Real Estate Wholesaling

Opinion: I Don’t Trust Anyone Who Wholesales—Here’s Why

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I've been investing in real estate for more than 20 years. No matter where we are in the market cycle, people are always looking for a deal. I've been asked on a consistent basis if I know any good wholesalers. And every time I hear that question I wince.

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My response to pretty much anyone who’s asked me is the same. Over and over again, I say, “I have not met a single person in the NYC area who’s worthwhile as a wholesaler.”

I explain further that in my opinion:

  • They can be greedy.
  • They can’t calculate repair costs.
  • They sometimes cherry-pick comps that show the properties in the best light and disregard less-than-flattering comps (many of which appraisers would use).

And that’s just the beginning of the story.

IMO, Wholesaling Isn’t the Way to Go

My opinion is that many who wholesale on a regular basis dabble in gray areas in terms of the law. In my area, I see bandit signs all the time offering people "cash for their property." I also get calls and text messages from wholesalers asking me if I want to sell one of our rentals. The majority of the time, what most people don't realize is that person putting up the signs or calling and texting you has zero intention of actually purchasing the property themselves. So, from the get-go, there's a dishonest motive to their actions.

What I realized is, in the end, there are wholesalers who are only in it for themselves and no one else. Despite what some of them think, they aren’t out there providing a good service for real estate investors.

Related: What Exactly is Real Estate Wholesaling (& What Does a Wholesaler Do Every Day)?

As real estate agents and members of the National Association of Realtors (NAR), we take an oath which binds us to act as a fiduciary for our clients, who are buyers and sellers. I’m not going to claim that all Realtors actually live up to this oath—unfortunately, they don’t. There are a number in the industry (of more than 1.3M) who are only concerned with themselves, too.

However, I do think they are the minority. And there is a difference between someone who's a licensed agent and those who are members of the NAR: members take the oath, while licensed agents do not. But non-members still have to do business based upon state laws, which restrict their actions. In most states, net listing a property is clearly illegal.

You might be thinking: Wait a second, Darren. I thought you were talking about wholesaling a property?

Yes, I am 100%. But to understand wholesaling, you also need to understand net listings. So, let's dive in and look at both through a fictional example.

Front vew of unmowed lawn of an abandoned foreclosed Cape Cod style house in suburban Maryland, USA.

Related: The Ultimate Beginner’s Guide to Real Estate Wholesaling

What Is a Net Listing in Real Estate?

Susan is an elderly homeowner. She’s been in her home for more than 25 years and has not been able to keep up all the typical homeowning duties. So, there’s a lot of deferred maintenance (to say the least).

Susan wants to move to a place where the cost of living is less or where she can be closer to her children and grandkids. She calls up Allen Southgarden, who's the most famous local real estate agent she knows. Allen comes to Susan's home and sees that it's ripe for a remodel in today's tight inventory. He sees an opportunity here to profit, so he asks Susan all the standard questions: (i.e., where she'd like to move, when, etc.). Then, Allen asks her what she thinks her home is worth.

Susan replies she thinks it’s worth $260,000. Allen asks if she would be happy if he was able to net her $260K for the home, and she confirms she would. So, Allen guarantees her she’s going to receive $260K for the home (outside of any legal fees and taxes associated with the sale).

Susan is happy. Allen, being the sharp agent he is, knows that Susan’s home is worth at least $410,000 in the current market. With an investment of $75,000 in repairs, the home could be worth at least $650,000 based upon the comps he knows of. So, Allen shops the property to his list of investors and cash buyers who can close quickly and shows the home to those interested.

More than one jump on the opportunity Allen has presented. The home gets bid up to $428,000. Meanwhile, Susan is completely unaware. All she knows is that she’s getting a buyer to pay her $260,000, and she can move closer to her grandkids.

At the closing table, Susan is shocked. She was completely oblivious to the fact that Allen was actually selling the house for $428,000, equating to a payday of $168,000 for him. She’s furious—and rightfully so.

Allen was not acting as a fiduciary for Susan. He was acting in his own best interest. This is an example of a real estate agent doing a net listing. You can see why it's against the law in most states.

Related: 5 Costly Pitfalls That Catch Wholesaling Newbies Off Guard

What Is Wholesaling in Real Estate?

So, what if Allen was a wholesaler and not a real estate agent? Here’s how that scenario would look.

Allen purchases a list of homeowners who’ve been in their home greater than X number of years. Susan is in the same scenario described above: sitting in her home with lots of deferred maintenance. She gets a call from Allen. He says he’s interested in purchasing her home all-cash. He’s been looking to find a place to live in the area. Would she consider selling to him directly?

cash-flow

Susan, as mentioned, wants to live closer to her grandkids, so she says yes. Allen comes over and does a walkthrough. On the spot, knowing the home’s potential, he asks Susan what she wants for the home. She tells him $260,000. Allen agrees to buy it for that amount.

Allen has Susan sign a contract to sell her home. However, he tells her that he's not sure how he wants to close on the home. He may want to close in an LLC to protect his privacy or purchase it with some friends or family members if he can't get a mortgage on his own. So, he makes sure that the contract is assignable to another entity. Susan agrees.

Allen also explains to Susan that he’s going to need to take some photos and have his contractors walk through the home on several occasions. He’d also like to walk through with some of his “students” in the housing industry. That way, he can teach them what he plans to do with the home. Again, Susan agrees to let those things happen and locks herself into a binding contract she’s now beholden to.

Then, Allen gets to it. He creates an estimate of the repairs necessary: only $48,000. He scours Zillow and Trulia to look at sales of homes in the area, decides to ignore some of the sales that actually took place on Susan’s block, and determines that the after-repair value of the home would be $710,000.

Allen prices the property at $450,000 and creates a marketing sheet with all the numbers and photos of the property. He uploads them to Dropbox so that they’re easily accessible to anyone. He reaches out to his cash buyers and those who can close quickly with hard money.

Due to the limited inventory available at the time, demand from the list is high (especially with the numbers he put out). He sets a date for the walkthrough. Allen lets Susan know that he’s going to have his “students” come on the following Saturday, and she agrees. He asks if it would be possible for her to not be there; she says she can find something else to do at that time.

Related: 5 Compelling Reasons You Should Think Twice Before Wholesaling Properties

Allen has more than 20 parties show up, and he parades them around the home. Many are interested. He winds up getting multiple offers but none are near his asking price. It seems they were aware of the actual average price of recent home sales on this specific block—only $650,000. He agrees to work with a buyer he's done business with in the past; the offer price is $418,000.

The buyer wants to do a home inspection on the house, so Allen lets Susan know he's "sending his contractors through the home." Upon inspection, there is some structural work needed. The buyer wants a credit of $10,000 to take care of the necessary repairs.

Allen goes back to Susan, letting her know that he’s now unable to give her the $260,000 because he wasn’t aware of the issue. He can only give her $250,000. She reluctantly agrees because she wants out of the home.

Come closing day, Susan goes to the title company and is greeted by more people than anticipated. She quickly learns Allen decided not to purchase her home directly—someone else is through the LLC that Allen set up. Allen is just there to collect a check made out to him for $168,000.

Susan is furious, and there’s nothing she can do. She’s in a binding contract.

