholesaler makes a profit, equal to the difference between the contracted price with the seller and the amount paid by the buyer.  But this begs the question: Is wholesaling ethical?  Check out Follow Up Boss for useful guides on how to win in wholesaling ethically.

Understanding the Real Estate Wholesale Contract

A wholesale real estate contract is assigned when a seller (homeowner) agrees to sell their home to an investor and signs a contract that binds them to an impending deal.

This gives the investor (wholesaler) the right to buy the property and may transfer this right to another investor.  Put in simpler terms, the wholesaler doesn’t sell the property; he sells the right to buy the property to another investor as enshrined on the contract.

The doctrine of equitable conversion stipulates that once all the parties have signed the contract, the buyer becomes the equitable owner of the property while the seller retains the title to the property as per the terms of the agreement.

In a nutshell, assignment of a contract only allows the wholesaler to match the buyer with the homeowner.

Contents of a Wholesale Real Estate Contract

A wholesaling contract lays the foundation for the real estate wholesaling business.  Below find the information that should be included in the contract:

  • Parties involved (seller, wholesaler, buyer)
  • Deed type
  • Description of the property (the property’s address, condition, property type, etc.)
  • Contract period (deadline for finding a buyer)
  • What will happen if the wholesaler cannot find a buyer within the stipulated time
  • What happens if the property is damaged before the wholesaler finds a buyer
  • Seller’s default clause
  • Buyer’s default clause

There are other adjustments that may be made to contracts, such as adjustments for taxes, water, and sewerage.  However, these vary by state and you should consult your attorney first.

All in all, wholesaling real estate is a viable investment option and one that doesn’t require you to own property or have huge startup capital.  In fact, you can start with as little as $10 because the only money you need is for paying the contract fee.

Now that you know the basics, benefits, and intricacies surrounding real estate wholesaling, why not give it a try?

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