Closing a real estate deal is supposed to be a straightforward process. However, it can pose some challenging problems if handled without caution. Wholesale real estate deals rely on short-term funding and compressed timelines. These two factors pose a high risk because a delay can jeopardize the deal entirely.

And like any other real estate transaction, the close is the most crucial part. After all, nothing happens until money changes hands and contracts get sealed in business. That’s why it’s vital for you and your real estate investing business to understand the ins and outs of the closing process thoroughly.

This process is critical when conducting wholesale real estate deals, as closing is much more critical than other subfields of the real estate industry. Due to the rapidity and speed with which most wholesale deals get done, the conclusion can take up the majority of the time you allocate to an agreement.

But what if you don’t know how to close wholesale real estate? Don’t worry; in this article, we will break down the core parts of closing wholesale real estate and provide you with the information you need to make informed decisions.

Assignment Contracts

In wholesale, the essential part of the closing process is deciding which option you’re going to choose. Whether closing out your assignment contract by selling the right to the buyer or going for a double close, you buy from the seller and sell to the buyer over a brief period (sometimes even the same day!).

The differences between these two options come down to many factors, such as,

• Your risk tolerance
• The goals of the seller and the buyer
• The related contracts from your financiers
• Other interested parties

This section will discuss how assignment contracts work, including extinguishing them due to the sale process to the ultimate buyer. We will also explore the differences in the closing process between the usual sale and double closes.

As a legal document, the assignment contract is a simple concept: the assignee (the property seller) gives the assignor (the property buyer) the right to buy the property, subject to specific standard terms. These terms typically place some restrictions on the price of the property and the time the contract is valid, usually putting a floor on the price so it can’t be sold under a specific value and placing a limit on how long the warranty is valid.

These restrictions provide assurance and comfort to the seller: they ensure the property won’t be sold below a particular price. Our cookie-cutter value lets the seller count on a guaranteed lump sum and confirms that if the property isn’t sold by a certain amount of time, the seller can place the property back on the market to find new buyers.

The usual way wholesale deals are closed is that when you, the investor, find a suitable buyer for the property, you assign them the contractual right to purchase the property you derived from your assignment contract. You’re essentially selling them not the property itself but the right to buy the property, which they can then follow through. The amount you earn from selling these rights is the revenue you book from completing the wholesale deal.

Double Closing

The other method of closing a wholesale deal is a double close, which is different from the usual sale of an assignment contract. In this case, the deal is closed as precisely as it sounds: through two closes. The first is where you purchase the property from the seller, and the second is where you sell the property to a buyer.

From the point of view of the result, it’s precisely the same as selling an assignment contract. The seller ends up with the sale proceeds, the buyer ends up with the property, and you, the investor, end up with the profit from the deal. But from a legal and transactional point of view, the process is entirely dissimilar. It pays to know the differences and relative benefits and costs of each approach so that you can tailor your closing approach to your investment strategy.

The most significant difference financially in a double close is that you involve your own money in the transaction. You’ll need access to funds sufficient for the first close (where you buy it from the seller) and won’t receive those funds back until the end of the second close (when the buyer pays you for the property). For this reason, many wholesalers prefer to use short-term lending structures to conduct double-closes rather than tying up their cash in the deal.

Similarly, from a legal point of view, you become the property owner during the stage in between the end of the first close and the end of the second close. For the most part, this doesn’t play a significant role in most wholesale deals. Still, it’s something you should be aware of if you choose to conduct a double close: if something goes wrong after the first close, you’re on the hook for the property and the associated contractual and legal issues.

Administration Details

Yes, this next part is unavoidably dull and dry. But it is vital to ensure that your deal closes successfully. Closing a deal does require some attention to detail and administration that is not the most interesting but does help to ensure there are no complexities or problems that arise from the process.

Finance & Accounting

The most important step to undertake when conducting a double close is to open an escrow account. We cannot stress how crucial this is to ensure a reliable and risk-reduced transactional process. A trusted third party that holds the escrow account has all the legal documents and monies associated with a deal and only releases the funds when confirmation of the agreement is received.