Pensive afro american handsome professional writer of popular articles in blog dressed in trendy outfit and glasses thinking over new story proofreading his script from notebook sitting in cafe

What’s the Difference Between Net Listing and Wholesaling?

So, what’s the difference between the two situations? Both resulted in a $168,000 payday. However, one is against the law in almost every state, and the other is not.

Personally, I see no difference between the two ethically and morally. Yet I will admit that the prospect of making that type of cash from a transaction—or even half or a quarter of that amount—is quite alluring. But in my opinion, both are taking advantage of someone else.

Whether a seller is completely unaware this is going on or a seller is in a tough situation financially that they need to get out of, Allen isn’t doing what’s best for them. In both cases, he was only thinking about himself and his payday.

How is it that one is legal to do and the other is not?

My opinion is it’s a mere technicality. In each instance, Allen didn’t take possession of the property, and the net effect was the same. It seems that the state of Illinois has recently caught onto this fact and put measures in place to reduce this practice by requiring wholesalers to now have real estate licenses if executing more than one transaction a year.

Related: The 8 Most Common Lies Newbies Believe About Wholesaling

But I don’t think that’s going nearly far enough. At some point, I believe all states should make the practice of wholesaling illegal. Sure, there’s a big difference if one wanted to purchase a property then suddenly could not and they were trying to salvage a deal somehow. But the systematic approach of doing what Allen did over and over should be outlawed—at least, I think so!

no_condo_investing

Wholesaling Tactics I Personally Am Not OK With

Wholesalers, unlike real estate agents, can say or do whatever they like to get you interested in a property.

It’s funny—I even got an email from a wholesaler as I was writing this. In it, they describe the property as such: “This project is ideal for an investor looking for a medium level of renovation on a project in the desirable XXXX market! Properties are selling quickly and values continue to rise as investor activity grows in the area.”

Well, the data that I can see tell a different story. Prices over the last 12 months are down, not up. What gives?

A licensed agent is not allowed to mislead. We can get sued. Every brokerage is required to carry something called E&O insurance, which stands for errors and omissions. That right—real estate brokers get sued often enough that we’re required to carry this insurance as agents. In fact, many agents don’t start their own brokerages because of E&O risk. Existing brokerages do whatever they can to reduce the E&O risk by making sure that all required documentation is signed off on by buyers and sellers.

This is also why most brokerages don’t allow agents to wholesale. Wholesaling is the Wild West of real estate transactions. Agents who do it put the brokerage at incredible risk. Those brokerages that allow it, I actually question where their heads are at.

You also can’t rate wholesalers on Zillow, Trulia, or any major real estate website or app. Google, Facebook, or other possible ways—yes. But who’s rating them there? If someone is, it’s most likely their favorite investors who “got a deal” from them and not the property owner as most likely would be the case on Zillow or Trulia. People can’t track the performance of the wholesaler and read reviews written by who matters most: the person whose property was exchanged.

Related: The Pros and Cons of Wholesaling With a Real Estate License

As licensed agents, our deals are scrutinized daily. Wholesalers can be here one day and gone the next. They can operate in any state and not have any knowledge about the area. I believe many are simply trying to make the largest spread they possibly can on every deal they put out.

Real estate agents are (in most cases) required to sit in classes to get licensed. It can take anywhere from 70 up to 150 hours. We’re fingerprinted and have to do continuing education every 2 years, which always, always, always includes classes on ethics.

With the advent of the SupraKey we get tracked on every home we key into so it’s known who goes in and out of every residence. And since the advent of the COVID crisis, we have additional forms here in New Jersey that we need to have buyers and sellers sign.

Wholesalers? They don’t have to do anything. Zero. They report to no one. Anyone can get into wholesaling today and be gone tomorrow.

Maybe you don’t feel how I do: But Darren, there are some good wholesalers out there that do provide a good service to others. They’ve helped a number of homeowners get out of a tough situation and move forward with their lives. And they actually tell the homeowner what they’re doing ahead of time, when they first meet them.

That may very well be the case. My opinion is similar to what I said earlier about Realtors who act outside the oath they make. Wholesalers who actually conduct their business in good faith with respect to the seller are among the vast minority.

To the wholesalers: why not get your license and do exactly what you’re doing in a way that’s responsible?

I think those who aren’t willing perhaps feel that the commission rates—which average 5%,6%, 7% for agents—are just not enough for them. Plus, they’d have to do more as an agent to earn the same amount to boot. And they’d have to report to someone else. All this means they’d need to be accountable to their state finance boards and their clients, and there are some who just don’t want any part of that.

So, as the saying goes, “caveat emptor” to all of you who think you’re getting a deal from a wholesaler. And more importantly, “caveat venditor!” Seller, beware.

What’s your take? 

Join the discussion below.

