Disclaimer: PropStream does not offer legal advice. Before attempting a wholesale deal, we highly recommend educating yourself on the practice’s legality in your region and consulting a legal professional.
Wholesaling can be a great way to start investing in real estate with little cash, but you must understand wholesale real estate contracts before you try it. This article will cover what a wholesale contract is, how it works, and what it should include.
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Wholesale contracts have two parts: a purchase agreement and an assignment contract. You must first understand the wholesaling process to understand how they work together.
In real estate, a wholesaler puts a property under contract and then sells the contract to an interested party, typically another investor.
First, the wholesaler enters an agreement with the seller for the exclusive right to purchase the property, aka the purchase agreement. Then, the wholesaler looks for interested investors whom they can “assign” the purchase agreement to for a fee via an assignment contract. From there, the wholesaler’s job is done, and the investor completes the final property transaction with the seller directly.
That’s the basic mechanics of wholesaling. Next, we’ll review what a wholesale contract's two parts should include.
Keep in mind that wholesaling laws vary by state, so it’s best to consult a local real estate attorney about what to include in a wholesaling contract in your region.
A wholesale real estate purchase agreement is the initial contract between the wholesaler and the seller. It outlines the details of the transaction, conditions that must be met for the sale to take place, and contingencies for backing out or altering the deal.
Every wholesale purchase agreement should include these basic details:
A wholesale contract should also include contingencies and clauses to protect the buyer and seller from uncertainties. Here are some examples:
Many other wholesale contract clauses exist, but these are the most common.
Keep in mind that the wholesale purchase agreement doesn’t represent a sale but an “equitable conversion.” This means the wholesaler (or buyer) has an equitable interest in the property with certain rights and responsibilities, but the actual property title remains with the seller until the sale is complete.
Once you secure a purchase agreement, the next step is to enter an assignment contract with an investor. It outlines the transfer of the purchase agreement from you to them and should include the following:
Once you and the buyer sign the contract, it’s legally binding, and your work is done.
Here are some final tips for creating a robust wholesale contract:
Take a wholesaling course. Even though wholesalers don’t need to be licensed in most states, educating yourself on best wholesaling practices is still a good idea. Sign up for PropStream Academy’s free Introduction to Wholesaling course today!
Start with contract templates. Why create a purchase agreement or assignment contract from scratch when you can start with a template? Find a free one online and customize it to your specific deal to save time and effort.
Research local wholesaling laws. Each state has its own regulations regarding wholesaling licensing requirements, advertising regulations, assignment clauses, and more. Do your due diligence to ensure your deal is compliant.
Consult a real estate attorney. They can review your wholesale contract to ensure it is legally sound, protects your interests, and meets local requirements.
Ready to land your next wholesale deal? PropStream can help with both sides of the deal. It can help you identify distressed properties with motivated sellers and find potential investors to assign your contracts to.
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