What does “Under Contract” Mean in Wholesaling Real Estate
What does “Under Contract” Mean?
“Under contract” in real estate means that a buyer and seller have agreed on a price and terms for the sale of a property, and both parties have signed a legally binding agreement or contract.
In essence, the property is now reserved for that specific buyer, preventing other potential buyers from making offers unless the current deal falls through.
The rest of this article is cover:
1.) FAQ’s around “contracts in real estate and wholesaling.
2.) and how to wholesale contracts.
Let’s dive in and start with some fire Q/A time:
Does Under Contract Mean a House is Sold?
Not exactly. When a house is “under contract,” it means an offer has been accepted, and both parties are working towards a sale. However, until the closing process is complete and all conditions are met, the house isn’t officially sold.
What is the Difference Between Pending and Under Contract?
“Under contract” signifies that an offer on a property has been accepted, but contingencies—like inspections or financing—need to be fulfilled before the sale is finalized. On the other hand, “pending” typically means all contingencies have been met, and the sale is just awaiting closing. While both indicate a sale is in process, “pending” is closer to the finish line than “under contract.”
Can You Make an Offer on a House That is Active Under Contract?
Absolutely. While “active under contract” indicates a seller has accepted an offer with contingencies, it doesn’t prevent other offers from coming in. In many cases, motivated sellers welcome backup offers in case the current deal falls through.
Is There a Difference Between Contingent and Under Contract?
Yes, there’s a distinction. “Under contract” means that an offer has been accepted, and the property is on its way to being sold, but the sale hasn’t closed yet. “Contingent,” however, means the sale has conditions that need to be met (like a successful home inspection or buyer financing approval) before it can progress—essentially, it’s a type of “under contract” status with specific stipulations attached.
Can a Seller Accept Other Offers While Under Contract?
Typically, once a property is “under contract,” the seller has formally accepted an offer, and both parties are legally bound to follow through with the transaction.
However, a seller can entertain and even accept backup offers in case the primary deal collapses. It’s essential, though, that the initial contract terms are honored unless it’s terminated by either party based on contingencies or breaches.
What’s inside a good contract for wholesalers?
1. Keep It Friendly: The contract shouldn’t sound like it was written by a robot. Instead, aim for clarity. Make it so straightforward that even someone with zero real estate experience can get the gist.
2. Mention The Assignment: You’re a wholesaler. That means you’ll likely be assigning the contract to another buyer. This isn’t sneaky business; it’s just how wholesaling works. Ensure your contract spells out that you have the right to assign the agreement to another party.
3. Exit Clauses Are Your Safety Net: Imagine diving headfirst into a deal, only to find out the foundation is as stable as a house of cards. Yikes! Exit clauses are your get-out-of-jail-free cards. They allow you to back out if specific unforeseen issues pop up that could affect the price or your decision to buy.
Lastly, and this is a biggie: Consult an Attorney. While it’s tempting to go DIY, a legal expert’s input ensures you’re protected and that your contract is, well, legit.
Here’s a Youtube video SHOWING you want a wholesaling contract looks like:
What’s an Assignment in a contract?
If the world of real estate were a cocktail party, “assignment fee” would be that mysterious guest everyone’s whispering about. Everyone’s curious, but few truly understand.
So, let’s pull back the curtain.
In wholesaling, the assignment is the bread and butter. It’s the profit a wholesaler makes for connecting a seller with a buyer. Imagine you’re a matchmaker. You introduce two of your friends, and because of that introduction, they start a business together. As a thank you, they give you a cut of their profits. That’s the essence of the assignment.
Here’s how it works: A wholesaler gets a property under contract with a seller and then assigns that contract to an end buyer. The difference between the contract price with the seller and the amount the end buyer pays? That’s the assignment fee. It’s the wholesaler’s payday for making the match.
Potential as a Business?
Wholesaling, when done right, has the potential to be a lucrative venture. Unlike traditional real estate where you’re sinking money into repairs and hoping for a higher sale price, in wholesaling, you’re essentially trading on information and connections. The assignment fee is a reflection of the value you bring to the table by bridging gaps: finding off-market deals, connecting buyers, and ensuring smooth transactions.
However, like any business, it’s not a get-rich-quick scheme. It requires networking, understanding market dynamics, and building trust. But for those who master it, wholesaling offers a way to tap into the real estate market without the hefty investments or risks associated with buying and holding properties. And those assignment fees? They can add up, turning this gig into a genuine goldmine.
If you’re interested in turning wholesaling into a business, here’s a quick video showing how:
Are Real Estate Contracts Binding for Wholesalers?
Imagine shaking hands on a deal. That sense of commitment you feel? That’s the spirit of a real estate contract. But is it just a handshake, or is there more weight behind it?
In the official world, yes, real estate contracts are binding. When both parties – buyer and seller – ink their signatures on that dotted line, they’re promising to uphold their end of the deal. However, like any promise, there are nuances.
Real estate contracts often come with exit clauses, also known as contingencies. These are like the escape hatches of the real estate world. They provide conditions under which you can bow out without being legally bound to continue with the purchase. Maybe the property inspection revealed a termite issue, or perhaps your financing fell through. These exit clauses are your get-out-of-commitment card. But there’s a catch: if you bail without a valid reason from one of these contingencies, you might kiss your earnest money deposit goodbye. This deposit is like collateral; it shows the seller you’re serious. If you backtrack without a solid reason, the seller keeps that deposit as compensation.
