What Is Disposition In Wholesaling? (ULTIMATE) Guide

Wholesaling is a popular technique among new investors because it offers a straightforward way to earn significant fees simply by locating deals on behalf of another investor.

But locating properties for a wholesale deal is only half the battle. Once you get a property under contract, you also must go through the disposition process, which can often be just as difficult.

Here’s a closer look at the concept of disposition in wholesaling and what you can do to streamline the process.

• What Is Wholesaling Real Estate?
• What Is Disposition In Wholesaling Real Estate?
• How Do Dispositions Work? The Disposition Wholesaling Process
• What Does A Disposition Agent Do?
• What Are The Benefits Of Disposition Wholesaling In Real Estate?
• Final Thoughts On Disposition Wholesaling

What Is Wholesaling Real Estate?

Wholesaling real estate refers to the process of getting a property under contract at a discount and then flipping that contract to another investor. Wholesalers scout distressed properties or those owned by motivated sellers who are looking to move quickly and make them an offer. They then get the property under contract for a certain price and market it to real estate investors who will renovate it for sale or rent it out to tenants.

Once the sale is closed, the wholesaler can pocket the difference between their offer price and the price paid by the investor - which is known as an assignment fee or wholesale fee. Real estate wholesaling is a great strategy for those who are new to the real estate business because it doesn’t require significant capital or good credit to get started. But it does require patience and the ability to network with sellers and real estate investors.

What Is Disposition In Wholesaling Real Estate?

Disposition in real estate wholesaling refers to the process of selling the equitable interest in the property you got under contract. There are two basic phases to wholesaling; acquisition and disposition. The acquisition stage refers to the process of scouting a property and getting it under contract. The disposition process refers to the act of finding interested buyers and closing on the sale.

While the acquisition process tends to get more coverage on real estate blogs and podcasts, the disposition process can be just as difficult, if not more so. Building a list of potential buyers can take months, if not years because you want a solid pool of potential candidates before you approach any motivated sellers.

Unless you develop a strong relationship with a particular investor or group and you know exactly what they will and won’t buy, there’s no guarantee that someone will purchase your wholesale property once you get it under contract.

So, the best strategy is to develop a strong list of potential buyers who are on the lookout for investment properties and take note of what they are looking to buy. That way, when you do get a property under contract, you can call everyone on your cash buyers list until you find someone who’s interested. If you want to build a successful wholesaling business, you need to network with real estate investors and develop strong relationships, so that you can easily find a buyer for any deal that you come across. Here is a step-by-step look at the disposition process.

How Do Dispositions Work? The Disposition Wholesaling Process

Find And Vet Cash Buyers

The first step is to locate and vet cash buyers. That means obtaining their email and phone number, noting their buying preferences, and checking their credentials to ensure they have the funds available to purchase the property.

Wholesale deals tend to move quickly. So it’s best to work primarily with buyers who are paying cash. Some investors use hard money loans and financial products offered by alternative lenders to purchase properties. While there’s nothing wrong with keeping your options open and connecting with as many different real estate investors as you can, it’s better to find buyers who have the cash on hand because the sale will close faster.

It could threaten the deal if the buyer has to wait for the loan to be approved. So it’s better to look for those who already have the funds and know what they’re looking to buy.

You can use a variety of different methods to find cash buyers. You can attend local REI events and conventions, post bandit signs or call investors who post them, post ads on craigslist or the Facebook marketplace, contact investors through social media or simply ask your friends and family if they know any investors or cash buyers.

Begin planting seeds early and build a solid cash buyers list before you begin scouting properties. You won't have time to start once you get the property under contract because it will eventually expire. So the first step is to build a solid network you can leverage when the time comes.

Also, check out this quick video that talks about how you can find cash buyers for free!

Ensure You Have An Executed Contract

The next step is to be sure that your wholesale contract is iron-clad. Before you start contacting investors and telling them all about the great deal you have, make sure you have a legal contract binding you to the deal. Without a proper contract, the investor could easily go behind your back and deal directly with the seller, which means you wouldn’t get a fee.

Most investors are willing to let wholesalers keep a fee for doing the legwork of finding the property. But if they can find a way to cut you out of the deal and offer the same price to the seller or even a slightly higher price, it means more potential profit for them. So, even if you know a cash buyer personally and feel like you can trust them, it’s still always wise to get the contract in writing before you divulge any information to investors. That way you avoid giving them any temptation.

If you’re not sure whether the contract you signed is fully legal and enforceable, it may help to work with a real estate attorney. Although it will cost a bit extra, it may be worth it in the long run. Even if the investor doesn’t try to cut you out of the deal, it will still be pretty embarrassing if you get to the closing and the contract is not valid. So double-check that you dot your I’s and cross your T’s before reaching out to investors. 

Market That Contract To Your Buyer’s List

Once you are certain that you have a legally binding contract, the next step is to market it to your buyer’s list. This is where having a detailed and organized buyers list will come in handy. If all you do is collect business cards, your job will be much harder when it comes time to contact investors. Most real estate investors have a particular property type, location, and budget that they’re working with and you’ll only waste your own time if you don't do your research and ask the right questions beforehand.

For instance, if one buyer specializes in multifamily properties, it doesn’t make sense for you to contact them if your wholesale property is a single-family home. If you keep a detailed list of what each investor is looking for and what they are willing to pay, it will make this process much easier. Start with the ones that are an exact match and then move your way down the list until you find an interested buyer (or even a few interested buyers).