Darren started investing in Real Estate in 1998 just over a year after he graduated from Boston College with a B.S. degree in both Accounting & Marketing. He entered Deloitte's real estate pra...
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    Crystal Smith Real Estate Broker from Chicago, IL
    Replied 20 days ago
    I'm an investor and a licensed agent & I have to say that I disagree with the majority of this article. We've purchased a lot of property for our own portfolio from the MLS, private owners & wholesalers. When we're on the buy-side we do our own due diligence to determine what we should offer based on the condition of the property, repairs required & the Return on Investment (ROI) targets we have for our business. We don't frankly care how much a wholesaler makes on a deal if we can still hit our target number. The wholesaler that brings us an off-market deal where we can hit our numbers is doing our company service, especially when one considers how little inventory there is. We've also assigned contracts over the years or double closed; (i.e. wholesaled) & everyone got what they wanted; the owner of the property we controlled via contract, the ultimate buyer who purchased our contract & our business. And yes I made more for our business on those specific deals than I would have from a commission. In 20 years we've had one complaint from one investor who wanted to renege on a deal because he thought we were making too much money. My partner & attorney found it amusing that the deal was good enough when the investor signed the contract, but it wasn't good enough when she discovered what we were going to make. The exact opposite mindset we have when we purchase for our own portfolio & don't care what the seller makes as long as we can hit our number.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    There's nothing bad faith about the blog post. This is our overall experience with wholesalers and those who wholesale and it seems that there are a lot of others who feel the same way (or even worse). Congrats on getting a "good deal" from them over the years. However was it done at the expense of a homeowner who didn't have a clue what was going on? Chances are, most likely, yeah. Do you feel good about that and you can sleep easily at night? How many wholesalers tell the buyers up front that they're just there to flip the contract to another buyer and make a ton of money doing so? Not many I'm pretty sure at this point in my real estate investing career.
    Sean Walker Real Estate Investor from Utah
    Replied 17 days ago
    Agreed...some really bad faith premises in this article. It has a guilty until proven innocent vibe. While there are bad operators that are Real Estate Agents and Wholesalers, the majority I have worked with over the years truly do have the best interests of the distressed homeowners in mind. This article makes the assumption that all homeowners are ignorant of the current value of their property and that all Agents that invest are not going to be forthright with the findings of what the subject property is worth in it's current condition.
    Daniel Stevens Investor from Houston, TX
    Replied 20 days ago
    Hello, I started out wholesaling but also flip houses as well. The main part of my business is wholesaling and I kinda have to disagree with the bashing of wholesalers for a lot of reasons. Wholesaling is an honest living and can be stressful at times. It takes skill, consistency, persistence, and just in general (Hard work). It's not as easy as some believe. It's not all about the amount of money a wholesaler makes or if that wholesaler makes a whopping 168K off of one deal. A lot of people seem to forget we all need to stay in our lane sometimes. If your an expert at being a real estate agent and made number #1 agent of the year, I say good for you. If 1 person makes 168K on a deal, I say good for you. We all know the real big tech companies like Microsoft, FB, Tesla, ETC but ever thought about some of those product we buy everyday at the mall or even at the local Walmart? I've personally been in sales and seen margins well over 100% and yes the average is 33% but never stopped me or anyone else from buying it. Were all in this world to make it or make it to the top and nothing wrong with trying so long as you don't break the law. Now, let me tell you what a wholesalers daily work tasks looks like (7 days a week for real wholesalers). LOL First we spend anywhere from 2K to 10K a month and I know some spend in the 20k's or more YES! We buy thousands of leads and list. We skip trace which for good quality phone numbers cost a lot. We hire or have VA's (virtual assistants) to make those phone calls, we have dialers, other marketing CRM's and tools that cost a ton, we see approximately 5 to 15 homes a week and you have no idea what we go through. Wholesalers not the only ones lying to the other investors as you stated for the cost of repairs, "the sellers lying too". Seller says, "all it needs is paint," LOL yeah we traveled 1 hr through traffic to find out it's a gut job and they want pretty close to retail. To be a real wholesaler, you need to have some sort of negotiating skills. Sellers or property owners sometimes tend to think the house is worth 200K when the highest selling house in the neighborhood was 150K with more SF. Honestly we do work for the money and whether that be from what I mentioned or dealing with heirs and title companies and in general using some creativity to sometimes get a deal done that could take months to close. I could go on and on about the disadvantages but no need. Are job is not to take away an agents job but to really get the houses you really don't want in the first place and I know you know what I'm talking about. The shit and rat holes I've seen and walked through, trust me, you can't sell it anyways. Anyways, good article though and very well planned out when you wrote it.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    I never said that there aren't ethical wholesalers. I do believe you come across them as often as you see rainbows, that's all. :).
    Nunya Jackson
    Replied 16 days ago
    I appreciate the warnings and education. If this does not apply to you....great, however it's like saying most teachers, like myself, are awesome to students but we know that there will always be some bad apples. I wish I could personally fire some but hey it is what it is. I don't think the blog was meant for those knowledgeable enough to argue a stance. I think it was meant for newbies like myself and I say "Thank you Darren Sager of Summit, NJ." I know about how much my home is worth. I have illegally finished a basement though without closing the permit with proper inspections etc. so I know many people cut corners and break rules. I am here to learn as much about all of it. I keep getting random offers via mail but am not interested in selling at this time. I think I'll rent my basement for a couple of years to a single screened tenant and then look to buy another home once the market turns in the favor of buyers. Any advice is greatly appreciated. Oh yeah, btw - what are comps? anyone? Thanks in advance
    Mat O'Grady Investor from North Stonington, CT
    Replied 18 days ago
    I think the author was saying he didn't think it would be ethical for someone to take a advantage of a seller and make a great deal of money because the seller didn't realize how much their property is worth. Even if a wholesaler puts in time, money and effort to find a seller who is ignorant of the value of their property, I believe the author is saying that it is still unethical.
    Kimberly J. from S.F.Bay Area, California
    Replied 17 days ago
    Exactly!! and there no laws governing wholesalers, like there are agents.
    Josh Lipinski
    Replied 18 days ago
    There's no such thing as a "margin over 100%".
    Josh Collins Investor from Woodbury, MN
    Replied 18 days ago
    There could be if they buy a widget for $1 and sell it for $3. That's a 200% return.
    Ricky Fields
    Replied 18 days ago
    Margins by definitions cannot exceed 100%, return is not margins..
    Steve Mcmahel New to Real Estate from Wake Forest, NC
    Replied 17 days ago
    Semantics.
    Charles Scott Rental Property Investor
    Replied 17 days ago
    Well said!
    Adrian Ayub
    Replied 19 days ago
    It's just a political issue most of the time with Real Estate Agent associations trying to paint wholesaling as illegal or unethical
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Never said it was illegal. I do believe that it should be though.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 19 days ago
    You make a good case Darren. It's hard to see how wholesaling is different than a net listing. If the spread is reasonable (i.e. close to what a commission would be), it's not particularly objectionable, but in that case, why not just list the property?
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Thanks Andrew! They could just list the property. But they want more $$$$$$$$$$$$$$$$$ and no liability!
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 17 days ago
    Well they would have to be licensed and many (most?) aren't
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    No, only Illinois for now. I hope it rapidly expands to other states at some point in the near future.
    Lynne Smith Rental Property Investor from Tampa, FL
    Replied 18 days ago
    Great article. I think the main issue is whether or not a wholesaler has a duty to act in the seller's best interest. The comments above by the people who disagree with your article are essentially people saying, "I don't have a duty to act in good faith nor make the home owner aware that I am not their fiduciary duty and do not represent them." The home owner only thinks the deal was fair in the beginning because they didn't know the comps in the area and the cost to renovate. If they are working with the wholesaler under the assumption that the wholesaler is in "their corner", then the home owner thinks there is a fiduciary duty when there really isn't.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Wholesalers are about wholesalers in most cases. There's no fiduciary responsibility to anyone but themselves.
