In this video, Brad and Greg share information about a contract clause for real estate investors that will protect you, as a seller, from buyers who back out.
The impetus for this video came about because Brad was sitting in his office one day and heard Greg on the phone at his desk. Greg was talking about a buyer who didn’t perform on a wholesale deal that Express Homebuyers was getting ready to sell to an end cash buyer.
Essentially, the buyer backed out and was jamming Express Homebuyers. You might be surprised to learn if you have a contract on a property and the buyer backs out, you can’t just go and resell the property. That’s a misconception among new investors. You actually have a legal requirement to get the buyer to sign a release form.
When the Buyer Backs Out
It’s the worst thing that can happen when you’re wholesaling a property. The buyer backs out at the last second and then you’re stuck holding the property. A lot of times, they’ll go dark. They won’t answer phone calls. They won’t sign releases.
A buyer can back out for 100 different reasons, some legitimate, some not legitimate. There could be some animosity. There could be some emotion. You can imagine if the buyer is pissed off about something you’re not doing that wasn’t even your fault. They’re not going to cooperate with you.
The solution to this issue is to put a clause in your contracts that basically says the title company is not only authorized, but instructed, to release the deposit to you if settlement does not occur by the date on the contract. Then you can go ahead and resell the property. You can get the earnest money deposit, and you can move on and sell the property. It makes it much easier for you.
And Then the Title Company Says…
What happens when a buyer backs out and you go to the title company, and the title company says, “We’re still not releasing the contract unless we get a release.”? What do you do? What should an investor do?
If you’re contract clause has been written properly, it actually serves as a release for the deposit and a release for the contract. When you don’t use this clause, you have to get the release signed, and the title company represents the contract. They don’t represent the buyer or the seller.
But if you put in verbiage in the contract that says, “This is what you do in each case,” then the title company doesn’t have to ask for any instructions. If your contract says, “If settlement doesn’t occur on or before February 27th, the buyer is released from the contract and the deposit is released to the seller,” then that’s what the title company has to follow.
Let’s say for some reason, you’re working with a title company that says, “I’m still not going to do it without a release.” What should you do in that case?
Greg recommends talking to your real estate attorney. Every real estate investor, fulltime or not, should absolutely have their own real estate attorney. So you go to your attorney and ask them to send something to the title company saying “you need to abide by the contract or else you’re going to get sued as well.” Make sure they abide by the contract and not by either just the buyer or just the seller.
Another thing you can do is when you put the contract in for settlement, have an explicit conversation with the title company. Tell them to read this clause in the contract because if this buyer backs out, you want to make sure they will release the contract and not make you go out and chase down the buyer to get a signed release. Get their confirmation in writing.
Other Important Issues
Make sure you read every contract completely. Greg related a story about a property Express Homebuyers wholesaled ten years ago. They were selling it as-is. The buyer checked the as-is clause in the contract but didn’t check each individual box as well. There were different clauses, the as-is pertaining to trash, debris, termites, property conditions, things like that. But they only checked as-is.
Even though they weren’t doing an inspection, Express Homebuyers was still required to remediate all the other items. Greg thought he was selling the property completely as-is, but then ended up having to pay $1,000 to have the trash removed and $500 to have the termites treated at the property. If you lose $1,500 on each deal, it adds up over time.
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Contract Clause for Real Estate Investors
Brad Chandler: We’re live. We got some awesome information to share with you guys. We got a special guest here. I think this is our first time on Facebook Live actually bringing Greg on. Greg has been with us since 2004.
Greg: 2004, yes.
Brad: He was our second employee I think. Is that right, first or second employee?
Greg: I think third, Jan and Will.
Brad: Our third employee; he’s been with us now for 11 or 12 years. Greg is an expert at real estate transactions. I would put him up against probably anyone in the United States in terms of his knowledge when it comes to closing contracts.
He has done hundreds if not thousands – probably over a thousand.
Greg: Thousands for sure.
Brad: He’s been involved in over a thousand real estate transactions whereas I don’t get into the nitty-gritty about going back and forth on contract. I hardly ever read a HUD-1. Greg is a pro, a lot of great information.
Housekeeping items, if you guys are watching this right now live, it means that you’ve liked my new Brad Chandler coaching page. I just want to see if it’s showing up. It’s not showing up on my live feed because I want to be able to ask questions. Maybe one of us will go behind the camera and see if there are any questions when we’re at that point.
