Wholesaling Homes: How to Stop a Seller Backing Out of Your Contract
As a real estate wholesaler should you be worried about home sellers backing out of contracts? Can they just bail on a whim, why would they and what can you do to prevent it to avoid losing profits?
While a written and signed real estate sales and purchase contract that is secured by a deposit is meant to be legally binding on both parties sellers will try to wiggle their way out more often than you might think. For wholesalers this can put major kinks in cash flow, be costly when due diligence and marketing have been funded and put a dent in your reputation when your end buyers get messed around too.
So why do sellers pull these stunts, especially in this market?
Real estate wholesalers have to understand that flipping houses isn’t like pushing used cars. There is a lot more involved, and a lot more emotion comes into play too.
Sellers may want to get out of a contract for genuine reasons such as new job prospects falling through or family issues and so on. In these cases investors might want to give them a pass or at least some slack.
Other times it is greed that is the motivator. It can come from uneducated family and friends whispering in their ears that they should have asked for more. They might begin to regret agreeing to a sale too quickly if more offers come in later on. Or they might realize just how much you stand to make on flipping their house and want a slice.
So how can wholesalers minimize these issues?
Start by making sure they are really in the deal and all decision makers are on board from the get go.
Get better at your own due diligence and look out for sums that could dramatically reduce the seller’s net proceeds from the sale they may have overlooked. This can include mortgage late fees and attorney’s costs, code enforcement, contractor or HOA liens, pre-payment penalties on loans, federal tax liens, second mortgages and lines of credit and more.
Sticking to legitimate, wet funded, separate double closings is also smart versus flipping deal at the table or asking for large assignment fees which could cause real estate closings to erupt at the last second.
However, perhaps the single best defense is just to close quickly. Using transactional funding aka ‘flash funding’ you can close in just a couple of days and collect your profits before sellers even have time to think about trying to back out.
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