    Kenneth Miller
    Replied 17 days ago
    To whom would a wholesaler owe a fiduciary responsibility, and when did this responsibility attach? There is no agency in question, and the wholesaler has not held themselves out as any sort of professional service provider; only as a buyer. Now, if the wholesaler has lied to get the property, I would support some sort of penalty, but that's an issue I have with our entire legal structure, and one that would likely run afoul of first-amendment decisions.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    How many wholesalers tell the seller they're going to assign the contract to another buyer and they won't actually be closing on the house themselves? They tell them they need that in the contract because they're not sure how they're going to close because they may have a business partner join them or some other line. However in majority of what we've seen, they never had the intention on purchasing the property themselves. So there's an ethical issue about the situation from the start.
    Michael Baum from Olympia, Washington
    Replied 18 days ago
    Yeah, I don't think that is true. You just said they all were dishonest and despicable. Like saying, I know a couple of morons from Tampa so they are all morons in Tampa.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    Our experience is that most are however I never said they ALL are. The editors it seems may have taken that out. Do you take issue with it because you're a wholesaler? There are very few that I've ever come across in the industry that are up front and told the people what they were doing. All those that I'm aware of that have done so, haven't lasted and are now gone.
    Lue Blackwell New to Real Estate
    Replied 2 days ago
    I understand what you are saying but let's say you go into Walmart and find a pair of shoes that cost $65 and you somehow find out that those shoes only cost Walmart $10, do you consider that equally unethical or unseemly? Nowhere have I ever encountered a retail store that displays the markup margins for items they sell. Wholesaling exists in every industry. And I also think how you do anything is how you do everything: If you are dishonest and predatory in business, its also likely you are that way in your personal relationships. I think it comes down to character or lack thereof.
    Darius Ogloza Investor from Marin County California
    Replied 18 days ago
    If the wholesaler is ready, willing and able to perform under the executed contract and remains at arm's length from the seller, it is hard to criticize the transaction as being fraudulent in any way. Arm's length buyers and sellers typically do not have to be truthful to each other (with a few exceptions not really relevant here). However, the problem lies if the wholesaler has no intention to honor his or her end of the contract. In that case, under the law of most jurisdictions, there simply is no contract because of a lack of mutuality of obligation. If one person is not bound, then neither is bound is a bedrock principle of contract law. Telling the seller that she is bound by the contract when in fact the wholesaler has no intention to perform (actually purchase the property if an assignment cannot be executed) is plainly a species of fraud.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    So, you're saying it doesn't happen all the time when the wholesaler can't get a buyer? Tell me one that doesn't have a clause in their assignable contract to get them out of the deal for any reason. If not, they didn't hire the right attorney to write it up.
    John Eden Wholesaler from Milford, Massachusetts
    Replied 18 days ago
    I call bs on this report, i've been wholesaling for 9 years and i'm educated and a contractor so not all are bad at this. I let the client know i can help them 3 ways, i'll either buy it or have someone that will, and if the numbers don't work we can also get it listed for them
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    So you're one of the few who can actually quote rehab costs. Doesn't mean you're not going to cherry pick your comps though.
    Kenneth Miller
    Replied 17 days ago
    Doesn't mean that he is, either. You're quite fond of slinging baseless accusations, and this one reply has made me suspect that all of your other accusations against wholesalers sport and equally jaundiced eye.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    Baseless accusations? I think not. Experience in more than 20 years at this. How long have you been at it?
    Jonathan Gaspar
    Replied 18 days ago
    Lots of wholesalers here to defend their profession. In reality, what value do you bring to the home owner? One may say "helping them out of a bad spot" and that's not true in a large majority of cases. In reality a whole seller is take advantage of the naivete of the home seller who would do much better selling their home themselves. A whole seller may or may not make a good deal for an investor but it's always at the expense of the home owner. Who typically is in the worst spot out if the parties involved. It's very unethical and a very horrible practice.
    Kenneth Miller
    Replied 17 days ago
    The last time I had to sell my house due to PCS, I wish a wholesaler had come in and taken it off my hands before I wrecked my finances trying to finish a "live-and-flip" that I spent too much time deployed to finish fixing. That's what got me interested in wholesaling - because an owner can do a lot of damage to their finances and need a way out.
    Justin Clark Rental Property Investor from Charleston, SC
    Replied 17 days ago
    THIS. Wholesaling is the Wal-Mart of Real Estate investing.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Yup, home could easily be listed and good agents now a days have access to lots of real estate investors who can pay all cash and close in 30 days or less.
    Albert Young
    Replied 18 days ago
    You are missing the biggest difference between NET listings and wholesaling — which is also the same reason why wholesaling if legal without a license. NET listings the agent is a fiduciary but has moral hazard in that type of transaction. Wholesalers have a purchase agreement with earnest money. They are not fiduciaries and have an economic interest due to the rights and obligations of the purchase agreement. In other words a wholesaler has skin in the game and risks
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Skin in the game? A good real estate contract protects that skin and gets it back super easily when the wholesaler can't get a buyer in the time frame they expected.
    Grant R. Rental Property Investor from Fort Wayne, IN
    Replied 18 days ago
    I think the point of this article SHOULD have been: 'Hey everyone, stop lying as you go about practicing your business.' Just because someone took at oath, or is listed as a fiduciary after an exam, doesn't mean a seller or a buyer are guaranteed any certain level of honesty. This idea that morality can simply be regulated out of society is pure folly. There is dishonesty everywhere, and *if there's no guarantee going one way or the other*, then what's the point of making it a topic? Nearly every week there are articles of realty fraud investigation. Last week was no exception: https://tinyurl.com/yys9tyrp Wholesalers: Be honest with sellers and indicate that other buyers may be involved. Likewise, be transparent with your buyers list and divulge issues with the property, tenants, etc. It won't stop your business or prevent you from making good money. Realtors: It's OK that personal physical property is sold privately. I would hate to think I couldn't sell something that is MINE, without the permission or involvement of an licensed intermediary. Imagine being legally required to "list" a car you own free and clear, and you were banned from selling it on your own. That's ridiculous. Leave people free to make their own choices, and market harder to get those people to use you over an alternative. I'm neither a wholesaler or a realtor; just some thoughts on life and business from outside the industry bubble. Wishing everyone a better 2021!
    Rob Cook from Powell, WY
    Replied 13 days ago
    I was a Broker of my own real estate firm and essentially got out of the listing business due to dishonest/incompetent competitor real estate agents telling the sellers whatever they want to hear, to "buy" the listing. The agents knowing full well that they were blowing smoke up the seller's butt - about how much the home was really worth or likely to sell for eventually. I would invest a lot of high-level time doing a thorough and CORRECT competitive market analysis, arriving at a very realistic sales price, only to be dismissed by the seller, who "chose" another agent to list their home, because they gave him a much higher (BS) price which they had pulled out of their asses in a few minutes analysis, or just agreed to what the hopeful, greedy and ignorant seller "Wants" for the house regardless of any merit or reality of that price. Scumbags, these type agents, and it was MOST of them I competed with in the Arlington, VA real estate market in the late 80s. They screwed me, and the sellers, who many months later, after multiple price reductions, finally sold the home for what I had indicated it was actually worth, months earlier, and got nothing for my 8 hours of free consulting I gave to the seller, and probably ended up in the listing agent's hands. It was not an atypical situation, it was pervasive, and I was a top producing agent. So integrity matters, and wholesalers are less regulated than agents, so not going to be any more ethical for sure. I like wholesaling, and do not begrudge them making as much money as they can, as long as they do not LIE or mislead distressed sellers, taking advantage of weak parties. Caveat emptor is a general rule, but fraud is not acceptable, no matter how cloaked. I am a lawyer too by the way. Thanks for the article and all the comments to it. A lot of good points made by most as usual and keeps us all more centered.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Yes there are unethical agents out there too for sure. They take the oath with their fingers crossed. I do think though the majority of agents are truly out there acting in their clients best interest. What I do know is there is no Wholesalers Code of Conduct. And there never will be.
