Wholesalers, Avoid The Closing
By: Matt Gerchow
The author has permitted the reprinting and redistribution of this article.
The Closing - Avoid the Closing
In a wholesale deal a good rule of thumb is, AVOID THE CLOSING! Have your attorney draft a Limited Power of Attorney that allows them to sign documents for you so it is not necessary for you to attend.
For all you control freaks, I know this is totally counter intuitive to your thinking, but here’s why. Closing a wholesale transaction consists of two meetings that need to take place in no particular order. The seller can come in and sign all of their paperwork first, or the buyer, it does not matter.
The significant difference is that if the buyer signs first the seller can leave with their check that day as opposed to having it mailed to them the next day or wired to their account later that same day. In the case of a double closing the buyer needs to come in first because you will be using their funds to close the first sale.
During one of my first closings I had the seller, the buyer and myself all in the attorney’s office. What was a $10k assignment turned into a $7k assignment after a lot of yelling, name calling and legal threats(on their part). After that I was completely gun-shy about closings. I insisted that people meet in separate rooms and I would purposefully pad the times to keep at least two hours difference between the seller arriving at the title company and the buyer showing up.
The key aspect we are trying to avoid here is “Renegotiation”. Many sellers come to closing with the thought in mind that they are simply going to renegotiate the deal. demanding more money for their property because Billy Bob from down the street is willing to offer them $5k more than you did. It is important to keep these meetings all business and to communicate well with the title agent that this is how you conduct business.
What do you say when the seller sees that you have sold the property for more and you are making $10,000 on the transaction? First of all, if you are not there you will not be answering this question, your title agent will. You will need to instruct them to answer as follows. “Your Company partners with several Investors to find them properties. This money is used for marketing costs, needed repairs, and other expenses related to the purchase of your property.”
Just as sellers want to renegotiate, so do buyers. Let’s say you are making a $30,000 assignment fee on a property. I have sat on the other side of the table and purchased a property that I was going to rehab for $40k profit and the Wholesaler was earning a $30k assignment fee for basically getting the contract. These situations are another reason why you want to get as much money down as possible from the Investor. If a situation like this arises, and it will, the Investor will need to make a decision between losing their $5k deposit or going ahead and closing the deal. Keep in mind all the mortgages, appraisals, closing costs and fees have been assessed for the price that you agreed upon over coffee. They usually stand to lose $2-3k more than their deposit if they decline the deal. If they do decide to walk away, you are able to market your contract for $5k less and still make the same profit.
While you are just starting out you simply are not good negotiators. You might think you are, like I did, but that’s how I lost $3k in a matter of minutes in a closing room. Go figure.
By avoiding the closing people have to negotiate with themselves. At this point they are generally negotiating with the greed glands and the convenience factor. To date, I have not had any deals not close because I was absent. I have received a few phone calls from the title agency, but it has always been something I could handle.
Hope this helps,
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"