How to Get a House Under Contract for Wholesaling

Real estate wholesaling offers a distinct approach to property investment, focusing on contractual control rather than direct ownership. This strategy involves securing a property under a purchase agreement with a seller and then transferring that agreement to an end buyer. Getting a house “under contract” represents an initial step, establishing the wholesaler’s right to purchase the property and enabling its assignment. This process allows for profit generation without significant capital investment or the responsibilities of ownership.

Identifying and Evaluating Potential Properties

A successful wholesaling venture begins with the diligent identification of properties that present an opportunity for profit. Wholesalers seek “motivated sellers” who prioritize a quick sale over achieving top market price. Lead generation methods for finding such properties include direct mail campaigns, exploring online platforms, engaging in “driving for dollars” to spot distressed homes, and researching public records for properties with indicators of distress like code violations or tax delinquencies. These efforts focus on targeting properties that are likely to be sold below market value and require renovation.

Once a potential property is identified, a thorough property analysis becomes necessary to determine its viability. A fundamental step involves estimating the After Repair Value (ARV), which is the property’s anticipated market value after necessary renovations are completed. This estimation is achieved by analyzing comparable sales (comps) of recently renovated properties in the immediate area, within a one-mile radius and sold within the last six months. Identifying three to five such properties with similar features, size, and condition provides a basis for a reliable ARV.

Estimating repair costs is another component of property analysis. This involves a preliminary walkthrough to identify visible damages and potential issues with major systems like roofing, plumbing, or electrical. Wholesalers use quick estimation methods, such as a per-square-foot cost approach. A buffer should be included in these estimates for unforeseen expenses.

With the ARV and estimated repair costs in hand, the next step is to calculate the Maximum Allowable Offer (MAO). This determines the highest price a wholesaler can offer for a property while ensuring a profitable deal for both the wholesaler and the end buyer. A common formula for MAO is: ARV – Repair Costs – Wholesale Fee – Holding Costs. The “70% rule” suggests MAO should not exceed 70% of the ARV, minus estimated repair costs, to leave margin for the end buyer’s profit and the wholesaler’s fee.

Developing Your Offer Strategy

The Maximum Allowable Offer (MAO) calculated during property evaluation directly informs the offer price presented to the seller. Wholesalers offer a price significantly below the property’s market value, providing room for the wholesaler’s assignment fee and the investor’s profit margin after renovation. This ensures the deal remains attractive to cash buyers seeking discounted properties. The offer emphasizes a quick, cash-based transaction without the need for repairs or traditional listing processes.

Structuring the offer involves outlining the key terms that will form the basis of the purchase agreement. These include the proposed purchase price, the earnest money deposit amount, a specified closing date, and any relevant contingencies. The earnest money deposit, a good faith deposit, demonstrates the wholesaler’s commitment and is held in an escrow account. This deposit ranges from 1% to 10% of the sale price, depending on market conditions and negotiation.

Contingencies are clauses that allow a party to withdraw from the contract under certain conditions without penalty, protecting the wholesaler’s financial interest. While a financing contingency is less common in wholesale deals, an inspection contingency is included. This grants the wholesaler a period to conduct due diligence, verifying the property’s condition and securing an end buyer. Clear terms in the offer prevent misunderstandings and facilitate negotiation.

Initial contact and presentation of the offer require a strategic approach to resonate with motivated sellers. Wholesalers highlight the benefits of their cash offer: a fast closing process and the property purchased “as-is,” meaning no seller repairs. Addressing the seller’s specific needs, such as avoiding costly renovations or achieving a quick sale, increases acceptance likelihood. This direct communication builds rapport and trust, securing the deal.

Finalizing the Purchase Agreement

Securing a signed purchase agreement is the pivotal step in getting a house under contract for wholesaling. This phase requires negotiation, where the wholesaler addresses seller concerns and works toward agreeable terms. Negotiation involves listening to seller priorities, offering solutions that align with their needs, and communicating transaction benefits like a guaranteed sale and reduced closing complexities. Overcoming objections requires flexibility and creating a win-win scenario.

The purchase agreement itself must contain specific contractual elements that are vital for the wholesaling model. A crucial provision is the assignability clause, which explicitly grants the wholesaler the right to assign or transfer the contract to another party. This clause allows the wholesaler to sell their contractual rights to an end buyer without actually taking ownership of the property. Without this language, assigning the contract could be legally challenging or prohibited.

The inspection period, or due diligence period, allows the wholesaler to inspect the property and conduct due diligence, including verifying repair estimates and market conditions. This period ranges from 7 to 15 days, providing time to confirm the deal’s viability and find an end buyer. The inspection contingency allows the wholesaler to renegotiate terms or withdraw from the contract without losing earnest money if undisclosed issues are discovered.

An “as-is” clause is included in wholesale agreements. This clause stipulates the buyer purchases the property in its current condition, relieving the seller of any obligation to perform repairs or provide warranties. While an “as-is” clause limits seller liability for defects, sellers are required by law to disclose known material defects. This ensures transparency while maintaining the property’s appeal to investors prepared to handle renovations.

Once terms are agreed upon, securing signatures formalizes the purchase agreement. This can be achieved through in-person meetings or electronic signature platforms. After signing, the earnest money deposit is submitted to an escrow agent, initiating the escrow process. The wholesaler then markets the property to their network of end buyers, leveraging the due diligence period to align the deal with a suitable investor.