Updated July 13, 2020:

A wholesaler is in charge of mediating between the sellers and the buyers. For example, in real estate, wholesalers will have a contract with the seller, market to possible buyers, and then give the contract to a buyer. Wholesaling is also called contract assignment for this reason, and wholesalers are just responsible for assigning a contract to the buyer within a certain time frame. Any home repairs will be the buyer's responsibility and not the wholesaler's responsibility.

What is Wholesaling?

Wholesalers make a profit from the difference between the amount the buyer pays and the contracted price they have with the seller. The larger the difference is, the more they profit. The key is to find a seller who will sell much lower than the fair market value and then end up reselling to a buyer at a higher price. In real estate wholesale, time is crucial. If it takes too long to find a buyer, the wholesaler will end up paying out of his own pocket.

Reverse wholesaling is another type of wholesaling. This is similar to real estate wholesaling, but the agreement order is reversed so the wholesaler ends up finding a buyer before finding a seller. Finding a buyer can give wholesalers a good idea of what they're looking for, as well as more time when they're finding a property that is a good fit for the buyer. The wholesaler's money does not need to be spent in this, and he can choose what strategy to use.

Merchandise Sale and Purchase Agreement

Another type of wholesaling is with merchandise. Minimum order quantities and merchandise prices are set on the sales agreement. The seller can change the wholesale prices if he gives a minimum of five days notice to the customer. A customer must put in a digital or written purchase order for products within at least 10 days of the delivery date being requested.

The customer should also list the type and quantity of the goods wanted. Orders that are given with less than 10 business days notice will be filled at the discretion of the seller and may carry expedited shipping charges that the customer must pay.

The customer will get an invoice for the order and must pay within 30 days of the invoice's due date. Any late payments will have a charge of 2 percent per month until it's paid. The seller has the right to deny any additional orders until all late payments are received. The customer can return any product still in its original condition within the refund time limit that's stated in the terms. The customer is in charge of shipping and handling as well as buying insurance for the returned products.

The Typical Process

There are the typical steps in the process of creating a wholesale purchase and sale agreement. The first is to find a motivated seller. It's important to find motivated sellers and have contracts at very low prices. Next, explain the intent and have the contract signed. When making offers to the sellers, the offer needs to have an explanation of what will be done. Wholesaling is different from buying property. If the intentions aren't stated to the seller, they'll get confused because their expectations weren't met.

The seller needs to be aware of the following:

  • There are no plans to buy the property from the wholesaler themselves.
  • The contract will be sold to someone else who will then buy it.
  • The seller will never be in the dark and communicated with throughout the process.
  • If a buyer isn't found, the transaction won't happen and the contract will expire.

There are a few extra steps with a wholesale transaction, but the wholesaler shouldn't overcomplicate things. Explain what the basics are, but don't give them extra information that they don't need. An attorney should look through the final document to make sure it's legal and valid. It should also follow all state, local, and federal laws. Since the wholesaler isn't the actual buyer, it's not important to memorize every detail about the property in the contract. The main point is to explain all the important details while stressing the fact that they're receiving a great deal.

If you need help with a wholesale purchase and sale agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.