A reseller’s goal is to obtain access to a package through a direct relationship with a seller for the purpose of buying it at one price and then reselling it to an exit buyer for a higher price. Their profit is the spread, the difference between the two prices. Some resellers are worth their weight in gold while others are are not. How do separate the good from the bad and how do you read between the lines so you are not lead down a path of frustration and disappointment?
I categorize resellers into three groups.
The Wannabe Reseller
This reseller will not issue a purchase agreement to the buyer until the buyer proof funds directly to them. Buyer will not proof until they have verified a bank contract. Bank contract will not be issued until the bank verifies the buyer’s purchase agreement and POF. They key point here is that this reseller needs the buyer’s POF to secure the bank contract. Few buyers will accept this type of arrangement because they will not want their POF being shopped around by a reseller they do not know nor trust. Be warned that when this reseller successfully secures a bank contract with a buyer’s POF, they will then provide the opportunity to many of their buyers and continue to use the buyer’s POF to try and secure other packages from sellers. The worst part of this scenario is that in most all occasions, this reseller will NEVER tell the buyer they are using their POF to secure the bank contract for themselves. This is misleading and downright fraud if the reseller does not disclose this. The reseller only discloses it if they are caught during the post-POF due diligence period. Some buyers will still agree to close on the transaction while others will cancel the transaction and possibly threaten legal action against the reseller. These resellers are usually reps that have some how secured a package from another resource who is neither the seller or direct to the seller. These resellers should be avoided at at all costs.
The Relationship Reseller
This reseller has the relationships and can actually deliver the inventory with a purchase agreement. Once the purchase agreement is signed, the reseller will take the agreement to the seller. Seller will issue their contract with the reseller and deposit it into an escrow account for the buyer’s attorneys to confirm. Once confirmed, buyer will proof funds and place an escrow deposit to secure the package. These are reputable resellers willing to secure the package with their seller even though they do not have a POF from the buyer up front. These resellers usually deliver small packages under $1 million mostly through private sellers.
The Principal Reseller
This reseller actually uses their own proof of funds to secure the package. They are more than happy to provide proof of contract to a buyer via escrow even before the purchase agreement is executed. This reseller has every intention of closing on the package whether they have an exit buyer or not. If they don’t, they are prepared to buy and hold the package until they can sell it for their desired pricing. These are hedge funds, REIT’s and large investment groups with deep pockets. They buy in any range up to $20 million or more and usually work directly with banks. If you are fortunate enough to have access to a principal reseller, it’s as good if not better, buying from them instead of banks because you have direct access to the decision-maker with a quick turnaround decision to the offer.
In the end, it really comes down to this — if a reseller is asked to show proof of contract, are they willing to do so quickly or will they throw up obstacles in your path. Once you know how the reseller wants to proceed, you will be able to tell very quickly which type of reseller they are and take the correct course of action.
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