If you guys are watching this live, that means you’ve liked my Brad Chandler page. If you haven’t, click above in the description at any time when you’re done, and make sure that you like it. This is for people who aren’t watching it live and will see it in a couple of minutes or the next couple of days.
Jumping to the meat of the content because this is really good stuff, I’m sitting in my office one day and I can hear Greg at his desk. He’s talking about a buyer who did not perform and now is jamming us. It was a wholesale deal that we were getting ready to sell to an end cash buyer.
This buyer essentially backed out, and he’s jamming us. Why is he jamming us? Because if you have a contract on a property and the buyer backs out, you can’t just go and resell the property. That’s probably a misconception among new investors.
It sounds like that would make sense because, hey, they didn’t perform, but that’s not how it works in the real world. The real world makes it a requirement by law that you get the buyer to sign a release. We couldn’t get the buyer to sign a release because he wasn’t being cooperative with us.
When I heard that, I said to myself, “We’ve got to fix this.” I talked to Greg. Greg talked with our attorney and they drafted some language. Greg, tell everyone what is the clause and how does it protect us?
Greg: Sure. Like Brad said, the worst thing that can happen when you’re wholesaling a property is the buyer backs out at the last second and then you’re stuck holding the property, and a lot of times, they’ll go dark. They won’t answer phone calls. They won’t sign releases.
They won’t sign a release that says the deposit comes to us like it’s supposed to, so we put in our contract now that basically it says the title company is not only authorized but instructed to release the deposit to us if settlement does not occur by the date on the contract. In the past, we had to get the buyer to actually sign a release, and then the money come to us, and then we could resell the property.
In this case, we can actually just go ahead and resell the property, we can get the earnest money deposit, and we can move on and sell the property. It makes it much easier for us.
Brad: You guys can imagine. Why does a buyer back out? The buyer can back out for 100 different reasons, some legitimate, some not legitimate. There could be some animosity. There could be some emotion. You can imagine if the buyer is pissed off about something that we’re not doing that wasn’t our fault, do you think the buyer is going to cooperate with you?
Do they typically cooperate?
Greg: Absolutely not.
Brad: No, so I’m telling you guys because like I’ve said before in our meet-up groups, we’ve made millions of dollars but we’ve lost millions of dollars. I want to teach you guys how not to lose millions of dollars like we did. This is one of them.
This is an awesome clause that protects you as a seller. Now, my next question Greg is, okay, we’ve got this great contract clause, which we will share. I’ll share in the comments section below when I’m done. We’ve got this great clause now.
A buyer backs out and you go to the title company, and the title company says, “I’m still not releasing the contract unless I get a release.” What do you do? What do we do? What should an investor do?
Greg: The verbiage in the contract actually serves as a release essentially. It serves as a release for the deposit and a release for the contract. In the past like I said, you had to get the release signed, and the title company represents the contract. They don’t represent the buyer or the seller.
Basically if you put in verbiage in the contract that says, “This is what you do in each case,” then they don’t have to ask for any instructions. If it says, “If settlement doesn’t occur on or before February 27th, then here’s what you do. You release the contract and you release the deposit to the seller.”
Brad: We’re bound to have a title company that even though we have this great clause that’s written by a real estate attorney, we’re bound to have a title company say, “I’m still not going to do it without a release.” What should an investor do in that case do you think?
Greg: Each investor should have their own real estate attorney that they talk to. For instance, we had one that helped draft this document. We would just go to them and say, “Listen attorney, can you please send something to the title company saying you need to abide by the contract or else you’re going to get sued as well.”
Make sure they abide by the contract and not by either just the buyer or just the seller.
Brad: Greg made a great point; if you’re a real estate investor, whether you’re fulltime or not, you have to have a real estate attorney. Your real estate attorney isn’t necessarily going to be the closing attorney because there’s a whole different skill set.
Some closing attorneys aren’t experts at the actual contract nor do they want to get involved in contract litigation or interpreting a contract. Make sure you have an attorney. Another thing that you can do is when you put the contract in for settlement is you have an explicit conversation with the title company that says, “Read this clause in the contract because if this buyer backs out, I want to make sure,” you should get this in writing, “I want to make sure you’re going to release that contract and you’re not going to make me go out and chase this buyer down to get a signed release.”
Those are two things you can do to protect yourself. Greg, any other insights on this issue that you can shed light on that you think would be helpful for investors to know?
Greg: Not on this particular issue but I would say on other issues, just make sure you read the contract completely. For instance, we had properties in Virginia that we wholesaled ten years ago or so, back when I was first starting with all the contracts. We were selling it as-is.
