A luxury wholesale contract that lost money because the seller was found before the buyer

The line worth stopping on is the deposit being released to the seller. Was that written in, or did the escrow agent just do it? Standard contract language keeps the money with the title company until closing or until a written release from both sides. If a contract lets it go straight to the seller after the inspection window, that is the single most expensive sentence in the document, and it is worth knowing whether an attorney read it before signing.

The comp problem is the one I recognize. I buy land and hold it, and the moment a parcel is unusual the comparables stop being comparables. Four sales on a 6,400 square foot estate is not a valuation, it is a range with a story attached. You needed the range wide and the price low enough that being wrong by 400k still left you room.

There is a lesson here worth taking for free. A smaller scale version of the same pattern: take a fourplex where three buyers were assumed and only one showed up, and that one buyer knew he was the only one. Thin buyer pools price themselves. The buyer telling you to call at 1.7 was not being rude, he was telling you what the pool clears at.

I am new enough that I need to ask, what is the inspection window doing here exactly? Is that just the period where you can walk and keep the earnest money, and after that the money belongs to the seller no matter what? And how does someone build a list of 40 buyers who can pay two million cash in the first place, I would not know where to start.

@paulgrant17 yes, roughly, though the specific terms differ by contract and by state so read yours. The renovation numbers the buyers gave here are not padding. On an estate of that size a pool shell replacement alone routinely runs north of 90k, and that is before the deck around it. When the buyers doubled the rehab number, they were closer to reality than the original estimate was.

Worth asking what your four buyers were going to fund with. Bridge and hard money on a distressed two million dollar house is a much shorter list of lenders than on a 300k flip, and the terms move around a lot, so anyone quoting you a rate should put it in writing. If even one of them needed financing to close, your 30 day window was never realistic.

Two acres with a pool and a roof at end of life raises the question of septic and well, if the property was on either. On estate lots, the county permit history is usually the cheapest read available and it tells you what was done without a permit being pulled. Did you pull it before you went hard?

900 pieces of mail is a test, well short of a campaign. Response rates at low volume are noise, and anyone who has run direct mail at scale will say the same. You got one seller out of 900 and treated it as proof the funnel worked.

What were the four comps? Same submarket, same lot size, closed within a year? I ask because in the market I research half the high-end sales never show a price publicly at all, and about a dozen states are non-disclosure, so people end up building a value off list prices and assessor guesses.

The wholesaling part is not what scared me, and I say that as someone still deciding where I fit. The 15k going hard on an opinion did.

I've been researching for six months without closing a deal, and threads like this are part of why. I had luxury on my list of things to try first because the fee looked like it solved the whole problem in one go. What you have described is a deal where the fee was the only easy part.

I tried this last year at a smaller size, 1.3M contract on a lake house, and got out with only my inspection cost because I refused to let the deposit go hard without a signed assignment ready. The fee number is genuinely dazzling. 100k plus on one transaction makes you generous with your assumptions in a way you never are on a 240k house.

Adding it up: 4,100 mail, 15,000 deposit, 2,800 inspections, so 21,900. I am still working out what my first deal costs and this is a useful ceiling on what a mistake looks like. Did you have any other costs, attorney review, mileage, anything you left out?

The buyer pool is getting blamed for a pricing failure. You contracted at 2.05 against a retail guess of 2.9 to 3.1 with a rehab you had at maybe 375k. That is a light discount dressed up as a wholesale price. At 1.7 with 750k of work, a buyer is all in at 2.45 on a 3.0 house and the phone rings. The pool was thin, and it was also never going to matter at 2.35.

@luis_carrera is close but the rehab number is where it actually died. Ask me about scope creep and I will tell you about a 4,800 square foot house where the finish level the market expected added 190k over what I had budgeted, because you cannot put builder-grade cabinets in a house someone is paying three million for. Once you accept 600 to 850 as the real range, 2.05 was underwater the day you signed.

The lesson for anyone running a small book is that a single deal big enough to matter is a different animal from ten deals that each matter a little. One bad assumption and there is nothing else in the quarter to absorb it.

This thread is a good reason for anyone holding a luxury contract to reread their extension language. Take a 1.2M contract as the example. The structure worth negotiating for is two 15 day extensions at 5k each, credited to the purchase price, with the deposit staying in escrow the whole time. It usually costs a bit of price to get that in. Reading your day 26 extension request, that is a price worth paying.

@luis_carrera I do not think you can separate them the way you want to. At 1.7 the heir probably says no and there is no deal at all, which is a better outcome than this one but it is still not a paycheck. The whole strategy only works when a seller will take a number your buyer pool can live with, and that is rare, which is exactly why so few people do this.

When you assign a contract does the seller have to agree to it? I assumed you just sold your position and the seller found out at closing.

On list building, @paulgrant17, the method that works is unglamorous. Pull deed records for cash purchases above the price band, then work out who is behind the LLCs and call them. A couple of hundred names is a realistic result in an ordinary price range. At the luxury end the same method produces a much shorter list, which is the whole problem @chriswalton8 laid out.

Thin margins and fast deals is my whole game and I will take ten buyers on a 250k house over four on a two million dollar one every time. When I have ten, one of them competing sets the price. When you have four and they all agree with each other, they are the market.

Just started and I did not know a deposit could be released to a seller before closing. Filing that away.

This thread settles one thing for anyone still weighing which strategy fits them. Anything where the buyer pool is under a dozen people is a relationship business first, and starting without those relationships means starting from the wrong end. Sourcing the seller was apparently the easy half here, @chriswalton8, which is backwards from what the courses sell.