Wholesale Assignment vs Double Close
There are a few different was to close a wholesale transaction, and this week I just want to share an experience on one of my closing. This is to give you an insight on which direction to take when it comes to closing a wholesale transaction.
The transaction I referenced above is a deal that I have been working on for nearly 6 months (remember the importance of following up), in our telephone conversation, I followed all the normal protocol on vetting the caller i.e…..finding out the condition of the house and what was their motivation so on and so forth. This was pretty straight forward, there was some motivation there but not much. He told me a price that he would like to get and I gave a sight unseen offer, and we were not far off in what he wanted and my price point so we decided on a time to meet.
I arrived early as usual to drive the neighborhood to get familiar with what is going on in the area. I was familiar this area because I had an inspection in the general vicinity about 8 months earlier, however things were changing drastically. On the sellers block there were 3 new builds, and 2 currently in construction, also around the corner there were 3 new custom homes being built. I thought to myself wow this is great there is plenty of investor activity.
As I pull up to the house I noticed there was a FSBO sign in the front yard and it had a drastically different asking price then what we discussed. I made a mental note on this to discuss with the owner. Me and the owner go through the formalities of discussing the weather and traffic yadda yadda yadda….. I value time because it is our most precious commodity so I reiterated our discussing and where we were at on pricing because of the FSBO sign. Then he proceeded to tell me that what we discussed was to low. So I gave him my card and told him if anything should change call me…….knowing I would be calling him in about 3 weeks.
Follow Up Phone Call
I called the seller back in 3 weeks to see how things were going with the sell of his house, and if he had any offers. He said yes which I expected, because any smart investor if they are building in the area would talk with the homeowner with the FSBO sign, and present an offer. This worked out great because their offer was not to much different than mine, thus establishing a baseline for what the sellers property was worth.
I was able to inform the seller the price that he was asking was unrealistic and that I am offering him a fair price. After some time we rescheduled the inspection.
During the re-inspection I walk through and the seller is telling me everything about the house all the faults and his level of expectation and desperation has changed tremendously. We finished our discussion I pitch him an offer and we agreed and have a closing date. Great
I had an end buyer come and view the house this was prior to marketing the property, he loved the area and the numbers, so making an exception we agreed to meet at the house so he can walk through and decide if this is the next project for him.
Immediately when he pulled up at the property he said more than likely I’ll take it but as a formality let me see what I’ll be purchasing. We walk through he loved called me back later that day to negotiate a bit, and we finally settled on a price. This buyer was an associate of an associate.
All the buying instruction was sent over we are ready to move forward, smooth clean transaction right. About 30k would be the assignment fee, great day for everyone involved; the seller is happy, the end buyer is happy, and I am happy.
Assignment vs Double Escrow
Assignment fee is the norm especially with repeat buyers because there is complete transparency they just want to know they are getting a deal, and do not care what the fee is. The buyer and seller is aware of all the numbers, this is a good strategy when the fee is minimal 10k or less. Double escrow is used for confidentiality; one leg does not know what the other leg paid so on so forth.
Here in is the problem, because the assignment fee was 30k the end buyer did not want to pay the assignment fee because he thought it was excessive. Also now he has intentions on trying to back door me if I can’t close the deal. Since the end buyer did not send the EM in, there were no repercussions against him.
Double Escrow is a safer transaction. You may pay a little more money on the back end because you are closing 2 transactions with the title company so there are 2 closing fees, but you avoid this critical mistake of letting your end buyer know how much you are making. I would advise any assignment fee is a great strategy to save you money and to have a clean transaction, but Double Escrow fee over $10k double close the transaction.
Oh…..I was still able to close the deal and help the seller!!!!