If you strike out with the buyers at the top of your list, you can always reach out to others who may have different criteria. Maybe they’ve changed their strategy and they’re now looking for exactly what you have or maybe they know somebody who does. It never hurts to reach out to as many buyers as possible, especially if it’s been a while since you contacted them. But you will save yourself a lot of time and energy if you vet each candidate carefully and keep a detailed list of what they are willing to buy.

Secure End Buyer Commitment

If you did a good job of building a solid buyers list, the next step is to secure a commitment. Before you go through the process of drafting contracts and alerting the seller, you want to know that the buyer is serious and willing to agree to your terms. During this stage, you will negotiate the price and discuss your assignment fee. Your fee will be equal to the difference between the seller's asking price and the purchase price of the new buyer.

So you’ll have to get the investor to agree to pay a higher price for the property than what you're offering the seller. This negotiation phase is one of the hardest parts of wholesaling real estate. The best way to be successful is to pull real estate comps and determine the after-repair value (ARV) of the property.

Most investors are willing to pay a price that is 70% of the ARV or lower because that gives them enough of a margin to flip it to homebuyers. So, as long as you secure it for a price that’s less than 70% of the ARV, you shouldn’t have a hard time convincing them to pay the fee because they'll still make plenty of profit on the deal.

If you are concerned that the buyer may back out before the contracts are signed, you may request an earnest money deposit. Most motivated sellers won’t require it because they likely want to close as soon as possible. But if the investor is serious about the purchase and has the cash on hand anyway, they shouldn’t have a problem providing a deposit. If you do so, you may want to work with a realtor who can keep the money in escrow until the sale closes. But an earnest money deposit will give you the assurance that they are serious about moving forward with the deal.

Assign The Contract

Next, you’re going to assign the contract over to the buyer and let them take it from there. To do so, you will have the buyer and seller both sign a wholesale real estate contract that will give you the right to assign the contract to a new buyer without ever having to purchase the property.

You should have already had the seller sign the contract, but you will still need the new buyer to sign any additional paperwork. During this process, it helps to hire a title company to facilitate a smooth transition of ownership.

You want to make sure that the process is as seamless as possible so that the deal doesn't fall apart. A title company can help you make sure that the title is properly transferred and that the investor has full ownership of the property once the deal is closed.

There are a few different ways that you can assign the contract, but the most common is to sign a real estate purchase agreement. This is a purchase and sale agreement signed by the seller and the wholesaler that contains a clause allowing the wholesaler to transfer the ownership to a new buyer and absolve themselves of responsibility.

But other methods include a double closing, a lease option agreement, or a wholesale assignment of contract. You may want to consult an attorney or a real estate agent to determine which contract makes the most sense for the situation.

Close And Collect The Assignment Fee

Once the contracts are signed and the funds have been exchanged, you’ll be able to collect your assignment fee and walk away from the sale. The seller will have their money and be able to move on with their lives and the buyer will own a new investment property that they can do with what they wish. The exact length of time that the disposition process takes can vary depending on a variety of factors, but you can often close on the sale in 30 days or less.

Real estate wholesalers make on average about $10,000 - $20,000 per deal, although it can vary depending on the market and the experience level of the wholesaler. There’s no limit to the amount of money you can make although there is a ceiling to how large markup investors are willing to accept. But if you work hard and learn the market you’re working in well, you can easily make four and five-figure checks without even working as a wholesaler full time.

Read Also: Wholesale Real Estate Salary | The (ULTIMATE) Guide

What Does A Disposition Agent Do?

A wholesale disposition agent is a real estate agent who specifically oversees the disposition process. An agent can be very useful to wholesalers because they can provide the support and guidance that the wholesaler may need.

They can help communicate with leads and respond to any questions or concerns. They can help you pull comps to determine a fair price that buyers will pay or they can get access to properties if the buyer wants to schedule a viewing. They can also help you manage your buyer's list so you have everything you need to close deals as quickly as possible.

A disposition agent can be a valuable addition to your team, so you should consider using one if you want to scale up your wholesaling business quickly.

What Are The Benefits Of Disposition Wholesaling In Real Estate?

Mastering the disposition process can have a number of benefits for real estate wholesalers. Ultimately, far too many wholesalers focus too much on acquisitions and not enough on disposition. But real money can be made by mastering the sales process.

First of all, the quicker you close, the more likely you are to get the highest price possible. If the process drags on, you may be forced to accept a lower offer just to avoid losing the deal. So having a long list of potential candidates ready can ensure that you get the highest fee possible.

Also, the more potential buyers that you get interested in the property, the more demand you create, which can be used in your favor. If you only have one cash buyer who is interested, you’ll be forced to accept whatever offer they make you. But if you have several cash buyers who are willing to buy the property, you may be able to create a bidding war that will drive up the price. So focusing on the disposition can help you get a better offer.

Plus, if you want to build a long-term wholesaling business, you want to invest time in building relationships with investors. Once the deal is closed, you’ll likely never see the seller ever again. But if you bring an investor a profitable deal, it can create a business partnership that could last many years. So putting the effort into building a solid buyers list and maintaining relationships with local investors can be very beneficial in the long term.

Read Also: Wholesaling Real Estate For Beginners

Final Thoughts On Disposition Wholesaling

Disposition wholesaling is a delicate process that takes time to master. Don't get discouraged if you lose your first few deals because you can’t find a buyer.

It’s all a learning process and the more time you invest in building a buyers' list, the easier it will become to land a profitable wholesaling deal. So it pays off, in the long run, to dedicate time and energy to building relationships before you even begin scouting properties.

If you’re looking for a step-by-step process to help you start and grow your wholesaling business without spending a dollar in marketing, check out our brand-new free training and start scaling your real estate business today!