If you have never closed a real estate deal, you may be forgiven for thinking that it is a simple transaction. The buyer and seller meet, agree to the contract terms, exchange cash, and go on with their lives. Of course, that is not how it ever happens! There is a lot of paperwork, negotiating, and third-party services involved in closing a traditional real estate transaction.
Here we’ll look at the closing costs in a real estate wholesale deal. The closing costs in a wholesale real estate deal are lower and easier to understand. Why? Well, the wholesale real estate closing does not involve any financing, mortgages, loans, etc. It is strictly a cash or cash equivalent transaction.
Before we begin discussing closing costs, we should identify what are and aren’t closing costs. When closing a real estate wholesale deal, the parties must pay the closing costs and prepaid fees. Prepaid fees are recurring fees that are paid at the closing of a real estate deal. Those fees include homeowner’s insurance, flood insurance, and property taxes.
Closing costs are one-time fees that are paid at the closing of a real estate transaction.
How Do You Close a Wholesale Real Estate Deal?
You close a real estate deal by bringing the buyer and seller together and ensuring that both parties have met the contract terms of the purchase and sale agreement. So, what kinds of things are done at the closing of a real estate deal? Glad you asked!
Things that you are likely to deal with at the closing of a wholesale real estate deal are:
The buyer pays this fee to a licensed appraiser or appraisal company to assess the property’s fair market value.
The amount a wholesaler receives for selling the right to buy a property to the end-buyer.
The buyer will probably pay for an inspector to inspect the property and verify its condition and the repairs that need to be made.
Owner’s Title Insurance
Buyers purchase title insurance as protection against someone challenging their ownership of the home by disputing the property’s title.
Escrow Fee/Closing Fee
The money paid to the person or company that is overseeing the closing of the real estate deal. The fee may be paid to a real estate lawyer, title company, or escrow company.
Title Notary Fee
The fee paid to the notary who notarizes the property’s title/deed.
Homeowners’ Association (HOA) Fee
The fee paid to HOA when a property that falls under its purview is transferred to a buyer.
Title Recording Fee/Recording of Deed
A fee that must be paid to the county or city real property records office (an office that is responsible for recording the transfer of titles and making notes on public land records).
Taxes paid to the county when the property is sold.
Closing Attorney Fees
The money paid to an estate lawyer to review your closing documents and advise you on legal matters related to your real estate purchase or sale.
Lead-Based Paint Fee
This fee pays for a field expert to assess the property for lead-based paint or its risk.
Pest Inspection Fee
A fee paid to a pest control company or licensed pest control professional to check a property for termites, dry rot, and other damage to the wood in a structure.
A fee paid to a survey company for the buyer to confirm that the property’s legal boundaries are the same as those in the documentation or vouched for by the seller.
Taxes paid for the transference of a title in a real estate transaction.
Title Company Title Search Fee/Exam Fee
The fee paid to a title company to do a thorough search on the property’s title and make sure that no one else can claim to be the property owner.
You close a wholesale real estate deal by getting all the inspections, appraisals, surveys, computer searches, etc., done before the seller and buyer sign the purchase and sale agreement contract. The buyer pays the seller for the title to the property. Also, while some of the listed items are required by most states, others are optional. You must know which ones must be performed at the closing and the circumstances that must accompany the execution of those items.
Are There Closing Costs in a Wholesale Deal?
Yes, there are closing costs in a wholesale real estate deal. The closing costs are paid by the buyer, seller, or both. The wholesale real estate deal’s closing costs include the items in the previous section and the fee that is paid to the real estate wholesaler. The real estate wholesaler’s fee is the difference between the seller’s price and the buyer’s offer. So, the greater the difference between the two, the greater the real estate wholesaler’s fee for matching the buyer and the seller.
Who Pays Closing Costs When Wholesaling Real Estate – You, Buyer, or Seller?
The real estate wholesaler never pays the closing costs in a wholesale real estate transaction unless there is a special arrangement or understanding that the real estate wholesaler will pay the closing costs. During a real estate closing, the buyer, seller, or both may pay the closing costs. Who pays the closing costs depends on the circumstances under which the sale occurs and the negotiations and agreements between the seller and buyer.
There are some general property-selling conditions under which the closing costs are likely to be paid by the seller, buyer, or both:
- If it’s a buyer’s market, sellers will often offer to pay some or all of the closing costs;
- If it’s a seller’s market, buyers will often offer to pay some or all of the closing costs;
- Motivated sellers may offer to pay some or all of the closing costs to facilitate the property sale;
- Buyers may negotiate a purchase and sale agreement that includes the closing costs in the property’s purchase price;
- If the buyer is cash strapped or lacks the funds to pay the closing costs, the buyer may request credits from the seller during the closing; and
- If the seller knows that the buyer lacks the funds to cover the closing costs, the seller may include the closing costs in the property’s purchase price.
Wholesale Real Estate Closing Costs Best Practices
Wholesale real estate closing costs are approximately two to four percent of the property’s purchase price. The best way for buyers and sellers to minimize their closing costs is to shop around. They can check with different service providers and compare their services, reputation, work quality, and fees. They should research more than one title company, notary, attorney, licensed inspector, and appraiser for the best match.
To ensure that you, the wholesaler, minimize your participation in any closing costs, you must communicate the transaction’s details before any contract is signed. When discussing cost arrangements with the property seller and buyer, ensure that the terms are appropriately understood, and all parties know what costs they will cover. Also, remember to be transparent with the end-buyer on the wholesale fee they must pay you for assigning them the contract to purchase the property.