What To Do When A Buyer Backs Out From An Assignment of Contract

So you are using “And Or Assigns” to a property you have under contract and the assignment of contract does not go so well… Maybe the buyer backs out because they got cold feet or saw problems in the deal or property. 

If you are trying to make money with wholesale real estate and are assigning the house but the buyer/seller falls through. You may be on the hook to pay for the property yourself.

What do you do when your buyer backs out from the assignment of contract to purchase the property?

Well, you may be on the hook to purchase the property or be in breach of contract. I will say this up front.

Always pass on bad deals and lock up good deal with a contract quickly.

The deals that you put under contact should be good enough of a deal that IF you got stuck with the property, you would still make money AND hopefully know how to make money from it. If you are unable to make money from the deal, how will an investor make any money?

Investors like me want to be brought good deals. If a wholesaler brings me bad deals, I stop looking at everything he brings me. I don't want to waste my time evaluating bad properties. After a couple bad deals, I start ignoring his emails, phone calls, texts, etc.

When you lock in a deal, it is best to be sure you have a good enough deal that your investors would jump at the chance to buy it.

Assignment of Contract to a Buyer

Let's say you lock up a good property under contact and are sure to add “And Or Assigns” behind your name so you can assign it to anyone who desires to purchase property.

Everything is going very well and your seller and buyer are set to close in a few days. Then, seemingly out of nowhere, the buyer backs out of the deal.

It could be that they didn’t have enough money, could get financing, they didn’t like the property, etc. Now you are still on the hook to close on the property in a few days.

Even though this seems like a rough situation to be in, there is always a way to solve any problem. It is time to get creative and figure out a way out of the problem.  

First, Settle Down, It Will All Be Just Fine

First thing to do is get all of the jitters and anxious feelings out as quickly as you can. Once you settle down, you can think clearly.

You may actually be in a very good place to learn new ways to invest and push yourself into new levels of understanding about yourself and your business.

Necessity is the mother of invention and now you have the ability to turn a problem into a solution. If you are put in a corner and need to buy a house, work hard to figure out how to get out of the problem.

You may just find you had nothing to worry about.  

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Second, Figure Out the Specifics of the Deal, Problem, and Find Possible Solutions

The deal that you are in has specific circumstances to it that you need to think through. Ask yourself, “What is the actual problem I am facing?”

Once you fully understand all the specifics of the problem, you can then address the problem properly. Let’s look at some possible scenarios:

1. The buyer backed out because they saw problems with the property

Problem: As you analyze a situation, the buyer informs you that the septic system was in disrepair and needs to be fully replaced. The buyer is backing out because the deal is now no good because the numbers don't benefit him.

Possible Solution: A potential way to solve this problem is to go to the seller and informed them that they are selling a property that has extensive septic system repairs.  Request them to lower the price of the property by $15,000 to help pay for a new septic system.

2. The buyer backed out because they could not get financing

Problem: The buyer is unable to forward with the purchase because they do not have the money to buy it.

Possible Solution: Work with the seller to have the property sold with seller financing. It may be that the seller does not need the money right away but understands that they can actually be the bank and earn interest as well as get full price on the sale of property.

Watch the entire wholesale real estate 101 lesson here:

Whatever your problem is, there is always a solution. It is just up to you to find the solution to the problem.  

Potential Ways to Get Your Deal Completed AND Make Money

Tip 1: Ask For An Extension to the Assignment of Contract to Give You More Time

You can buy yourself more time by asking for an extension to the closing date for the contract. You will be able to use this extended closing date to find another buyer for the deal.

All this basically is would be a one-page write up saying the closing date has extended for another three weeks or more weeks. Once the seller signs it, you have another three weeks to find a buyer for the property. This would give yourself a lot of breathing room to find a new buyer for the property.

One property that I purchased needed three extensions on the closing date. The financing was really rough going through because it was just after the real estate bubble and mortgages were hard to come by. I had to ask the seller for three different extensions that were at least three weeks each.

The seller was fine with extensions but I knew that they were ready to sell. The third extension was just about to be up and the financing went through so we were able to buy the property.  