    Josh Collins Investor from Woodbury, MN
    Replied 18 days ago
    I think another 2 reasons for wholesaling that isn't discussed is that some sellers want a quick close (inherited properties come to mind) and some sellers don't want a parade if people coming through their property. I actually think it's reasonable that a wholesaler would bring contractors through assuming that he does it on a scheduled day for the seller's benefit. There are a ton of tire kickers out there when you lost a house 25% under market. I do despise wholesalers who string sellers along. I think wholesalers who put there money where their mouth is (as @Albert Young suggests) have real risk and are trying to get a deal done. I have a question regarding the morality of assignment fees however because that is what everyone seems to have an issue with. How much is too much? That seems to be a matter of opinion and that's a hard one. To say a wholesaler should only charge an assignment fee equal to a realtors commission seems to be out of touch with the work and energy needed to get a lead, turn it into a deal and get it over the finish line. I'd love to hear other people's thoughts on this as that is what seems to be the main question at hand. I feel like everyone is ok with the deal if the wholesaler only makes $2k but when that number becomes $200k, it's no longer ethical. If you have that feeling, why is that (I'd seriously like to know other's opinion on this). I'd hate for wholesalers to be defrauding sellers but I'm not entirely sure how that would happen if you both agree on a purchase agreement. I'm looking forward to reading more comments on this post!
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Real Estate agents can get a house sold in 7 days or less for all cash. And we can do any commission rate we negotiate with the seller, including a fixed amount. But feel free to go back up and read it again. :)
    Josh Havekost
    Replied 18 days ago
    I think there's an issue with the term "wholesaling". If you buy a group of distressed properties from a bank at a bulk discount and sell those off- that's what wholesaling is in other contexts and industries. If you go out and find people who don't know what their house is worth and get them under contract to immediately resell- you're not really wholesaling anything. You're a rat in the granary.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Real estate rats? Hmmmmm. I kinda like that one.
    Landon Miller Rental Property Investor from Southern MO
    Replied 18 days ago
    I suppose there are biases in every organization. Not every blog writer is worthwhile. Commission in Missouri: 3%. Most of the complaints from a Buyer’s perspective (in this article) are eliminated when the buyer does his due diligence. His scenario poses that a bunch of potential buyers showed up to an overpriced house—that doesn’t sound like due diligence was even thought of—pretty unprofessional if you ask me. Thank you Mr. NAR Hack.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Oh, I don't work for them. I actually have to pay to be a part of them. Unlike wholesalers who pay no one but themselves. :)
    Keji Ogunleye
    Replied 18 days ago
    Majority of wholesaler in my
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    .......area are exactly like I described?
    Matt Morneault Lender from Buffalo, NY
    Replied 18 days ago
    I can't post the photos but I guess you know the condition of many of these properties that wholesalers are working with. I am looking at some recent photos of properties we have worked with and I am not aware of real estate brokerages listing properties with missing front stairs, big holes or feces on the walls, 20 years of smoke tar, missing ceiling tiles, rooms with piles of trash or missing toilets, feces on the wall. If real estate agents were pursuing this market and saving these individuals on a larger scale then I am sure these sellers would be contacting a real estate agent brokerage in their area and realtors would market to these sellers. The fact is that there is a large issue out there affecting millions of people in the US. It happens to involve real estate but not limited to it. The typical real estate brokerage industry is not addressing these issues. So, like any market, others enter the market to address that segment.
    Charles Scott Rental Property Investor
    Replied 17 days ago
    Perfect
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    I've seen real estate listings of burned out shells of homes. Sure, a realtor can easily list homes like those you mentioned so don't let anyone tell you it can't. Niche? No such thing. Excuse for those wholesaling? 100% yes.
    Jerry Berger
    Replied 18 days ago
    Well spoken! If there weren't a niche, there would not be a need for wholesaling. So many realtors are jealous of Whlslrs, but yet can't pay cash to sellers for clapped out properties. So many forget--brokers list with the promise (hope) to the seller of a future sale date and dollar amount; a whslr steps up with the huevos to buy the property outright and assume all the risk.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    Jealous of wholesalers? I think not. They're brokering deals without a license in the most laymen's terms and have to answer to no one. They can use deceptive means to acquire the deal and flip it. Again, can Realtors do the same thing? Yes, but if we do there's recourse for those actions. Wholesalers can join the fray today and leave tomorrow and very few have the capital or huevos to actually close on a property in our experience.
    Neil Aggarwal Lender from Richardson, TX
    Replied 18 days ago
    My only problem with wholesalers (And anyone else) is lying or misleading people. If a wholesaler is up front and honest about what they are going to do, more power to them. Now, having said that, I have never met a wholesaler that is honest with the sellers.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    They're like rainbows. Not like they're not out there but it's not like we see them often in my opinion.
    John Leviege
    Replied 18 days ago
    I've been wholesaling for over a decade. In my opinion, it becomes a matter of what all parties are in agreement. In most cases, sellers care about the net they will receive & if they are comfortable with the price & their net, I don't particularly see the problem. There are dishonest people in every profession & if your a buyer purchasing from a wholesaler, it really doesn't matter if the wholesaler inflates their numbers, the end buyer or investor should know THEIR numbers. Savvy investors don't even want wholesalers to send them comps, because the buyer will do his own comps. If your a realtor & a realtor only....I could imagine most of them feeling like wholesaling is dishonest since they have a fiduciary responsibility in the best interest of the client. Sellers, Realtors, wholesalers, buyers, attorney, etc... all look out for themselves....Most sellers I speak with have spoken with many other wholesalers & investors & tell me that I'm the only person they're talking too lol. To be honest, it doesn't matter if they're lying to me or not. Most shoes cost approx $5-$10 to make, then they resell it in stores for $80 or whatever the price is...now if they had the manufacturers & wholesalers price on the price tag...I think we'd all feel a bit cheated wouldn't you say. But as the consumer, there are other things that are important to us when we make a purchase, the last thing we even think about is if there was even a wholesaler at all. So its a matter of perspective. Besides, do a buyer & seller side settlement statement if your wholesaling & you don't ever have to worry about a seller seeing the assignment fee.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Caveat Emptor. But do wholesalers in every case let the seller know what they're up to like Realtors do? Nope.
    Dustin Turner Real Estate Broker from Central Arkansas & Emerald Coast
    Replied 18 days ago
    I completely agree. In fact, I've often thought of writing this same article. Thank you for calling it out.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    You're welcome!
    Michael Haynes Investor from Tampa, Florida
    Replied 18 days ago
