Underwriting the risk before funding earnest money deposits for a wholesaler group
A structure worth examining carefully: a small group of part-time wholesalers, say five members doing roughly four contracts a month between them, asks an outside party to fund earnest money deposits, since sellers increasingly want 2,500 hard rather than 500 refundable. The pitch is typically that the funder puts 2,500 into escrow, the group closes the assignment in 14 to 30 days, and the deposit returns at closing plus a 500 fee. On four deals a month with capital out roughly three weeks at a time, that can look like 7,500 to 10,000 deployed earning 2,000 monthly, a 20% flat return per deployment that annualizes to a number that should immediately raise scrutiny rather than excitement. The number that actually matters before funding anything like this is the dead deal rate, and it needs a real denominator, not a vague estimate. If a contract dies after the deposit goes hard, the full 2,500 is lost and a single 500 fee doesn't come close to covering it. A handful of dead deals in a year can wipe out many months of fee income. Two structures typically get proposed. A per-deal structure, a separate short note for each contract with the deposit going directly to title, the funder's name on the receipt, and an assignment of the member's fee at closing as security, is generally the more defensible version. A pooled structure, a lump sum drawn down against with a monthly statement and one master agreement, is easier for the group administratively but starts to resemble something that warrants securities counsel review before proceeding. Anyone considering funding this kind of arrangement should insist on historical dead deal data with real numbers, not an estimate offered on the spot, before pricing the risk.
