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The Real Estate Agent Nightmare: Wholesalers

by Mark Ferguson on June 1, 2014 · 27 comments

  
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Before I get started, let me say I have nothing against wholesalers.

I think many wholesalers do a great job and provide an awesome service to many investors.  I also have dealt with wholesalers as a listing agent who drove me crazy and made me understand why many agents don’t want to deal with them.

As A Real Estate Agent I Want To Do Whats Best For My Seller

Most wholesalers are looking to get a great deal so they can pass it on to a buyer and make a buck in the process.

As a real estate agent who lists homes, my job is to get the most money I can for my seller.  As you can see, the two sides don’t mesh very well with each other.  If I sell a house to a wholesaler, who is then able to sell the house to someone else for more money, I didn’t do my job very well.

Most real estate agents are trying to do what is best for their clients and selling to a wholesaler usually contradicts their mindset that they are getting the most money they can for the seller.

I know wholesalers have their formulas and need to get great deals in order to leave some meat on the bone for themselves.  I think wholesalers need to realize it is very hard to wholesale off of the MLS because of the real estate agents mindset. I can guarantee the real estate agent doesn’t give a damn about the 70% rule and why a wholesaler needs to buy the house so cheap.

Real Estate Agents Don’t Like Getting Low Ball Offers Over And Over

I list many REOs and fair market listings as well.

On my REOs I always get an offer from one buyer that is 50% or lower of list price.  Even on my HUD homes that I can’t even submit offers on (they go through hudhomestore.com) I get the same low ball offers every time.

I stopped taking this agent and their buyer seriously a long time ago since they can’t even take the time to check the MLS comments to see if the home is a HUD home or not.  Here is more great information on HUD.

I can understand wholesalers or investors offering low on aged assets.  I can understand offers 20 percent or even 30 percent less than asking price, but 50% two days after a home is listed, on every single listing?

Wholesalers Cancel Contracts A Lot

Related: My Method of Madness When Making Offers on Real Estate

In my experience and having been on the Bigger Pockets forums a lot.

I know wholesalers will cancel contracts a lot.  A wholesaler may underestimate repairs, over estimate value, or not be able to find a buyer.  While the wholesaler is running around trying to make a deal work, the owner of the home and the real estate agent are losing valuable marketing time.  Ultimately the wholesaler cancels their contract and the seller has to start all over again marketing the home.

I would also add that when I have a home go under contract and then come back on the market, I almost always get less money in the end.I think buyers see a contract fall through, they assume there was a problem with the house and there must be something wrong with it.

When a house first comes on the market is when the most excitement is generated and buyers are waiting for new listings.  Many times houses that come back on the market are not greeted with that excitement or are missed completely.

Not only does a wholesaler waste time when they get a house under contract and then decide to cancel, but they cost the seller money as well.

Not All Wholesalers Know What They Are Doing

To be a wholesaler there is no licensing requirement and many wholesalers don’t know the laws.

Some wholesalers try to act as a real estate agent by bringing buyers and sellers together without having any interest in a property.  Some wholesalers may pretend to be cash buyers by getting a fake proof of funds letter on the internet.

Some wholesalers may try to do a double closing without disclosing to the seller what they are doing.  A double closing may be perfectly legal, but it will still rub the real estate agent the wrong way if he doesn’t know it was happening and the seller isn’t being funded until a third party buys the house from the wholesaler.

How dumb does that agent look to his seller if the seller finds out all this was happening at the last minute and they weren’t informed of it?

Don’t Be Mad At Real Estate Agents Because They Don’t Like Wholesalers

Many agents have probably dealt with wholesalers who had no clue what they were doing or cost that agent a sale in some way.

Don’t be mad at the real estate agent, be mad at the previous wholesaler who ruined it by being shady.  If you want o be a wholesaler who uses the MLS, you are going to have a tough time of it, because the agents job is to get the most money for his seller’s, not leave room for two more parties to profit.

In my opinion the wholesalers greatest value is finding off market properties that aren’t in MLS.  That is a real skill that should be rewarded handsomely.

Related: 5 Simple Strategies For Real Estate Acquisition Domination! (You are Going to LOVE #5!)

Have any of you agents out there dealt with a wholesaler? 

What was your experience?

Be sure to leave your comments below!

