How to Put a House Under Contract for Wholesale

Real estate wholesaling involves securing a property under contract to assign it to another buyer before closing. This process centers on the purchase agreement, legally binding the seller and wholesaler for a specific period. Putting a house “under contract” establishes control and provides time to locate an end buyer. This article guides you through the steps to place a property under contract for wholesale.

Key Components of a Wholesale Real Estate Contract

An assignability clause explicitly states the buyer’s right to transfer or assign the contract. This non-negotiable clause provides the legal basis for selling the contract, not the property. Without it, the wholesaler would be obligated to close, contrary to the wholesale model.

Purchase price and terms are based on property value analysis. Wholesalers determine their offer by estimating After Repair Value (ARV), then subtracting anticipated repair costs, a wholesale fee, and closing costs. This allows an offer that provides room for an end buyer to rehabilitate the property and profit. Payment terms, like cash or financing, are outlined.

An Earnest Money Deposit (EMD) demonstrates buyer intent. Amounts vary, typically from a few hundred dollars to 1% of the purchase price, or less. This deposit is usually held in escrow by a neutral third party (e.g., title company, closing attorney) and is often refundable if contract contingencies are not met.

Contingencies are provisions that must be met for the contract to remain binding, protecting the buyer. A common inspection contingency allows 7-14 days for inspections and potential withdrawal if conditions are unsatisfactory. A “buyer’s approval” or “marketing period” clause grants the wholesaler 10-30 days to find an end buyer. This allows marketing and securing an assignee without being forced to close if no buyer is found.

The closing date specifies when the transaction finalizes, usually set far enough in the future for the wholesaler to locate an end buyer and for assignment. This date can be adjusted by mutual agreement. The contract also requires a precise property description, including the full street address, parcel number, and other legal identifiers, ensuring no ambiguity.

The contract must identify all parties, including full legal names of property owners (sellers) and the wholesaler (buyer). All legal owners must sign for validity. The contract also specifies how notices and communications are delivered.

Gathering Essential Information for the Contract

Gathering specific, detailed information about the property and seller is essential before drafting a wholesale contract.

Essential property details include the full street address, legal description (parcel number, lot, and block), and the property’s “as-is” condition, noting any visible damage or deferred maintenance.

Seller information is important, including full legal names of all individuals or entities on the property’s deed and their contact information. Understanding seller motivations, preferred closing timeline, and specific conditions (e.g., quick sale, move-out date) influences negotiation and contract terms.

Investigating financial details is an important due diligence step. This involves identifying liens, mortgages, or other encumbrances affecting the title. Preliminary title searches, conducted by a title company, reveal these obligations, ensuring clear ownership and debt resolution at closing.

Market analysis data is key for determining an offer price. This includes comparable sales, helping estimate After Repair Value (ARV). Accurate repair cost estimates are necessary, often involving contractor walk-throughs or detailed assessments. These projections inform the wholesale offer, ensuring competitiveness and profitability.

Identifying the preferred title company or closing attorney streamlines the transaction. Gather their contact information and confirm their ability to handle assignment contracts. This ensures a smooth closing once an end buyer is secured.

Steps to Draft and Execute the Contract

With information gathered, populate the purchase agreement. Contract forms are typically obtained from local real estate associations, legal document providers, or online templates. An attorney should review any chosen form to ensure compliance with local laws and protect wholesaler interests.

Accurately input data into the contract form. Enter full legal names of sellers and the wholesaler (buyer), the agreed-upon purchase price, and the earnest money deposit. The property’s legal description (address, parcel ID) must be correctly transcribed to avoid ambiguity. Ensuring the assignability clause is marked or included is important for the wholesale strategy.

Present the prepared contract to the seller. Negotiation may follow, discussing and adjusting purchase price, closing date, or contingencies. Wholesalers negotiate based on seller motivation and property condition, aiming for a profitable assignment price. Multiple counter-offers may occur until terms are established.

Once consensus is reached, obtain signatures from all parties. All sellers on the property deed and the wholesaler must sign. Signatures can be obtained in person or through electronic platforms. Each signature must be dated to establish the execution date.

After contract execution, distribute copies to all parties. The seller receives a signed copy, and the wholesaler retains one. A copy is also delivered to the chosen title company or closing attorney, who initiates the title search and prepares for closing or assignment. This informs all parties and allows the process to proceed.

Managing the Contract Through the Due Diligence Period

After contract execution, managing the due diligence period involves steps to ensure a smooth assignment or closing process.

Deliver the Earnest Money Deposit (EMD) within 24 to 72 hours. This deposit is sent via wire transfer or certified check to the escrow agent, confirming buyer commitment.

Simultaneously, initiate a title search with the title company. The preliminary title report identifies issues that could cloud title. The title company ensures clear title, important for ownership transfer. Discrepancies must be resolved before proceeding.

If an inspection contingency exists, arrange a thorough property inspection during due diligence (typically 7-14 days). Professional inspectors assess structural integrity, mechanical systems, and condition. The report confirms estimated repair costs and can be a basis for renegotiating terms or terminating the contract if severe issues are found.

Maintain clear communication with the seller. Updates on inspections, title searches, and end buyer search build trust and manage expectations. Proactive communication addresses minor issues before they escalate.

Address and satisfy all contingencies within their timeframes to keep the contract valid. This involves removing the inspection contingency after review, or confirming the marketing period contingency is used to find an assignee. Failure to meet deadlines or remove contingencies can lead to contract termination and EMD retention.

During due diligence, prepare for contract assignment or direct closing if no end buyer is found. This involves marketing the property to cash buyers and investor networks, preparing assignment agreements, and coordinating with the title company for contract transfer. The goal is a seamless transition to the end buyer within the closing timeframe.