Now, let’s talk ethics. Wholesaling, at its heart, isn’t just about flipping contracts; it’s about helping sellers find solutions. If a seller genuinely needs to offload their property, and you back out without a genuine reason, it’s not just a contractual breach; it’s a breach of trust. It’s leaving someone in the lurch when they were counting on you. Especially if you can’t find a buyer. That’s not just bad business; it’s bad karma.
To navigate wholesaling ethically, always operate with integrity. Understand that behind every contract is a person, often with hopes, needs, and stresses. Always strive to create win-win situations and remember, while contracts are legally binding, your reputation is bound by your actions.
Here’s a video giving you the exact details on exit clauses in a wholesaling contract:
What If I Can’t Assign the contract??
In the unpredictable dance of real estate wholesaling, sometimes you lead, and sometimes you stumble. Finding yourself unable to assign a property can be one of those missteps. Typically, this hiccup arises from two main culprits:
1. You Priced It Too High: Just like that overpriced antique in a thrift shop, if your property’s price tag is more wishful thinking than reality, it’ll gather dust instead of offers.
2. You Overestimated Repairs: If that “minor fixer-upper” turns out to be a renovation nightmare, potential buyers might bolt faster than you can say “unexpected costs.”
Of course, there’s the occasional instance of not finding a buyer, but let’s get real: if you’ve snagged a good deal, buyers will line up like kids at an ice cream truck.
So, what to do if you’ve overpriced or overlooked repairs?
Face the Music with the Seller
Approach the seller with the same honesty you’d appreciate if the roles were reversed. Admit your oversight: explain that you priced it too ambitiously, or perhaps the extent of necessary repairs took you by surprise. Tell them plainly that your partner (or the investor you work with) isn’t on board with the current terms.
Now, here’s the delicate part: negotiating.
Ask the seller if they’re open to revising the price. This isn’t about lowballing or squeezing out more profit. It’s about recalibrating to a fair deal that aligns with the property’s actual value and condition.
Remember, in wholesaling and in life, transparency and integrity go a long way. Own your mistakes, and more often than not, you’ll find a path forward.
How Do I Find a Buyer to Assign the Contract?
Finding a buyer to assign your contract to can feel like searching for a needle in a haystack. But, with a strategic plan, that needle becomes a lot easier to locate. Think of this journey as one of both exploration and connection. Here’s how to get started:
1. Dive Into REIA Groups:
Local Real Estate Investors Associations (REIA) are treasure troves of knowledge and networks. These gatherings often teem with cash buyers, flippers, and other real estate professionals. Making your presence felt here can open doors to potential contract assignments.
2. Get Social with Facebook: There’s probably a Facebook group for everything these days, including cash buyers in your vicinity. Join as many local real estate and cash buyer groups as you can. It’s like fishing in a pond filled with hungry fish.
3. Craigslist, with a Twist: When listing on Craigslist, be clear. You’re not selling a property; you’re assigning a contract. Transparency upfront saves a lot of back-and-forth later.
4. Harness the Power of Propstream: This platform lets you pull lists of potential cash buyers in your area. It’s a paid service, so you might want to check out costs in this Propstream review before diving in. Once you have your list, a combination of mailing and cold-calling can put you in direct touch with prospective buyers.
NOTE: Use SkipForce or a similar skiptracing tool to grab phone numbers to call on these cash buyers
5. Build Your Buyer Rolodex: Think long-term. Every time you find a cash buyer, save their details. This way, with each deal, you’re not starting from scratch. Over time, you’ll have a go-to list of reliable buyers, streamlining your process.
NOTE: If you plan on making assigning contracts a business, you might want to invest in getting your own website that attracts cash buyers and builds you a list.
Remember, wholesaling isn’t just about moving properties (or contracts, in this case); it’s about building relationships. Every buyer you connect with, every group you join, and every call you make strengthens your position in the real estate network.
The bigger and tighter your network, the faster and smoother your wholesaling journey becomes.
Tools to Help Assign Contracts as a Wholesaler
Navigating the waters of wholesaling requires more than just expertise – you need the right tools in your arsenal. Especially for finding deals off-market. Which is key to profiting off assignment contracts. Below you’ll find a list of software most popular and effective for investors and wholesalers.
– Data Provider: Essential for sourcing potential sellers. We recommend Propstream for its comprehensive data.
– Dialer for Cold Calling: Efficient communication is key for cold calling. Batch Dialer gets our vote for its ease and functionality.
– Website: A digital presence is a must. Carrot offers sleek, investor-friendly website designs tailored for wholesalers.
– CRM for Tracking Your Leads: Keeping track of interactions and deals is critical. We’ve curated a list of top CRMs for wholesalers, but Investor Fuse stands out with its intuitive interface and robust features.
– AI for Scoring: To prioritize your marketing efforts effectively, use RealeFlow. It sifts through data, pointing you to the most promising leads.
– MLS Access: Essential for market data and deal evaluations. Privy is our go-to for seamless MLS access tailored for investors.
– Driving for Dollars App: Spotting potential deals while on the move? We recommend Deal Machine, making it easy to note and track properties of interest.