Cash Buyer Contract Red Flags: 10 Things to Check Before You Sign

The checklist

1. The buyer's name: “and/or assigns” or “and/or assignee”
2. Whether it's your state's standard contract, and if not, why not
3. A written answer to “Will you assign or resell this contract?”
4. The deposit: how much, who holds it, when it becomes non-refundable
5. Escape clauses: “subject to partner approval,” “subject to buyer's approval”
6. Deadlines and extensions: can the buyer push the closing date on their own?
7. Access rights: can they bring other investors through or put on a lockbox?
8. Recording clauses: can they record a memorandum against your title?
9. Default terms: what each side loses if they back out
10. “Subject to” financing and the title company

1. Who is the buyer, really?

If the buyer is named as “John Smith and/or assigns” or “John Smith and/or assignee,” the named buyer is keeping the right to hand the contract to someone else.^[2][8] That's the core of wholesaling: contracting with you, marketing the deal to other buyers, and profiting from the difference.^[1] In Texas, adding “and/or assigns” to the buyer's name counts as the notice the law requires.^[2] In Washington's standard form, adding it is what switches assignment on.^[3]

An assignment usually leaves the original buyer still responsible unless you agree otherwise.^[4] Know who you'll actually close with. See assignment of contract.

2. Is it your state's standard contract?

Many standard purchase contracts restrict assignment unless the seller agrees. Investor-written contracts often flip that default:

If a buyer insists on their own contract instead of your state's standard form, ask what their version changes and why.

3. Ask in writing. Lying about it can be fraud.

Ask directly, by email or text so there's a record: “Do you intend to buy this house yourself, or might you assign or resell the contract?”

• Under the general contract rules most U.S. courts follow, a contract is usually voidable by a party who was induced to sign by a fraudulent or material misrepresentation they reasonably relied on.^[13] A misrepresentation is fraudulent when the person knows it's false and intends it to get you to agree.^[14] Someone who fraudulently misrepresents a fact, opinion, or intention can be liable for the resulting losses.^[15]
• California spells this out: deceit includes stating something as fact that you don't believe, and making a promise with no intention of keeping it.^[16] Fraud used to get someone to sign is “actual fraud,”^[17] and a party whose consent was obtained through fraud may rescind the contract.^[18] The California Supreme Court has confirmed that a promise made without intent to perform is a form of fraud.^[19]
• Many states now also require wholesalers to disclose in writing that they may assign. See wholesaling laws by state.

4. The deposit

A tiny deposit, one the buyer holds themselves, or one that stays refundable until closing lets the buyer walk away, or threaten to, at almost no cost. See earnest money and the reduction call.

5. Escape clauses

Standard contracts give buyers defined rights, such as an inspection period with a deadline.^[5] Watch for broader, open-ended outs like “subject to partner approval” or “subject to buyer's inspection and approval” with no deadline. With wholesalers, if no end buyer is found, the sale may simply not happen.^[1]

6. Deadlines and extensions

In California's standard contract, and most others, changing deadlines generally requires a writing signed by both sides.^[20] Be wary of clauses letting the buyer extend the closing date on their own, which gives them time to find an end buyer while your plans stay on hold.

7. Access to show your house to others

Clauses letting the buyer bring in “partners,” contractors, or other investors, take marketing photos, or install a lockbox can be a sign they're marketing your house to other buyers. If you allow access, spell out who can enter, with how much notice, and who's responsible for damage.^[20]

8. Recording clauses

A clause letting the buyer record a memorandum or affidavit against your title can stop you from selling to anyone else. Connecticut now bars liens or encumbrances under wholesale contracts entirely,^[21] and Oklahoma and Louisiana bar wholesalers from clouding your title.^[25][26] See memorandum of contract.

9. What happens if either side backs out

• If the buyer backs out: many contracts limit the seller to keeping the deposit as “liquidated damages.”^[5] With a tiny deposit, that's almost nothing. Courts won't enforce liquidated damages that are punitive or unconscionable, but that cuts both ways.^[22]
• If you back out: with no seller cancellation right, the buyer may sue to force the sale and, in most states, record a lis pendens on your home.
• Look for balance. If the buyer can walk away cheaply but you can be sued to complete the sale, that's a one-sided contract.

10. “Subject to” financing and the title company

• “Subject to” deals, where the buyer takes over your payments but the mortgage stays in your name, can trigger your loan's due-on-sale clause. If your loan has a due-on-sale clause (most do), federal law lets the lender enforce it when the property is transferred without its consent,^[23] and a transfer subject to a mortgage counts as a transfer.^[24] Get lender and legal advice first.
• The title or escrow company handles your money and title. If the buyer insists on their own, look it up yourself and call it at an independently verified number.

This guide is general information, not legal advice. For any investor contract, especially one that isn't your state's standard form, a short review by a real estate attorney is cheap insurance.