The buyer checked the as-is clause in the contract but they didn’t check each individual box as well. There were different clauses, the as-is pertaining to trash, debris, termites, property conditions, things like that. They just checked as-is.
They weren’t doing an inspection but we were still required to remediate any of the other items. I thought we were selling the property completely as-is. We had to pay $1000 to have the trash removed. We had to pay $500 to have the termites treated at the property.
While it didn’t bankrupt us, if you lose $1500 on each deal, that adds up over time especially.
Brad: Okay, awesome information. We’re going to open it up to questions. I’m going to hand Greg the mike and I’m going to go behind the camera where we can actually see it if you guys have questions. Before I do that though, I have a favor to ask you.
That is if you liked this content, please share it. Click share. Share it to your wall because that’s the way that I’m going to know that you like content like this. Then we’re going to develop more and more content. Any time you see any content that I produce that you like, go ahead and share it.
If you don’t like it, private message me. Email me or whatever and say, “Hey, I didn’t like it because of this reason. Here’s what I really want to hear,” and we’ll try to provide that content.
Secondly, before we get into questions, we still have some spots open for free coaching by yours truly on our upcoming podcast. If you want to hop into the hot seat with me and you haven’t already done it at a local meet-up – and it doesn’t matter if you’re here in DC or in Wyoming. It doesn’t matter. This real estate investing stuff works everywhere in the country – if you’re interesting in getting a free 30 minute coaching session with me on my podcast, go to ExpressHomebuyers.com/free-coaching.
You can apply there. We’ve had a lot of people that are interested. We’re going to be doing this for years to come so if we have to start a wait list, we can start a wait list. Let me know if you have any questions about that.
Greg, I’m going to turn the mike over to you. I’m going to see if we have any questions. We’ll open this up to questions on this topic or any questions. Let me know. I really don’t see anything right now. If you have any questions, anything real estate related, Greg is an expert like I said with contract negotiation.
I’m going to type in here, “Any questions, guys?” Greg, we must have done an amazing job at explaining this because no one is asking any questions. We’ll stay live for a few more seconds, or everyone is out enjoying this awesome weather.
Greg: Feel free to reach out to me directly as well. If you find any questions later on, I’m more than happy to answer anything you have.
Brad: We’re going to wrap. “Great information,” says Bill. Bill, really appreciate it. Where is everyone? How many views do we have? Where is everyone from? I’d love to hear in the Facebook comments where in the United States you happen to be. Can you type real quick just where you guys are watching this from?
Alexandria, we got one person commenting. Thanks Bill, I’m glad you thought the information was helpful. If you could, please share it. I’m looking down at my computer screen so I can hit questions. Sorry I’m not looking exactly at the camera.
Hartley from DC, thank you. Did you like the information? Bryan Rockwell from Fort Worth, Texas.
Greg: That’s great.
Brad: Go Cowboys. Hopefully next year we’ll get them done. Got some likes going through. Guys, we’re here. We’re starting a coaching program that’s going to likely be thousands of dollars. This is a free session. I will answer any questions that you have if it has to do with marketing, sales, construction.
Greg is also probably handled millions of dollars of construction, literally millions of dollars of construction. There were years when we did over $10 million in one year, so Greg knows a thing or two about construction. Any questions on scope, anything like that?
Bryan, “How long of an option period do you usually try to get from a seller?” We don’t really do options. We do a feasibility study. I believe it’s 21 days.
Greg: We do as long as we can ideally but typically it’s 21 days.
Brad: Again, we don’t do options. One of the things I’m not going to teach as a coach is I’m not going to teach all these fancy creative financing ideas and options because honestly they get complicated. A lot of the gurus out there make it sound so easy but we live this everyday.
We’ve tried it and it’s backfired on us, and we’re pretty smart guys. It just becomes very complicated. You’re not going to hear a lot about lease options and subject tos, and all of that. What you’re going to learn from me is how to make a lot of money using awesome marketing to get sellers in the door, motivated sellers, and then how to wholesale them for prices that most wholesalers around the country aren’t getting.
We have a unique way of doing it where we drive a lot of buyers in. That’s what you’re going to get from my coaching, not all these – I won’t say silly – but all these creative financing. I know it works for some people but it has not worked for us.
Any other questions, guys? We’re going to wrap. Thanks everyone for their time. Hopefully this was helpful. If it is, please share it.