Wholesaling with Standard Realtors Contract

Wholesaling with Standard Realtors Contract

Paragraph 32 of the standard realtors contract in my area states:

Standard Realtors Contract (NVAR) wrote:
"This Contract may not be assigned without the written consent of the Buyer and Seller.

If Buyer and Seller agree in writing to an assignment of this Contract, the original parties to this Contract remain obligated hereunder until Settlement.

Whu? Huh? Oh My Fricken WHAT!!!??

How the heck am I supposed to assign this thing if I AM LIABLE for the original purchase in the event my end buyer decides she doesn't want to buy the property after all.

Getting the assignment fee up front doesn't guarantee my end buyer closes; it's just a deterrent.

I can't do this if I'm legally liable for the original purchase if my end buyer backs out!

Agh!!!!!!!! Hours upon hours of reading and watching, my eyes are crossed and bleeding. This feels like a brick wall.

PLEASE HELP!!!!!!

__________________


Mara!

Don't worry!!!

1st of all you are protected by the Inspection Period. During that time you can terminate the contract if you can't find a buyer!

2nd, you can offer in an LLC and then sell the LLC. That does away with your assignment worries.

Or you can ask for an amend to change the contract to assignable. I do this after I get non refundable earnest money and a partial or complete assignment fee from my investor buyer up front. I make sure that it is an amount the investor does not want to loose if he fails to close. This qualifies your buyer as the real deal. If he does not close, all you are liable for is the earnest money deposit. They won't come and make you buy the house!! So you loose nothing and you make part or all of your fee if your buyers does not close.

Once you have assigned the contract, collected earnest money and your fee up front you are no longer liable for the original contract. Providing you use a good,legal and binding assignment contract.

I do this all the time, so don't worry. Your job is to find a deal that investors want in the first place! Offer in a disposable LLC and go for it!!

Good Luck!
Mike

Do you attend local Real Estate clubs?

__________________

Knowledge is power, but execution trumps knowledge. Tony Robbins

http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site


Thank you, Michael!

Thank you so much for your response, Michael. I so appreciate your reply, your experience, and your expertise.

However, this is the scenario I'm posing:

  • My Assignment of Contract has been signed. I have received a $10,000 assignment fee from my assignee plus a separate check to cover my earnest money deposit.
  • It is day 27 after my original purchase contract has been signed—My 14 day inspection period has ended.
  • My end buyer—for any reason or no reason—backs out and does not want to close. She knowingly and willingly forfeits her $10,000 and the earnest money deposit.

Alright. So, in this instance, the standard realtor contract states:

The Standard Realtor Contract: wrote:
the Deposit may not be the limit of Buyer's liability in the event of Default...including Seller's option to...pursue actual damages...

...in addition to all other damages, the defaulting party will immediately pay the costs incurred for the title examination, Appriasal, survey, and the Broker's Fee in full.

You see!!!

Forfeiting the earnest money deposit is not the only concern. I could be liable for "actual damages," in addition to title searches, and Broker's fee—Agh!!! Broker's fee????!!!???

Sorry for the frustration. I am deep into Dean's material now, and it told me to read the contract. So I did.

I can't pretend I didn't read it and didn't see this language.

Now what?

(Sigh) Puzzled:ShockedJawdropping!


Hi Mara

Highly unlikely that the seller could prove actual damages.(sellers OPTION) What could they be? Also your $10,000 would cover any of these other expenses.

Your buyer is also highly unlikely to forfeit $15,000!!

Nothing you can do is without risk, but you minimize risk by getting the money up front from your investor. Real investors just don't forfeit that kind of money. They make sure everything is lined up before they sign the contract.

In well over 300 wholesale deals, I have NEVER, not one time had an investor back out after putting up the non refundable earnest and assignment fee. Never Smiling It could happen, but that would never keep me from doing business.

Now they have backed out plenty of times BEFORE they were to put up money and sign the contract. Happens all the time. Why? They are just tire kickers!!

I would have the agent remove the language that states the additional damages and make earnest money the full liability if default occurs. Remember, ANY contract can be amended! I could be wrong, but I think that language was added by the agent and is not standard language it the state real estate approved contract. I could be wrong about that.

