Wholesale real estate provides an alternative method for sellers to find potential buyers for their properties.
Wholesaling houses can be an opportunity to turn quick profits, and investors may use methods such as direct mail marketing and double closing as part of the process.
Wholesale real estate is a departure from traditional real estate transactions that allow those with good networking and marketing skills to cash in on their efforts.
What is a wholesale contract?
A wholesale real estate contract initiates the selling process between a property owner and a wholesaler.
The contract gives the right to purchase the property to the wholesaler. This individual then looks for potential buyers.
When a buyer is found, the wholesaler will transfer their assignment of contract at the time of purchase.
This means that the end buyer makes the purchase from the original seller but at an increased price compared to the one in the original wholesale contract.
The difference between what the buyer pays and what the homeowner receives is known as the assignment fee.
This is the profit margin that pays the wholesaler for facilitating the deal.
According to Real Estate Skills, it’s typical to see an assignment fee of between $10,000 and $20,000, but the amount will differ from contract to contract.
Wholesale real estate represents a short-term investment strategy. As such, this type of real estate investing attracts a certain type of buyer.
The newly assigned seller will quickly attempt to find suitable potential buyers.
How does a wholesale contract work?
No matter which angle you represent in the real estate market, you’ll want to understand all of the components of a wholesale contract.
If you plan on investing in wholesale real estate, it’s vital that you know how to make a wholesale contract.
A wholesale real estate assignment contract works much differently than other real estate deals.
For starters, the wholesale intermediary isn’t required to possess a real estate license in most states.
Wholesaling contracts are also a unique transaction type in the real estate business.
Instead of a two-way exchange, the wholesaler is given the right to purchase the property. However, the owner still retains the title.
Usually, the wholesaler will make an earnest money deposit as part of the assignment agreement.
The wholesale contract will stipulate the time period that the wholesaler will have to find an investor to buy the property.
It will also state the price to be paid to the property owner.
The wholesaler will use their extensive knowledge and network of real estate contacts and a potential buyers list. This lets them find the right opportunities.
Wholesale real estate works somewhat similarly to house flipping in that sellers will usually focus on distressed and defunct properties.
This is because these property owners are highly motivated sellers that prefer a shorter time frame than standard when working with a real estate agent. In other words, they want to sell their property yesterday.
In many cases, the seller doesn’t wish to invest money to repair and improve the property. They would rather get the distressed property off their hands for cold hard cash.
This, in turn, provides an opportunity for a middleman—the wholesaler.
Unlike house flipping, wholesaling requires no investment for repairs and such. Instead, they’ll find buyers who are willing to handle the costs in search of a long-term profit.
But the end goal of the wholesaler is to shift the property at a higher price than that promised to the owner, netting a profit margin.
Wholesalers will look for real estate investors who are cash buyers.
Potential buyers wholesalers will seek include:
- Property developers
- Rental property buyers
- People flipping houses.
The wholesaler assigns their real estate contract to the new investor. At this point, the buyer commences the final transaction with the original seller.
Within the wholesale agreement, a selling price will have been determined. That’s the price the owner will be paid.
The extra amount on top of the contract price will be paid to the wholesaler. This amount is their profit and can be paid in two installments:
- As a deposit during the buying process, and
- When the full owed amount has been paid to the property owner.
How do you write a wholesale contract?
To write a contract for a real estate agreement, you’ll need to:
- Research local wholesaling laws and legal documentation requirements
- Search for ideal properties on multiple listing sites (MLS), social media, and brokerage listings
- Conduct due diligence – can you sell at the real market value for a profit?
- Contact the owner and make your offer
- Draft up a wholesale property contract—PandaDoc’s expertly written templates can help
- Find a cash buyer investor
- Assign your purchasing contract to the new buyer.
You can write a wholesale real estate contract yourself if you’re prepared for the task.
This includes doing your due diligence about your state’s property laws.
You’ll likely need to consult with a real estate attorney before completing your wholesale draft or template.