    Dear BP'ers. Remember, Darren Sager was talking about Wholesellers in NYC, which probably includes New Jersey. Then, you all come back with your viewpoints and experiences. I read the article and all the comments to learn something that I did not know. I knew what Net Listing a property was from years ago in Brazil. We called it, "the Maxi-Price System." My Agent was murdered and thrown out on the highway for doing things like that and cheating people out of money they could have made if they were informed enough to begin with. What about the criminals who Rent an abandoned property without owning it? Here in Florida there is an ad that warns home owners about people changing your Title and selling your property and "you need Title Protection" with that company. What about the Home Warranty and Car Warranty policies? Did you ever get one of them to work out? 30 years ago Carelton Sheets taught me to look for Distressed Properties to Buy and make sure you could Assign the Contract to someone else. His whole gimmick was to fly him to any big city and within a week he could buy a property with Low and No Money Down using Other Peoples Money. The thing that irks me, is when I give my Listing to an "Agent," who does absolutely nothing. It's like I am the "low hanging fruit..." Easy come, easy go. I am an informed consumer because of articles like Darren's. I get a letter a day and couple of phone calls a week and this week it was Text messages for the four Commercial lots that I Sold four months ago...? If you call the Wholeseller you will get some young lady who knows nothing about "which property" and she can only tell someone to call you back. Even my girlfriend gets phone calls for me, on her cell phone, at work, asking about a property we sold five years ago. I could say that in my experience, the majority of the Agents are Vultures or Incompetent. The last house I sold was a fluke. The mother and daughter were walking the neighborhood looking for information on a house to buy on that block and I was fininshing a nine month rehab that I did on my own. They bought the house for my price, without an ad or a sign. It will be nice if the one I am finishing to sell next month goes just as easy...without an Agent or Wholeseller. The four Commercial lots I sold in S. Tampa were bought by a Developer/Broker who was wanting to buy them for half Retail for ten years. I was asking $400,000 and he gave me $370,000. His Assignment got him $25,000 and half the Commission selling to an Investment Company who are using his company to build four, two story Duplexes. That was a Win/Win.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    I love it when I get texts and letters from investors letting me know they want to give me a cash offer on our properties. My response back is always, "So are you a wholesaler?" and I always get ghosted after. Oh and yes the NYC area does include northern NJ, and lower CT. And finally there are bad agents out there too, so yes I never said that all real estate agents are awesome.
    Jerry Maze Wholesaler from Portage, MI
    Replied 18 days ago
    I disagree with almost everything the author of this article wrote. First of all, Investors only represent themselves. They have no ethical or moral duty to represent anyone else in the transaction. As a matter of fact they can not represent anyone else's interest.... That is the duty of a "Real Estate Agent". That is why agents are licensed. That is why agents have a code of ethics and why they are allowed to earn a commission. They represent someone else's interest ... not their own! I think it's rich for agents to bash wholesalers or investors in general. Investors risk their reputations and relational capital as well as financial capital on every deal. Agents over price listings... Why? Because they want to be able to say they have a listing. Then they market that listing with no intention of selling it ... unbeknownst to the Homeowner "Client." The listing simply attracts potential buyers so that the agent can sell the prospective buyer "a" house.... not necessarily their "clients" house. Is this ethical? Are they serving the good of that homeowner? I think not! They knew the seller wanted to much for their home and yet, they did not refuse to take the listing at such a high asking price, thus providing false hope for a sale of that property they knew was improbable at best! Please! Spare me the Saint Real Estate Agent Baloney. In closing... Investors represent themselves and everyone knows it... Real Estate agents are bound by law to represent their clients... everybody believes it, but, is that really true? That's why there is an ethical issue with being an agent and not an investor..... Btw, the investor generally will try to give the seller what they ask for if possible... not more than they ask for! For that they need a Real Estate Agent!
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    I wouldn't consider wholesalers real estate investors. What are they investing in other than themselves? And as I said not all agents are angels. But I believe the good wholesalers and bad agents are probably the same percentage.
    Jennifer T. Investor from New Orleans, Louisiana
    Replied 18 days ago
    A good, general statement for any business/industry is, "If you have to lie to make a deal, you're not doing it right." I am not a wholesaler. Nor would I ever want to be, because it sounds terrible, at least for my work preferences. But I've purchased a rental investment with a wholesaler twice (two different ones). One of those wholesalers was straightforward with both myself and the seller. He underestimated the repair amount, but not outrageous...more like "rosy and everything goes perfectly". But I presented him with my repair numbers in our negotiation and he was fair about it. There was also a hidden $4K repair needed that my inspector found. This wholesaler took that right off the purchase price. Overall, while I can't fully speak for the seller, it felt like a win-win-win for everyone. But the seller hadn't paid the property taxes in two years...the wholesaler in the 11th hour had to do that for her, so we could all close (double close). The property had been sitting there vacant and rotting for 10 years. The other three siblings had signed the property over to the seller for no money. Nobody wanted to deal with this duplex. I don't remember the exact numbers, but it was something like the seller got $35K. I closed with the wholesaler for $55K. So he made around $20K. The other wholesaler was absolutely a liar. I don't know if he lied to the seller. But he told me a few lies that were relatively inconsequential, but one that was not. He lied about how much rent the tenant (Section 8) was paying and, rookie mistake on my part, I didn't know about estoppel agreements yet and did not get one. It was still the best ROI property I have ever acquired. I paid $38K for a house worth $50K (at the time) and section 8 was paying $1125/month. That's the real number, he had told me $1200/month. It made me wonder if he is just one of those people who can't help but lie. Because the real rental number was still great. When I discovered the lie...from Section 8 after closing, no less...I wasn't the least bit sorry I had bought the house. I would have done that deal all day long and I wish he'd had 10 more! Just mad I was lied to. My two biggest issues with wholesalers is I am on the Do Not Call List, but they call me anyway. Postcards I don't mind because I can just throw them away and it isn't illegal to send junk mail. But, as an add on to my first sentence, "If you need to break the law to get clients, you're doing it wrong." My other issue is it seems like the majority are newbies and have no idea what they are talking about. I expect a wholesaler to give a "best case scenario" for comps and repair costs. I'm okay with that and do my own due diligence anyway. But, for the love of all that is holy, at least keep it within the realm of reality! Some of the "deals" I've seen from wholesalers are downright laughable with their repair costs, rental or ARV comps, or both.
    Deanna Opgenort Rental Property Investor from San Diego, CA
    Replied 18 days ago
    I've been getting offers to "help me out" of my "difficult situation" with the supposed pre-foreclosure on the house where I live. I rent, & it's almost paid off now (per a casual conversation with the owner) but hey, if these jokers want to give me money on a property I don't own-- hmm. They should be ticked off at whoever sold them such a poor contact list. Should I warn them that the ACTUAL owner is a retired assistant DA? LOL. Also having others (again, offering to help me out of my "difficult situation" ) texting about the foreclosure that was finalized over a year ago on another property that I do own. I was the one who DID the foreclosure, in order to clear the title. Actually talked to that guy, who was some newbie bleating about how he was "given" my name by a "friend". I told him he was buying bad quality info.
    Deanna Opgenort Rental Property Investor from San Diego, CA
    Replied 18 days ago
    Another one that called me about that property I told them I'd be delighted to sell, but that I knew what FMV was, and it would have to pay enough over that to make it "worth it" to my very nice tenants. *Poof* they disappeared. They called me= I get to mess with them if I'm bored.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    It's fun to mess with them for sure. However they'll make enough calls and prey on those who aren't in the know. It's a numbers game.
    Susan Maneck Investor from Jackson, Mississippi
    Replied 18 days ago
    Most of the wholesalers I have had contact with are newbies trying to get into the business with no money. Unfortunately they also don't know the market very well, what repairs cost, what to watch out for, etc. That's why I always recommend newbies start with house hacking instead of wholesaling. You usually can make a decent return while learning what needs to be known. I've also not found I get any better deals from wholesalers than I can get on my own. I've bought one house from a wholesaler. It was a property that had to be sold for cash because it included an unpermitted second house.
    Caroline Widjaja Rental Property Investor from Los Angeles, CA
    Replied 18 days ago