Tip 2: Find Another Buyer for the Property

Since you only put under contract good deals that you would be fine with buying, this property should be marketable to other buyers.

Investors or homeowners should be interested in the property because it is a good deal. Depending on what the deal actually is, start right away looking for another buyer for the property. Actually, it would be good to market it to both homeowners and investors. Anyone who will take the contract is your best friend.

Hopefully you have a list of investors that are on your “Buyers” list who would be ready to purchase the property. Bring the property to them and see if they are willing to move quick to take over the assignment of contract from you.

You can even look to other wholesalers and see if they have someone on their buyers list that this property would fit. The assignment of contract could go to one of their buyers and you still make your money from the deal.  

Tip 3: Find the Money to Buy It Yourself

Since this property is good enough for an investor, it would be good enough for you to purchase. Let’s say that this property was a great fix and flip opportunity where you can make a lot of money.

Your business model may not be flipping properties but you now have the opportunity to develop a new part of your business. In you problem solving, you figure out how you can flip the property and now you have another way of making money in your business.

By flipping the property yourself, you take more risk but you have much more reward. To do this, you need to work hard to find the money in order to buy the property. Put together a short presentation that you can show to possible investors in the deal. You want to be able to show the numbers and explain how the investors will to make money from the deal.

Approach your friends, family members, acquaintances, and anyone you may know. Talk to other investors or wholesalers to put together the money to buy the property.

You can even ask the seller to consider seller financing for you to purchase the property instead of someone else.

 

Tip 4: Get Others to Invest with You and Put Money into the Deal

This is basically having a syndication deal where you have multiple investors buying one property. This is much more common with multifamily properties.

This is because the purchase price is usually much higher for multifamily properties but it is basically the same process when you buy a single family property. In finding other investors to put up a percentage of the money needed to purchase the property, you can use their money to fund the deal.

Keep finding new investors until you have 100% of the money needed to purchase the property. The money will come from multiple investors with each owning a percentage of the property in proportion to the amount of money they put in the deal.

The beauty of this idea is that you may not even put any of your own money into the deal. Think of yourself as getting a percentage of the property ownership because you are the lead investor who is doing all the work.

Instead of putting a cash you are putting in the sweat equity. Without you, there would be no deal so you earn your percentage by what you bring to the table.

This would be the deal, other investors, business model, and be able to give the investors a return on their money.  

Tip 5: List It for Sale through Craigslist, MLS, or Other Means

Another way to find potential buyers would be to list the property for sale as if you were a realtor or even the homeowner. With an assignment of contract in your name with “and/or assigns” gives you the option to sell the property to whoever you want.

You are effectively in control of the assignment of contract and can do anything you want within the confines of the contract. List the property for sale on craigslist.org, Zillow.com, the MLS, trulia.com, and other real estate websites.

All of these sites are very easy to use and you will be able to find more buyers if you broaden your reach to more people.  

Tip 6: Ask Realtors If They Would Have a Buyer or Potentially Sell the Property

Honestly this is a last case resort for your deal. Realtors don’t really like wholesalers because they feel like they are taking business from them.

The realtor went through the training, licensing, and are working for a company for their livelihood. Because of that, they do not look at wholesalers as someone they would do business with.

But, if your backs against the wall, it’s time to pull out all the stops and get the deal done.  

The Worst Case Scenario

Let’s say you were not successful in finding a solution to the problem of your buyer backing out of the deal. You are still responsible for the purchase of the property and are the one to follow through with contract. Ultimately what happens is you are in breach of contract if you do not follow through with the purchase.

You will lose anything that you put down on the property as earnest money. It may be the case that you put $2000 in earnest money down to lock in the deal with the seller. This is money to show the seller that you are serious about the purchase and have some skin in the game.

This money will be forfeited over to the seller as a concession for the breach of contract. Now instead of making money you are losing money which is not what you want to do.

Obviously. So the worst-case scenario is you lose your earnest money you put down on the property to the seller and walk away.

Your reputation as an investor could take a hit and it may be hard to find and sell future deals. Even though this is a case, it should not stop you from moving forward with your investing career.  

Don’t let worry stop you from investing in real estate. Remember, nothing ventured, nothing gained.

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