You can also look online for wholesale agreement templates.
In fact, you can find just about anything with the right provider. PandaDoc provides over 750 different business document templates.
Using document workflow software will let you generate contracts in no time at all. All you’ll need to do is fill in the blanks.
If you’re a wholesaler, templates are good to have on hand so you’re ready for any potential business you meet.
What should a wholesale contract template include?
When creating your wholesale contract template, you’ll need to include all of the essential components. This will ensure that the document is legally binding and also has any protections that you desire.
1. Parties involved
The parties involved include the details of the buyer and seller.
If this is an assignment contract, the buyer is the wholesaler.
If this is the purchase agreement, you’ll need to insert the details of the new buyer.
2. Description of property
In this section, you’ll need to list the legal address and describe the property.
Different details may be necessary depending on whether the real estate involved is residential or commercial.
3. Condition of premises
Here, you’ll list out the actual state of the property.
As most wholesale buyers are investors and property flippers, you’ll need an accurate accounting of all damages and necessary repairs.
4. Purchase price
List the agreed-upon purchase price for either the wholesaler or the end buyer. In most cases, the purchaser will be a cash buyer.
If the amount isn’t to be paid in full, you’ll need to outline any financing details.
5. Closing date
For a wholesale real estate assignment agreement, the closing date ends the terms. At this point, the wholesaler will no longer have the right to buy the property.
If you’re drafting a real estate purchase contract, the closing date is when the real estate transaction is complete (and legally binding).
Depending on the type of contract, you’ll need to insert contingencies and other clauses to protect all parties.
A major clause to include is an inspection contingency. This clause clears the buyer of any obligations should the property fail an inspection.
Another crucial component is a financing contingency that allows the buyer to cancel the contract if they’re unable to obtain the necessary funds to purchase the property.
Other common contingencies and clauses to consider include the following:
- Default clauses: Cover what happens if either the buyer or seller fails to uphold the terms of the contract.
- Insurance contingency: The buyer can back out if the property is uninsurable.
- Risk of loss and damage: Protects the buyer against property damage while under contract.
- Adjustments: State-dependent but includes modifications for taxes, sewage, water, and other utilities.
Some wholesale deals may include other sections, such as an addendum with an assignment clause, closing costs, or information for lenders.
Modify your wholesale contract template with PandaDoc
Real estate wholesaling is a good way to capitalize on an investment property. However, you’ll need to do your due diligence.
Any real estate purchase and sale agreement must be legally sound and give you the protection you need.
Sure, you can use online resources and/or real estate legal counsel to assist you with wholesale contact creation.
But even once you’ve made your templates, what will you do when it’s time to modify them?
Depending on how many changes you need to make, you could find yourself all the way back to square one!
Instead, save yourself plenty of time and heartache by using PandaDoc to meet all of your document workflow software needs.
With contract management software functions and more besides, PandaDoc can handle all of your contract generation needs.
And creating and editing templates couldn’t be easier.
Don’t lie awake at night wondering if your contracts are legally enforceable and fit for purpose.
Sign up with PandaDoc and start creating your wholesale real estate contracts today.
Frequently asked questions
A wholesale real estate contract will look different than many other real estate agreements.
This is because the seller is giving the right to buy the property to the wholesaler. The owner will still retain the title to the property until an end buyer is found.
A new buyer must sign a wholesale real estate purchase contract. In this contract, the wholesaler assigns their purchasing rights to the end buyer at a profit.
It’s perfectly possible to draft a wholesale real estate contract yourself. PandaDoc’s contract templates provide a great place to start.
Simply find a suitable template, customize it to your needs, and then run it by your lawyer or law firm, and you’re all set.
You can’t wholesale without a contract.
A real estate assignment contract is necessary for the wholesaler to reassign their rights to buy a property at a predetermined price. Without this contract, there’s no guarantee of a sale.
And without a price locked in, the wholesaler has no certainty of making a profit. Don’t worry, though; PandaDoc makes wholesale contract generation a breeze!