Who should be funding earnest money on a reverse wholesale deal

Question

Two schools of thought show up often on who should post the deposit in a reverse wholesale structure, and they pull in opposite directions. One approach is for the wholesaler to fund every deposit personally, usually kept small, on the logic that it keeps the file clean: one contract, one buyer of record, one party the seller and title company have to deal with. The moment an end buyer's money is in escrow, it invites a conversation about who really controls the contract, and if that buyer walks, there is now a dispute over the buyer's money layered on top of a dead deal. The other approach puts the cost on the end buyer, on the logic that the buyer with verified demand and a signed set of criteria should carry the option cost. That means asking for the deposit to be wired to escrow on the buyer's behalf before the wholesaler signs anything with the seller, treating the request as a filter: a buyer who agrees to a box in writing but won't post a modest deposit was never a real buyer. There are middle versions, like splitting the deposit or having the buyer reimburse at assignment, though the reimbursement version has an obvious hole if the deal dies before assignment happens. Whether escrow can even accept funds from someone who is not a party to the contract varies by state and by title company, which makes this a question for the escrow officer and an attorney before any money moves, separate from which side of the debate an operator lands on.

luis_carrera · Answer

The test framing is the strongest argument on that page, and it is also the thing that would have saved a couple of the losses posted in this room. A buyer who confirms a box costs you nothing to collect. A buyer who wires 2,500 against a specific address has decided. The honest exception is the operator with only two buyers on the list, who usually keeps funding the deposit themselves because asking one of them for money and hearing no is a bigger loss than the deposit.

omar_haddad · Answer

I've done it both ways and the split version is the worst of the three. You end up with two people who each feel entitled to walk and a title company holding a number neither of you agreed on the release terms for. Pick one payer. If it's you, keep it small enough that losing it is a bad week.

Who should be funding earnest money on a reverse wholesale deal

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