For example, you might use an escrow account for both parts of the double close. First, you’d put your money in the escrow account. And instruct the escrow agent not to release the funds until they get a confirmation the seller has uploaded the sale documents to their site. Once the agent releases the funds, you are the legal owner of the property. Next, you will instruct the escrow agent to inform you when the buyer has placed their funds in the escrow account. Upon confirmation that the funds are there, you would complete the sale contract with the buyer and receive your funds from the escrow account.

By using a trusted third party as an escrow agent, you minimize the risk for all parties to your deal, resulting in greater peace of mind and certainty about how and when the deal will close.

This step is still essential when conducting a standard sale of the assignment contract, albeit less so if you’re operating with trusted counterparties. It is because the total amount of money you’re dealing with is quite a bit less than for a double close. As you never take possession of the property or have to pay for it and instead receive your contract sale fee from the buyer directly.

Nevertheless, escrow accounts are standard in real estate, and you should use them as necessary, even for the direct sale of assignment contracts.

Legal Counsel

An excellent real estate attorney can be worth their weight in gold. And this is an area you need to get right. The reason for this is simple. Even among the attorneys who specialize in real estate, the number of wholesale real estate attorneys is explicitly lower. It makes finding someone who knows their stuff and knows the industry inside and out pays off.

Make sure you have your counsel sign-off on standard documents for deal administration. It includes the contract for assignment and the sale agreements (either for the contract itself or double-closes for both sides of your sale transactions). This is one of those better-safe-than-sorry situations. It is rare for deals to go sour and result in legal action. However, the cost of “going legal” can be expensive. So, it always pays to ensure you’re safe and secure from a legal standpoint.

Paperwork & Other Documentation

The last administration detail to consider is managing your paperwork and ensuring all your documentation is in order. It’s not something to get your pulse pounding. Still, getting right as your deal flow accelerates is vital, and you get more and more involved in wholesale.

First and foremost: you should ensure the title to the property is in good order. There should be no concerns with the property, especially from an insurance point of view. Having an excellent real estate attorney is beneficial because that might help close the deal and avoid risk exposure. They can help you identify potential or future legal problems that may arise due to the property’s documentation.

Next, ensure that all your paperwork relating to the transactional details of the close is in good order. It includes not only your legal contracts with the seller and buyer but also other contracts. For example the one with your escrow agent, title insurance firm, and financiers. We’re not lawyers, and this is not legal advice. In our experience, the number one issue to focus on here is consistency. You want to make sure all the information about the property is consistent with all the documentation you have about it.

The Personal Touch

Lastly, it’s essential to maintain solid personal relations throughout the deal closing process. For many people who are not real estate investors, the transaction they’re about to enter may be one of the most significant of their lives. They could be selling a childhood home, about to move across the country, or making a significant life change. Having an excellent real estate attorney is beneficial because of retiring.

While for investors, this might just be another day at the office. It is still necessary to make sure that all of your counterparties leave the dealership feeling good about their financial and real estate situation. And also about the people they dealt with along the way – including you.

There are many ways of making sure you’re doing good for your counterparties during the deal closing. Several of our clients have unique and exciting ways of adding a nice personal touch to the closing process. Some send flowers or champagne after closing the deal, while others opt for a heartfelt, handwritten note. One client even went as far as commissioning a short video for the sellers celebrating their moving on to the next stage in their lives.

Whatever you do, the key is to focus on the personal aspect of making these human connections. Don’t just opt for a cookie-cutter approach. Instead, focus on what you can do that makes you stand out as a person. And build those positive relationships with your counterparties.

Next Steps

We’ve already established how to find and qualify deals, how to avoid common mistakes and pitfalls in wholesale. And finally, how to close out your wholesale deals. Now, the next step is up to you: entering the wholesale real estate market as an investor and making money for your business. And that’s where we come in.

Dunmor is ready to assist you in all your real estate lending needs. Our team of seasoned professionals has deep expertise in all aspects of real estate lending and investments. We provide high-quality real estate lending resources to thousands of professional investors like you.

Contact us today to find out how we can take your real estate investing to the next level.