Wholesaling is alive and well in Central Florida. We just closed a deal last week for a 4 bed/2 bath block house in a working class neighborhood. It had a few last minute glitches, but it did close. Purchase price was $72,000 and the wholesale price to the investor was $81,000. That left $9,000 as an assignment fee. If you do the math, 9K/72K = 12.5%. If an average commission is around 6%, you can clearly see that the fee earned was over double on this deal. If all I did was list this property, I would have probably earned less than half of what I ended up earning from wholesaling it.
In this article I will explain how to put a property under contract and locate an end buyer.
The typical and definitely preferable way I structure these transactions is by assigning a contract. First of all I always use our standard Realtor contract which in Florida is called the FAR/BAR contract. I don't use contracts that these "gurus" create, and I definitely don't use contracts from some office supply store. Everybody (title companies, Realtors, lenders, etc.) is familiar with the standard Realtor contract and it is up to date with all the latest law changes and court cases, so why bother with the others. If I need to slant something in my favor I use an addendum. By using the standard form it also helps me set sellers more at ease that there is no funny business in the contract.
On For Sale By Owner transactions, I check off the box that says I may assign the contract and be relieved of all liability (the first box). On listed properties, I check off the box that says I may assign the contract but not relieved of all liability (the second box). The only reason for this difference is because most Realtors will object to the first box being checked off - they are afraid you may assign the contract and disappear. (As a matter of fact if your listing Realtor does not at least question this box being checked off, you probably need to fire them for incompetence.) If they do question it, then I simply explain that I may bring in a partner or associate and let them take title to the property but that I will stay in the transaction through the closing, so no worries.
Once the contract is all signed off, I explain to the owner or the Realtor that we will need to do various inspections of the property during the 10 day inspection period. (If I can't get at least 7 days for the inspection period, I will not even attempt to wholesale it unless I have a buyer in my pocket lined up.) Then during the inspection period in addition to ordering the inspections, I start shopping the property around to my potential buyers.
How do I find my buyers? Most of my buyers are regulars. I typically call or email my regulars and see if they are interested in the property based on the numbers I give them. Lately because many of my regulars are stuck holding lots of properties, I have had to expand my buyer list. As a last resort, I do have an email blast list that goes out to some 600+ investors, Realtors, and builders that I have been building on for years. I also am constantly advertising for new buyers. It usually isn't hard to find a wholesale property buyer as long as the numbers make sense.
If the house is occupied, my preferred method of showing it is via an "open house" . I bring all my buyers through doing one or 2 "inspections" during the inspection period. If the house is vacant, I do what I can to obtain a key from the seller so I can show the house myself. If for some reason I cannot find a buyer during the time period, or if I find buyers but they must buy at a lower price, then I have to make a decision. I don't want to string a seller along. (I decided many years ago that I would never put a property under contract that I would not personally close on. To do otherwise is not fair to the seller or the listing agent and is a bad business practice in my opinion.)
I quickly order building and other inspections on the property. That way if I need to close on the property, I am protected. Also the inspection allows me to possibly renegotiate the purchase price. Last Fall I used a detailed building inspection to renegotiate the original purchase price down about 13K and then I was able to assign the contract to another investor with the lower renegotiated price. The inspection report did show some serious damage to roof trusses in the attic and to the electrical panel in the garage. That's part of what an inspection is for anyway. An inspection can be a negotiating tool in addition to a safety net.
In part 3 of this article, I will discuss the paperwork involved and getting the transaction closed.
(Disclaimer: All commission amounts in this post and comments are for example discussion only. Commissions are freely negotiable and not set by law.)
(Copyright © 2008. Sand Dollar Realty Group, Inc. All rights reserved.)
Rob Arnold, ABR, CPL, CRB, GRI, Managing real estate broker, Licensed mortgage broker, Notary Public
Your full service and investor friendly Realtor in Orlando. Learn to invest in Central Florida real estate and Orlando real estate. Investor mentoring and counseling available. I also provide flat fee MLS listings, For Sale By Owner, and menu-based services in most parts of Central & South Florida, the Space Coast, and the Treasure Coast including Orlando, Winter Park, Maitland, Ocoee, Winter Garden, Apopka, Altamonte Springs, Casselberry, Longwood, Winter Springs, Oviedo, Lake Mary, Sanford, Deltona, Debary, Deland, Mount Dora, Eustis, Clermont, Kissimmee, Winter Haven, Lakeland, Tampa, Sarasota, Bradenton, Miami-Dade, Fort Lauderdale, West Palm Beach, Port Saint Lucie, Melbourne, Daytona Beach, Ocala, Gainesville, Volusia, Brevard, and more.
We buy houses cash, sell properties, and list properties throughout Central Florida and the metro Orlando area.