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{ 27 comments… read them below or add one }

Adam Schneider June 1, 2014 at 7:17 am

Mark,
It’s always helpful to step in another person’s moccasins for a minute. I’m an investor with a real estate license. I certainly feel the discomfort agents seem to have when I mention I am an investor. Up-front disclosures eliminate heartache and frustration in all cases, and particularly within the real estate world. These Guru traveling circus get-rich-quick with someone else’s money certainly don’t help the cause.

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Mark Ferguson June 2, 2014 at 9:26 am

Hi Adam, I think the Gurus have hurt a lot of people in the investing world. They give a lot of us a bad name!

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Mark Adams June 1, 2014 at 8:34 am

Well I do agree with most of what you outlined in your article, no doubt. However, we need to separate some reasons why wholesalers are such a prominent force these days. 1. Cash – they do not have to deal with really tight lending guidelines and are the ultimate buyer. 2. Agent Experience – Some agents do not do their homework when setting a market price or give 100% to the smaller listings. This gives way to an extended sales cycle and really preps the way for these wholesales to swoop into the equation. 3. (Which is related to #2) Is that the location really isn’t recovering and is unsupported with good appraisal comps. The equity just isn’t there any more and instead of addressing this head on an reducing the damage they puff up the seller to get the listing and guess what – when the wholesales come in and get the “bargain price” – they keep the cycle of low comps going in that area.
The best determination of value is what someone with cash is willing to pay and/or what a someone will loan someone cash to buy.

Today’s environment has pockets of recovery but its not a total market. Where things are good the agents are cleaning up with multiple bids and then they love the “market forces”, unfortunately when they are in a not so hot market the wholesales offer a way out to the homeowner and will improve the house and sell it. This actually will then help the comp value and eventually help the market recover in that area. Remember, there are many forces at work, many types of housing markets, and many skill levels of real estate agents. Wholesales/cash buyers would account for 40% of sales if there wasn’t a need for a quick cash sale to allow the home seller the chance to get out from under the house and get on with their life.

I can see why agents are disheartened, they do a lot more work than they get credit. However, the wholesaler is also investing in a property, improving the property and gambling on marketing that property better than the first go around… It’s not 100% fool-proof either. I work with a firm that buys houses, but they are also brokers, so we have had this discussion many times with varying results. Just wanted to enter in some of the counter arguments. But you are correct about them not liking the situation.

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Mark Ferguson June 2, 2014 at 9:35 am

Hi Mark, I think buying a house and improving it is an entirely different situation. When I think of a wholesaler, I think of someone buying a house, and doing nothing more than raising the price a little and selling it again. I think there is a definite market for cash buyers who fix and flip since I do that myself!

I agree some agents do not do a great job and that creates opportunity. My point is not that wholesaling is bad, but that wholesalers need to understand why many agents are not happy to work with them.

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Randy Phillips June 1, 2014 at 9:44 am

I am an experience wholesaler and I avoid the MLS and agents like the proverbial plague. A high percentage of RE Agents have never heard of wholesaling and I’ve lost thousands of dollars when realtors tell my homeowners that what I’m doing is illegal. Only recently have I partnered with a Realtor/Broker/Investor and we have slammed a half dozen deals in the last few months. He wholesales my deals to his cash buyers. We both make a killing and the end buyer still gets a great deal. I often wonder why agents don’t learn some wholesaling skills to make substantially more money than chump change commissions. The realtors I’ve come across seem to know everything or think they do. They will list properties on the MLS and then do absolutely nothing, whereas a wholesaler will aggressively market the property and most times have it sold and cashed out in under 30 days. I’ve met many Realtors and they are great people, but not if your a wholesaler. I would like to team up with aggressive new realtors that don’t have the normal mindset and will work for my benefit if there is such a thing. Anyways, don’t hate me cause I do your job better and make more money than you. Randy Phillips

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Mark Ferguson June 2, 2014 at 9:49 am

Randy, great comment up until the last sentence. lol. I think anyone is hating, I am trying to explain the different mindsets involved and why agents have issues with wholesalers. I have nothing against good wholesalers who know what they are doing. I think they provide a great service by finding off market properties. The nice thing about being an agent is you can do many deals once your team is set up that basically involve little to no work by the person running the team.

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Haim June 1, 2014 at 10:09 am

I am a wholesaler and investor and I completely understand where are you coming from.