    I kinda agree with the article said that we can’t fully trust a wholesaler. This is coming from a buyer/investor standpoint. My husband & me are investor, and my husband is also a RE Broker (which is a plus), so we have our advantage to do due diligence of each property that we’re interested to acquire. I never trust the Comps given by Wholesaler anyway. That’s why when I want to buy from the Wholesaler, I gotta know the area really well. Some Wholesalers did NOT know the area really well and the comps are lower than what it should be, then it’s the time for me to buy it in a heart-beat! Always has to do our own due diligence, no matter what. That’s my philosophy😊
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    I can't tell you how many times I've seen them cherry pick comps on houses on other sides of towns and ignore homes literally right next door that negates their ARV.
    Austin Cavazos
    Replied 18 days ago
    In one breath, “corrupt and greedy realtors are the minority” and in the next “Realtors get sued so much they need EO insurance” now that’s funny! Of course realtors are going to despise wholesalers. They are taking commissions out of their pockets. Let’s be honest the services a realtor and brokerage provide can %100 percent be done by a home owner. I have never contracted with a brokerage and have FSBO dozens of properties.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    Sell it yourself! You're allowed. Chances are though you will not bring in as many buyers and I believe the stats are that FSBO's sell for an average of 13% less than listing it with an agent. And yes realtors and brokers get sued. Good luck taking a wholesaler to court though.
    Brian Ploszay Investor from Chicago, ILLINOIS
    Replied 18 days ago
    Wholesaling just got regulated in my State. Now you have to have a real estate license, if you do more than one transaction per year. Most wholesalers have to be super careful not to violate State agency laws when conducting business. I probably only have bought three deals with wholesalers. And completed such a deal myself about a decade ago. Usually, the properties are overpriced, with fake promises of repair costs and after-repair-value. I've seen aggressive tactics with wholesalers. Generally, this is the bottom-of the barrel of the real estate industry. In states where they are not regulated, it is rife with unethical behavior.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Brian go to the top of the replies and you'll see that Wholesalers are really the cream of the crop of the industry and are doing a great service for everyone out there. Oh, it's unregulated in 49 others states and I think it should be. Hopefully soon!
    Kevin Torrence
    Replied 17 days ago
    ‘Realtors take an oath’ oh my! Forgive me dear Realtors for I have sinned. Seriously, the whole real estate marketing industry needs resetting. The model 6 percent commission regardless of the value of the house is dumb and outdated. There’s a reason real estate agents, brokers, and companies strongly resist the flat fee model. It’s too honest, it’s too ethical, it’s too inline with morality and fair pay for fair work put in to marketing the house. They, just like wholesalers, absolutely love the intoxicating allure of the stupidly, lopsided fat payday that is possible with commission real estate marketing.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    And most wholesalers aren't operating at a higher % than realtors? Okay, sure, and I still believe Santa will leave presents under our tree this year.
    Brian Schimmel
    Replied 17 days ago
    I've only met one wholesaler who acts in a fully ethical a honest way. EVERY other wholesaler has asked me, when I visit a property, to not tell the homeowner I am a potential buyer of the property. They want me to say I work with (wholesalers company), or I'm a inspector or a contractor. The shadiness is widespread, and there is rarely a wide enough spread the way the wholesaler is presenting the deal for the numbers to work.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Ahhhhh, nice to see some confirmation. Thanks Brian. Still, lots of upset wholesalers though defending what they do.
    David Avery Contractor from Phoenix Arizona
    Replied 17 days ago
    One of my Buddies from Denver and me from South of Colorado Springs would see how many signs we could take down and put in our trucks in a month. Wholesalers would sale their MOM for money!!!! A LOT OF SHADY Real estate agents in Phoenix working with them also. I COULD POINT OUT DEAL AFTER DEAL THAT GO ON THAT i SEE Here!! Good thing contractors can't charge those rates!!!
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Yeah I love the licensed agents who also wholesale. I trust them the most.
    Steve Mcmahel New to Real Estate from Wake Forest, NC
    Replied 17 days ago
    It’s not rocket science. Find a wholesaler you like who isn’t a crook or liar. They are providing REI with properties to choose from. **This article ought to be called ** “Why Real Estate brokers don’t like to share deals with Wholesalers”. The Author seems to be bent on a wholesaler getting his deals and making profits that he would like to make selling to REI instead.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    I've been an investor for more than a decade before I got my license by the way. I think BiggerPockets rejected my original title for the article which went something like, "Good Wholesalers Are Like Rainbows. They Exist, But You Don't See Them Often." :)
    Jay Berkeley
    Replied 17 days ago
    Is there any truth to the information I received from a Realtor that said Howard Hannah engages in deceptive practices by not listing their properties on the MLS for several days? Choosing to instead offer them to their own Agents? If that’s true than I think that a large % (1/3?) of Agents are morally corrupt? What do you think?
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    I think that they're most likely violating the Realtor Code of Ethics and should be reported if that's what they're doing.
    Max Esh Realtor from New York, NY
    Replied 17 days ago
    I must say that reading this article makes me agree with Darren’s opinion. I get countless emails from wholesalers and the majority of them are sketchy and out to make a quick buck. Yes, there are great wholesalers out there and finding a credible wholesaler is rare. I also have a few friends that do this and make decent profits, but they are not out to “help” these sellers get the most out of their property. Yes, they do help these people get their home sold, but it is the Wild West and this is definitely a good topic to debate.
    Phil McAlister Specialist from Chicago, IL
    Replied 17 days ago
    Nice article, Darren. And good for you to be willing to jump into that storm! There is definitely something that feels slimy about much of the wholesaling game and I'd never touch it for that reason among others. Like everything else, I suppose the nuance is everything. If a seller knows what the true value of the home is and is willing to make a cash sale below market to be able to get the property off their hands quickly, fine. But if someone is working to obscure the true value and capture that profit, especially from an elderly seller that can't really understand the transaction, that is just shameful and we should all work to call out that behavior and shame those people out of the business.
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Thanks Phil. What was that which Edmund Burke said? “The only thing necessary for the triumph of evil is for good men to do nothing.” Well, guess I decided to step into this storm as after 20 years at this I had enough of the practice being glorified. It should be despised in my opinion. Glad Illinois finally stepping in too and making it illegal without a license. Hopefully other states will as well soon enough.
    Trey Kern Lender from Richmond, VA
    Replied 17 days ago
    I think you have some good points when it comes to owner-occupied homes, like in your example, but I strongly disagree with your broad statements that wholesalers do not provide a good service for real estate investors and that them choosing to not be a licensed agent somehow makes them unethical because they do not want to work for 3% commissions. "What I realized is, in the end, there are wholesalers who are only in it for themselves and no one else. Despite what some of them think, they aren’t out there providing a good service for real estate investors." -AND- "I think those who aren’t willing perhaps feel that the commission rates—which average 5%,6%, 7% for agents—are just not enough for them. Plus, they’d have to do more as an agent to earn the same amount to boot. And they’d have to report to someone else. All this means they’d need to be accountable to their state finance boards and their clients, and there are some who just don’t want any part of that." In my view, wholesalers help bring efficiency to a market that is largely inefficient. There are so many properties out there with absentee property owners, properties inherited by owners who don't realize they own properties, and properties with a list of heirs longer than a CVS receipt. Who would help facilitate the sale of these properties without wholesalers? An agent who stands to make 3% of $50k sale price? Not a chance, the work required to sell that property is not worth the profit to be earned. An agent would look at that clusterf*** and skip right over to the next easy deal to work and so that property would continue to sit, deteriorating and becoming a growing eye-sore for another 10 years. No doubt there are situations where using an agent makes more sense, like in your example of an owner-occupied home, but to say that wholesalers do not provide a good service for real estate investors or that many of these properties would be worked by realtors for a 3% commission is just not true.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    Trey it has nothing to do with the commission rate. You're allowed to negotiate any rate you want depending upon what your state laws allow. Either way as an agent on the listing you're acting as a fiduciary. Wholesalers in our experience always try to manipulate ARV's, repair costs, as well as paint a rose colored view of a particular market when it could be free falling. As a Realtor we can get in trouble for that. At the same time did they go and let the seller know up front that they would not actually be purchasing the house themselves but will do their best to make the most amount of money from it with their buyers list? Did they advertise to the seller they'd offer to purchase the home (themselves) for cash and close fast? I never said that investors don't possibly get good opportunities from wholesalers, I just wonder if investors can sleep at night knowing that they're getting a property where the seller had no clue what was being done to them. If you can sleep at night knowing you don't care what the wholesaler fee was because your numbers still work, and you have no care what happened to the seller then so be it.
