What If I Can't Find A Buyer For My Wholesale Deal
This article tells you the two things you can do if you can't find a buyer for your wholesale deal.
“What if I can’t find a buyer for my wholesale deal?” I get that question a ton and it’s actually why a lot of people don't even start wholesaling because they're scared that they're going to get sued. They're scared that they're going to be forced to buy it. They're scared that they're going to get in trouble.
Now, before we get into the contract side of it, there are two reasons why your deal didn't sell.
- It's not a good deal
You put it under contract for a price that was too high and nobody's willing to pay it. For most new wholesalers, that's typically the case. They don't know how to evaluate numbers yet. So they think that they have a good deal. When in reality, they don't.
- Your buyer's list isn't big enough yet
Maybe you do have a really good deal, but you just don't have enough buyers for it yet.
So we know why we couldn't sell the deal. So how do we get out of the contract? We don't want to get sued or lose our money.
Well, let's first talk about the contract. Now, everyone has a different contract. I cannot tell you what you legally have to do or what you've agreed to. So to make things simple, you can actually download my contract that I use to purchase and wholesale deals for free by clicking here.
Now, I'm assuming that you're using my contract because that's all I can verify. There are two clauses you need to understand as it relates to backing out and getting your money. The first clause is the earnest money deposit. So this deposit is what you're going to put down at the title company to basically show good faith to the seller that you're going to buy the property.
This amount is completely negotiable. I've seen some people use $10 on a contract, $100, and then I've seen deals where people have had to put $100,000 because it's a very high end property. So obviously the more you put down, the stronger your offer will look. If you're just starting out, I don't see a problem putting a hundred dollars down. In fact, on a lot of our deals we only put $500-$1,000 down. So it doesn't have to be a big amount.
Honestly, most sellers don't even really know what it is. So don't go in thinking, you have to put this huge amount of money down. You do have to put something and the seller has to agree to that. Now this is what you're liable for. If you don't perform on the contract, meaning you don't buy the property or find someone else to buy the property, then the seller has the right to take that money.
I'm not going to get into how it works with them getting the money because that's a whole headache in itself. Even if they're entitled to the money, they cannot actually get it from the title company, unless you sign off on it. So almost every single time an earnest money deposit is in dispute. It always has to be fought for even if there may be a party that it clearly belongs to because both sides have to sign off for the title company to release it. Sometimes it has to go to court over who gets it, especially if it's a big amount. Now, if we're talking a hundred dollars earnest money deposit or something like that at the end of the day, who cares, right? So the earnest money deposit is what you are liable for. And you must deposit that money to the title company.
When you have the signed contract and you're opening escrow. I see a lot of wholesalers who don't deposit earnest money at all and technically their contract is void. If you don't deposit earnest money, the contract is void. A deal can still go through but if a seller wants to back out, they have every right to do it because you didn't perform the very first thing, which is depositing earnest money. So you know what you're liable for now, but even with that earnest money deposit, there are still ways to back out of the deal.
The second portion of the contract that you need to look into is the due diligence period. Now the due diligence period, like the earnest money deposit, is totally negotiable. You can make it zero days. You can make it 10 days, 30 days, 60 days, 90 days, whatever you and the seller agree on.
Now, just like with the earnest money deposit, the bigger it is, the stronger your offer looks because you're putting more down with a due diligence period. The shorter it is, the stronger your offer. For example, if you make it for two days, that means after two days, your earnest money deposit is going hard, meaning that it is now nonrefundable. So when you're negotiating the diligence period, make sure you have enough time to determine whether you're going to get a buyer or not. I would say a very standard due diligence is 10 to 14 days. Most sellers don’t have an issue with that. If they want a shorter due diligence period, just know you better hope you have a deal, or you're going to put your earnest money deposit at risk.
Now, what are you supposed to do during the due diligence period?
This is your period to go get your inspections to market the deal and look for your buyer. That's what you need to use this period for. You have to determine whether you're going to actually buy the house or not.
Now let's just say your due diligence period is 10 days and you've sent it out to your buyers and the conclusion is you have it too high, meaning that you're paying too much. There's not enough of a spread. You have it for a hundred thousand dollars. Your buyers only want to pay $90,000. So now you have the choice. You can either back out of the deal so that you get your earnest money deposit back because you're within the due diligence period or the second option, which you should go for is the renegotiation. You still have three days left. So you might as well see if the seller is willing to give you it for a lower price.
So the first thing you need to do is figure out where exactly you need to be. If you have a trustworthy buyer and you know they're going to buy it at $90,000, then you know, that's the number I need to get under to make some money. If you don't have any buyers at all, and you have no idea what you're going to be able to sell it for, then I wouldn't renegotiate. The last thing you want to do is renegotiate and not be able to perform again. Then you lose your earnest money deposit. Your reputation is ruined. It's not a good thing.
My company renegotiates. Sometimes we get into a property and it's in a worse condition than we thought, or we just didn't analyze the deal properly. So we have to renegotiate, but we know that if we get the price that we renegotiate, we will close on the deal.
We'll buy it or we'll sell it to someone else and the seller will get cashed out. You do not want to renegotiate and then not perform. Even after they've given you the discount, that's not good business. So before you renegotiate, make sure you have a price in mind that, you know, somebody will buy it for now.
Let's say that, you know, 90,000 is good. You may go back to the seller and say, “Hey Mr. Seller, I need this property for $80,000 to make the deal make sense.” They may ask why and that's where you need to have justification for why you need a reduction. Oftentimes it;s the inspection. If you had a contractor go in there and you can say, “Hey, it's going to cost this much to fix the property. It's a lot more than we thought, this is why we need a reduction.” They're more likely to give you it.
We've also gone the totally honest route where we go straight up to the seller and say, “We totally just misjudged the deal. It's not worth what we thought it was worth. We messed up for it to make sense. And for us to buy it, we need to be at 80,000. And if we can't do it, totally understand, it's totally our fault. We just didn't see the deal properly.”
We've had a lot of success with renegotiations that way as well. The seller will respect you for being more honest than anything. When a seller is presented with either a renegotiation or backing out, they may choose the renegotiation because they do need to sell the property and this may be the only chance they have to do it. So what I'll say is we do like to renegotiate.
So to recap:
- Make sure you use my contract.
- The second thing is to understand your earnest money deposit and your due diligence period. Those are the two most important things that you need to look for. If you're not sure you can find a buyer for your deal.
- The third thing is, if you're going to renegotiate, make sure you can honor the price that you're renegotiating for. Make sure you have a solid buyer lined up who, you know, will pay the price.