Most of my recent deals came from the MLS where I was either able to assign the contract (normal sales) or do back-to-back closing (short sales, HUD, REO). 99% of the times I don’t tell the agents what I’m going to do because 99% of the agents have no clue what it means and how it works. I know that from experience because I used to tell them and tried to explain how the process work and they either tell me that it’s illegal or screw up the deal. That’s a fact.

The key as a wholesaler is to bring value to the agent and the seller. I rarely work with a buyer agent so the listing agent will get both sides of the commissions. Quick closing is always a plus for the seller and the agent. And as a buyer I always pay the closing costs so that’s another plus for the seller. Yes, my offers are low because that’s the only way I can make a profit and deliver value to my Clients, the end buyers/investors, that’s my responsibility as a wholesaler.

The other key is to deliver and CLOSE. Once you do that the agents will be your friend and will be a great source of leads in the future and you will be their go-to-person anytime they get a new listing.

There is a way to make this relationship a win-win for the wholesaler and the agent.

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Mark Ferguson June 2, 2014 at 9:51 am

Closing is the most important part! Once you have proven you can deliver it is much easier to work with agents.

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JerryW. June 1, 2014 at 10:28 am

Hi Mark, thanks for the article it was very insightful. I am still chuckling at the prior post from Randy. He seemed very intent on proving everything you said about some wholesalers. He obviously has not done much research on you. I passed through Greeley this weekend but did not call as I did not want to take time away from your family to meet you in person. I do hope to do so someday though.
I am worried that I put too many offers in that are too low with my local realtor I use. I have began asking them to just call and ask the seller if they have any interest in selling at this price range. Does that create any trouble for the agent or broker when I do that? In fairness I usually buy or sale a property through them about once or twice a year so they are getting some pay for my multiple offers.
I do not consider myself a wholesaler, but find myself selling properties as soon as I buy them or even sometimes before closing. I find that funny as I am a buy and hold person that hates to sale, but I sale them so I have more capital to go put a down payment on another property. Best wishes

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Mark Ferguson June 2, 2014 at 9:54 am

Hi Jerry! It would have been a bad weekend as my twins turned 3 and we had a big party and a lot going on.

It is tough with the verbal offers. I think it is usually a waste of time to ask if a buyer will look at offers in this price range. Usually a verbal offer does not mean a lot and it is much more valuable to have it in writing. If your real estate agent is cool making the offers I would keep doing it. Take him out to lunch a couple times!

I thought Randy made some decent points, but I would not assume all Realtors make chump change. lol

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andy June 1, 2014 at 11:31 am

I am a Realtor AND a wholesaler. I practice wholesaling more than listing so
I am mostly a wholesaler by practice. Have integrity in all you do. Do not
waste time with Realtors who do not understand wholesaling or who cannot
be a good strategic ally. Do not waste time trying to wholesale retail listings
on the MLS. If you are a Realtor do not waste time with wholesalers if you are
trying to get retail price. Most problems between the two disciplines are a result
of trying to make something out of nothing. As far as not disclosing what you
are doing……. you should always disclose and not try to deceive anyone.
Page one of my Realtor guidelines quotes the Golden Rule. Treat others the
way you want to be treated. This is an easy game.

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Mark Ferguson June 2, 2014 at 9:55 am

Great points Andy! I completely agree.

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Talal Pharoan June 29, 2014 at 5:20 pm

I also am a Realtor but have trouble understanding how I can wholesale this REO in my neck of the woods. I am searching for an assignment clause in the contract Realtors mostly use to not avail. How would I perform a back-to-back closing?

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mark ferguson June 30, 2014 at 2:13 pm

Hi Talal,
99 % of REOs will be very clear you cannot assign them in their addendems.

You would have to find a title company that will do a back to back closing. Most REO companies will pay for sellers title work and some closing fees if you use their title company. If you use your own title company you are most likely going to have to pay for title insurance and all the closing fees.

Darrell Kilgore June 1, 2014 at 12:24 pm

Hey Mark great post bro, I learned a lot on how to be a better wholesaler and how to create value in what I do in my real estate business. My business name says it all, Home Owner Help Direct, LLC. Our first deal came by helping someone sell there home do to not being able to take care of it for age related reasons. I like the IFTTT and I’m setting it up now thanks for this major heads up your information is very meaty LOL Good luck to every one else out there.

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Mark Ferguson June 2, 2014 at 9:56 am

Hi Darrel, thank you!
I am glad it helped

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Joel June 1, 2014 at 2:51 pm

It’s simple really.

