Key Takeaways
- Assignment of contract transfers contractual rights; double closing involves two separate transactions.
- The Assignment-to-ARV Ratio should stay below 75% to ensure end-buyer profitability.
- ARV estimation from comparable sales is the most critical skill—over-estimation is the top mistake.
- Cost Per Deal ($2,000-$5,000) and Assignment Fee ($5,000-$15,000) determine wholesaling profitability.
Successful wholesalers must master a specialized vocabulary that enables clear communication with sellers, buyers, title companies, and attorneys. This lesson defines essential wholesaling terms and introduces the quantitative metrics used to measure deal viability and business performance.
Essential Wholesaling Vocabulary
Assignment of Contract is the legal transfer of contractual rights from the wholesaler to the end buyer. The Assignment Fee is the price the end buyer pays above the original contract price—this is the wholesaler's profit. A Double Close is an alternative to assignment where the wholesaler actually closes on the property and immediately resells it—used when the assignment fee is large or the seller's contract prohibits assignment. Earnest Money Deposit (EMD) is the good-faith deposit submitted with the purchase contract, typically $500-$2,000 for wholesale deals. Equitable Interest is the legal right the wholesaler holds in the property once the purchase contract is executed. An Inspection Contingency is a contract clause allowing the buyer to cancel within a specified period, used by wholesalers as an exit strategy if they cannot find an end buyer.
| Term | Definition | Typical Range/Detail |
|---|---|---|
| Assignment Fee | Wholesaler's profit from contract transfer | $5,000-$15,000 residential |
| Double Close | Two back-to-back closings on same day | Used when fee exceeds 15-20% of price |
| EMD (Earnest Money) | Good-faith deposit with purchase contract | $500-$2,000 for wholesale deals |
| Equitable Interest | Legal right held via executed contract | Basis for marketing to end buyers |
| Inspection Period | Contingency period for due diligence | 7-14 days typical |
| Daisy Chain | Multiple wholesalers assigning same deal | Inflates price, reduces end-buyer margins |
Core wholesaling vocabulary
Financial Metrics for Deal Evaluation
Beyond the MAO formula, wholesalers track several key metrics. The Spread is the difference between the contract price and the ARV-based value to the end buyer—it must be large enough to accommodate both the wholesale fee and the end buyer's required margin. The Assignment-to-ARV Ratio measures the assignment price as a percentage of ARV; end buyers typically need this below 75% to ensure profitability. Cost Per Deal measures total marketing and operating costs divided by closed deals—successful wholesalers keep this between $2,000 and $5,000. Revenue Per Deal is the average assignment fee. The Close Rate is the percentage of contracts that result in a completed assignment.
Understanding After-Repair Value (ARV)
ARV is the most critical number in wholesaling—every other calculation depends on it. ARV is estimated by analyzing comparable sales (comps) of recently sold, renovated properties in the same neighborhood with similar characteristics. The best comps are within 0.5 miles, sold within the last 90 days, and within 20% of the subject property's square footage. Wholesalers should use at least three comps and consider both the median and average values. Over-estimating ARV is the single most common mistake in wholesaling—it leads to overpaying for contracts that end buyers will reject. Conservative ARV estimation protects both the wholesaler's reputation and the end buyer's margin.
Key Takeaways
- ✓Assignment of contract transfers contractual rights; double closing involves two separate transactions.
- ✓The Assignment-to-ARV Ratio should stay below 75% to ensure end-buyer profitability.
- ✓ARV estimation from comparable sales is the most critical skill—over-estimation is the top mistake.
- ✓Cost Per Deal ($2,000-$5,000) and Assignment Fee ($5,000-$15,000) determine wholesaling profitability.
Sources
- BiggerPockets — Wholesaling Vocabulary Guide(2025-01-15)
- National REIA — Investor Education Resources(2025-01-15)
Common Mistakes to Avoid
Using listing prices instead of sold prices to estimate ARV
Consequence: ARV over-estimation by 5-15%, leading to unprofitable contracts
Correction: Only use sold prices from closed transactions within 0.5 miles and 90 days.
Not understanding the difference between assignment and double close
Consequence: Using assignment when the fee is disproportionately large, causing seller pushback or deal collapse
Correction: Use double close when the assignment fee exceeds 15-20% of the purchase price or when the contract prohibits assignment.
Test Your Knowledge
1.What Assignment-to-ARV Ratio should end buyers typically stay below for profitability?
2.What is the most common and costly ARV estimation mistake in wholesaling?
3.What does a double close allow that an assignment does not?