Closing the Wholesale Deal

June 20, 2023by Brandon Banks

Real estate wholesalers live life in the middle. As a wholesaler, you straddle a delicate bridge between the seller and the end buyer. It can be a precarious position. As with most real estate transactions, it all comes down to the closing table. That’s when everyone gets paid, including you. As such, it’s critical to understand the two different types of closings available to you as a wholesaler — assignment closings and double closings. 

To understand the strengths and weaknesses of each closing, let’s first remember what we’re trying to do as a wholesaler. We are acting as a “connector” between a seller of property and an end buyer.

It might look something like this — you find a distressed property owner willing to sell their property for $200,000. You get the property under contract with a minimal deposit or option fee … and then locate an end buyer willing to pay $210,000 for the property. The end buyer takes title at the end of the transaction, and you as the wholesaler pocket the $10,000 difference. No down payment, no loan application, no closing costs … just a cool $10,000 in your pocket!

How do you close a deal like this? That’s where we get to our two flavors of closing.

Assignment Closing

An assignment closing means you take the original purchase contract for the property and “assign” it to the end buyer. You don’t create a new purchase contract … Effectively, all you do is swap your name on the contract for the end buyer’s name, while the seller stays the same.

Instead of another purchase contract, all we add to the equation is a separate, much simpler contract called an assignment agreement. This contract stipulates that the wholesaler will sell his/her right to buy to the end buyer, and what fee the wholesaler will collect in exchange.

The assignment agreement then gets added to the book of closing documents, and the wholesaler’s fee gets added to the closing statement. The end buyer must furnish into escrow all the funds needed to close the deal — including the wholesaler’s fee. The escrow officer distributes the fee to the wholesaler upon close of escrow.

Pros of Assignment Closing

An assignment closing has the benefit of being simple and inexpensive for the wholesaler. There’s only one contract, only one set of closing costs, and the end buyer picks up the closing costs.

Cons of Assignment Closing

The key downside of assignment closing is lack of transparency. There’s only one contract, and everyone has access to all the details. This could cause friction in several ways. For example:

  • The seller may become upset that there is a buyer out there willing to pay more for their property, and they may attempt to get out of the contract to pocket a higher sale price.
  • The end buyer may become salty over the fact that the wholesaler is making so much money while assuming so little risk.

Double Closing

As the name implies, a double closing involves two contracts. They are sometimes described as “A to B, B to C” closings.

The seller and the wholesaler have a contract for the sale of the property, with the wholesaler as the buyer … but there’s a whole separate contract to purchase negotiated between the wholesaler and the end buyer, with the wholesaler as the seller on this contract. This second contract is usually negotiated while the first contract is still open — meaning the wholesaler is going under contract to sell property (s)he doesn’t even own yet!

The two contracts must usually be closed on the same day. It can get a little tricky. After all, money from the end buyer must flow through the second contract to fund the escrow of the first contract — to which the end buyer isn’t even a party! It’s a delicate balance, orchestrated by the wholesaler in cooperation with the title office.

Pros of Double Closing

The advantage of a double closing for the wholesaler is privacy. The seller has no idea the terms of the wholesaler’s agreement with the end buyer, and the end buyer has no idea the terms of the wholesaler’s agreement with the seller. Out of sight and out of mind, the end parties are far less likely to get triggered and try to back out of the deal.

Cons of Assignment Closing 

Two purchase contracts are more complicated than one. The wholesaler is also on the hook for the closing costs of the first contract, which must be factored into the profit potential of the deal.

Also, each contract is highly dependent on the successful execution of the other contract. If either contract gets delayed or held up, the wholesaler must negotiate for the other contract to be delayed — which may or may not work for the counterparty. In other words, relatively minor hold ups could put the entire deal at risk.

If all of this sounds complicated, don’t worry — we are a full service title company and know how to execute either an assignment closing or a double closing, so you don’t have to sweat the nuts and bolts. All you need to do is weigh the factors, talk to your advisors, and pick which closing best suits the wholesale deal in front of you.

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