Worst case offering in and selling an LLC would do away with the assignment language because the original entity that made the offer closes the transaction. therefore no assignment and no additional liability. This may be strategy you use if you can't get the assignment language removed.

Don't give up, there are ways around this situation!

Michael

__________________

Knowledge is power, but execution trumps knowledge. Tony Robbins

http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site


Thank you so much, Michael!

Thank you so much, again, Michael!

Is it legal to simply remove language from a standard contract?

Does the Colorado standard real estate contract also have this defaulting party...pays all costs language?

Though I understand the preponderance of the evidence (300 deals! Wow!) shows that end buyers will NOT default once they've paid your assignment fee and the earnest money—I'm still signing a document holding me liable for all manner of costs if they do default.

Unfortunately, this language is a part of the standard state contract language.

I'm so grateful for your help, Michael, but frustrated that after hundreds of dollars and a hundred hours spent studying Dean's material, I am stuck on this.

Nor can I find anything in his material that discusses the "disposable LLC" tactic, something I'm beginning to become aware must be understood to do these deals properly.

I'm sorry to express my frustration to you. Certainly you are not at fault. It's just after all the time and money spent on training material, I shouldn't be flailing around in the dark over contract language.

(Sigh.) Sad

In any case, you've been a great help, Michael. Appreciate any further feedback you have, and thank you so much.


Mara

Colorado contracts do not have that language.

I think that if both seller and buyer agree in writing to contract amendments then it is legal and binding. The contract will have to be amended to have any language removed.

You can't not do business because a buyer may default! There is risk in any venture! Again, by offering in a Trust or LLC and then selling ownership of the Trust or LLC to your buyer will do away with the assignability clauses/language!

So if your buyer does default, only earnest money will be at stake. The buyers earnest, not yours, so your will have no money at risk.

Put the systems in place to make offers. Making an offer does not mean you are liable for anything. Nothing happens until the offer is accepted.
Build your buyers list simultaneously! Don't get stuck in the paralysis of over analysis. The things you are worried about will not stop you unless you let them! You just need to set up an LLC and start offering in it. Do you need to know how to transfer LLC ownership? NO, not now, You don't need to worry about it until you have a good deal under contract and a buyer that will put up non_refundable earnest and pays the fee to transfer ownership to them!

If you make no offers and have no buyers you don't have to worry about modifying contracts!! Your NUMBER ONE priority as a new investor is to put the systems in place to find properties and make offers!!! All the while building your buyers list. Everything else just delays your progress.

NO OFFERS = NO CHANGE OF MAKING MONEY!!

You can do this!!

Michael

__________________

Knowledge is power, but execution trumps knowledge. Tony Robbins

http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site


You might be right. I may

You might be right. I may well have analysis paralysis.

Do you have any resource to learn the "transfer the LLC" or "sell the LLC" method...?

I will go ahead and start making offers, but I do want to learn this strategy while I'm making offers so that I don't stare blankly at my seller in the event one is accepted. Smiling

Thank you so much, Michael, for your help!

I have been building my buyers list for the past year, have two agents that are willing to work with me, and have been putting out bandit signs; however, I haven't made any offers.

I will work on this contract amendment language — and, if you have any resource to learn the LLC transfer method, I'd be so grateful.

Once again. Thank you, Michael. You have been an immense, tremendous help—and a great source of encouragement Smiling


Hello Mara

You can google "create an LLC in New Jersey" and learn how to create an LLC. The articles of organization for your LLC can be created on line. You could have an LLC for your company and then create a separate 2nd LLC just to make real estate offers in. The operating agreement is the key document for your RE LLC. Within that doc transfer of ownership of the LLC is allowed. Of course, the operating agreement is not needed until you have a property under contract. You will have plenty of time to put that together before you close!

Just create that LLC and start making offers in it!

Hopefully you will be able to assign. That is by far the easiest way to wholesale. You could also check with a LOCAL transactional fund provider and do double closings.

Is there a local Real Estate Club you can attend? This would really be helpful. Lots of people doing business to talk to. How do they wholesale, what attorney do they like etc etc! Networking is critical. A lot of times it is who you know not what you know! Get out there and meet people.

Michael

__________________

Knowledge is power, but execution trumps knowledge. Tony Robbins

http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site


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