Get a few thousand non-refundable earnest money held by the seller or their attorney from the wholesaler. Give the wholesaler a short time to perform. If they can’t they lose their money and they stop playing games and wasting people’s time.

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Mark Ferguson June 2, 2014 at 9:57 am

Joel, that is a great idea. I think many times the issue come about from agents not knowing they are selling to a wholesaler. If you know up front and the wholesaler is serious that is a great tactic to use.

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Mary B June 1, 2014 at 3:16 pm

There are two sides to the coin in that many wholesalers don’t have the proper training in real estate investing and will just go out and make offers without any plan of action other than to hopefully close. Some of that is the so called gurus fault yet its mostly their own fault by being ignorant to the business. I’ve said this a few times on a few forums but to be a solid REI you have to learn how to accurately do a CMA, learn the housing market that you are or plan to invest in ahead of time in addition to learning how to calculate MOA and to make an hypothesis on rehab per property. I recommend newby wholesalers(with no other formal training in the business of real estate) to learn via doing one fix and flip to get the full perspective.

Having stated that, many real estate agents aren’t well versed on real estate investing. However being a student working on getting my license the general description of wholesaling has been considered ”illegal” according to fundamentals of licensees. So I FINALLY understand why so many agents in various housing markets have made that claim. Yet to make sure that one doesn’t break the law and still be able to wholesale properties / notes there is an answer to that. All I can say for those agents that aren’t well versed in real estate investing is to learn it because its a very profitable business. As a wholesaler myself I rarely work with agents to avoid the caos and bickering. I know what dealing with a real estate agent means for my expenses, MAO and won’t waste their time nor mine. This means I don’t go after HUD listings, MLS properties or short sales. Certain niches require agents and every wholesaler should know that. Just because the guy at the seminar didn’t mention it isn’t acceptable as an excuse. You have to read and learn about these things on your own. School yourself or tarnish your rep / business in the longrun. If real estate agents took the time to learn about real estate investing and wholesalers learned about other aspects of real estate investing before hitting the ground running, it would be less disastrous for you all.

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Mark Ferguson June 2, 2014 at 9:59 am

Great points Mary, I think it is wise for RE agents to learn about investing and wholesaling, but the fact is 90% won’t. So most wholesalers need to realize what they are working with.
I know some wholesalers who make it work off the MLS, but it is tough.

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Sue Goldthorp June 2, 2014 at 6:11 am

Can anyone tell me what the effective difference is between the assignment fee a wholesaler gets from the buyer and the commision a real estate agent gets from the seller? Obviously a buyer has to factor in the assignment fee when deciding what to pay. Something has to give if you extract too many commisions/ fees out of a deal what’s left for the seller, unless that is the only way the property can sell. I agree wholesaleing using the MLS is a difficult proposition.

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Mark Ferguson June 2, 2014 at 10:01 am

Hi Sue, when a wholesaler gets an assignment fee, that fee is paying for the contract the wholesaler has on the house. The wholesaler has an interest in the house once they have an accepted contract as the buyer. A real estate agent is getting paid to facilitate the closing and market the home, represent the buyer, etc. Without ownership or a contract on the home, you have to have a license to help with the sale and receive a fee.

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Trevor June 2, 2014 at 3:32 pm

Mark, is it possible to use the MLS without a real estate licence? Or can you get your licence without having to put in time at someone elses office?

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mark ferguson June 5, 2014 at 9:42 am

Hi Trevor, no you must be a licensed agent to use MLS. You also have to hang your license with a broker until you can become a broker yourself. Most states require a certain amount of time you are an agent until you can become a broker (two years in Colorado). Many brokerages offer little service but will hang your license for a small fee each month or per transaction fee.

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Ben June 9, 2014 at 3:16 pm

This is a great article that sums up what not to do as a wholesaler. I’ll put it to use!

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mark ferguson June 30, 2014 at 2:11 pm

Good to hear ben

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Tiffany July 24, 2014 at 3:04 pm

Hello…

I’m currently employed with a bank in a mortgage department. I’m familiar with various investors and insurers rules when it comes to SPO’s, DIL’s, recieving assistance to keep the home, etc… I’ve been doing a lot of reading on wholesaling (as it seems to be the easiest way to get your feet wet and get into REI) and I want to give it a go… Where or what would you suggest one to do to get started? I mean, I could read all day, but am really a hands on learner. There’s a wealth of information out there and even after researching, it still leaves you wondering where to start…

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