    Elaine Lam Rental Property Investor from Houston County, GA
    Replied 17 days ago
    Terrible article... I use Wholesalers and pocket deals with Brokers and I buy at the courthouse... These are all methods to lower your prices... Not everyone wants to deal with fixing your house up to like ne condition and selling... Over half of the wholesale deals we do are usually and estate sales or accidental landlords who couldn't sell their property during the downturn... On our end it works out for both sides as they don't want to money in the property and we want the lower price... win win...
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    I think it reads pretty well myself. But thanks for chiming in!
    Michael Wilches Realtor from Bergenfield NJ
    Replied 17 days ago
    I have to agree with this article. Majority of the ARVs I get from wholesalers are totally off. Most of the properties I get from emails are not deals. I am sure there are great wholesalers out there but I just have not come across one and I been to multiple REI meetings.
    Dan Sayre
    Replied 17 days ago
    So the problem is wholesalers have no limit to the amount of money they can make and no risk except loss of earnest money. Earnest money, according to several courses and podcasts, can be as low as $10. Sellers can be unaware of what the house is worth which creates a lop sided transaction of information. This is similar to the concept of unjust enrichment. Both sides do not have a win-win if the facts are brought to light. What would be some solutions to the problem? Make wholesalers do business like a flat fee listing agent or set a percentage for the assignment fee of 7% maximum. The wholesalers still make money and the seller gets a larger percentage of the value of the property. Houses have been listed on MLS in every imaginable condition. And they have sold. Houses in poor condition have been sold “as-is” or FHA financing not available due to condition of house or having structural issues or the house is in too poor of condition to be of any value; sales price is based on the land value.
    Deanna Stewart
    Replied 17 days ago
    Nailed it... Wholesalers are the rats of the real estate business...
    Darren Sager Investor from Summit, NJ
    Replied 17 days ago
    Really, go up to the top and read the replies. Seems those wholesaling and those benefitting from them feel differently. :)
    Winnie Beach
    Replied 17 days ago
    Darren, Thanks for your thoughtful article. And for taking a ton of heat about it! Obviously, there are dishonest people in all walks of life. My problem with some wholesalers is that they take advantage of people who are the most unsophisticated and at risk themselves. Certainly, most of these units are in disrepair, some of them horribly so. But to take unfair advantage of someone with what is probably their ONLY asset is not something I can participate in. I only want to work with people who can say that everyone in the deal is getting a fair deal. Which seems to be few and far between. I understand that I may not get as "great" of a deal, but I can sleep at night.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    I'm taking more heat here than if I went into San Francisco three weeks ago and screamed I was voting for Trump. It's all good though. Someone had to do it. I want to sleep at night. Not all Realtors are angels. Not all Wholesalers are greedy self-serving people. I do think overall the % those who are self- serving Realtors and well mannered Wholesalers is probably very similar.
    Scott Swanson
    Replied 17 days ago
    Darren, I've been wholesaling for many years now. To say that you don't trust ANYONE, is NOT a fair statement or, all you've dealt with is unprofessional wholesalers who don't have a clue what they're doing. I agree there are many wholesalers who don't have any idea what they're doing. But to say you trust no one, I don't think is a fair statement at all. You talked about being licensed and taking an oath as a realtor I can tell you story after story about realtors who could care less about their clients. I buy in lower cost, upcoming markets and I would bet you that 80% of the time, the realtor is too lazy to go to the house and take pictures and post them with the listing. Then many of them take days to get back with me or my realtor, because there isn't enough commission for them. It's a disgrace. If you're willing to take on a lower cost listing and don't bother to take pictures of the property, you shouldn't be licensed. Is that fulfilling your obligation to the client? Secondly, do you know how many properties we've moved because of incompetent realtors or houses that were lower cost and distressed? Many times the realtor can't move them. So let me see, should the seller accept the fact that they'll never sell the house through a realtor or would they rather take a fair offer from a wholesaler? Hummm. Thirdly, if your licensed, you can only make a certain percent of commission. Why would I want to limit my pay? There are times I don't even make 4% and there are times I make 8%. In many cases , a competent wholesaler provides services a realtor doesn't. I don't think anyone should take advantage of a seller. But I see properties listed way over value. Why do you think that is? The realtor wants more commission! Lumping everyone into the same category just isn't fair and it's not fair to the honest wholesalers out there. We provide a service for both sellers and also for buyers. If realtors were so wonderful, then how is it that we move properties that are listed and the realtors can't? If you're a wholesaler and have repeat buyers, obviously you're providing value or your investors wouldn't come back, now would they? The problem is, that many wholesaler have little or no training and don't have a clue what they're doing. Those people ruin it for the rest of us. But there's plenty of realtors who fit into the same category!
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    Scott, yes I don't trust them from experience. When you've been hit with as many crap properties as I have over the years claiming that the homes could be repaired for prices from the 1970's, comps from the best streets in the town and ignoring comps that have sold on the same street or right next door, and ARV's that make no sense, you get this way. As soon as I hear some who says they're a wholesaler red flags go up. I'm not saying that there aren't wholesalers that may do the right thing, but if that's the case why not get licensed and operate above board? I'm fully aware of Realtors who think the oath is a joke. We come across them daily especially when inventory levels drop like they have by us. However every single realtor has to be trained and sit thru classes and pass a state test. Some states its as much as 150 hours (possibly more?). So you need some type of competence to be an agent. And generally you can't get a license if you have a sketchy background. Wholesalers need nothing. They answer to no one. And anyone who says that they can only get deals done as a wholesaler on certain properties because of condition is clueless. You know how many burned out shells of properties sell on the MLS? A lot more than wholesalers move so no need say otherwise. Oh, and commission are negotiable. So there's that too. Again, you wanting to make more goes back to my premise of are you actually letting the seller know what you're up to. If you let them know that you're going to give them $100K for their property and turn around and try to sell to another buyer for $150K, would they be okay with it?
    Kenneth Miller
    Replied 17 days ago
    That's a whole lot of projection and throwing a whole lot of shade on a lot of people here. Pretty uncool.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    Seems you've just come in and projected a lot of disagreement to it all without backing it up. Guess you wholesale or benefit from those doing it.
    Al Mac from Santa Maria, California
    Replied 17 days ago
    I see a lot of stereotyping in this thread, from both sides. I used to be a real estate agent for only a couple months, until I realized that if I wanted to make a living I had to stop being too honest. In my first few transactions, I lost them because I was able to spot some problems with the properties my buyers wanted to buy, and that scared them away. I just could not remain silent and let the buyers get into a trap, and that cost me a lot of money in lost commissions. Then I decided that was not for me. Yes, I was not a good agent and quit. Now I'm looking into buying from wholesalers and flip, and sure, I have seen many wholesalers who beautify their ads with misleading info, but I'm not relying on what they say. I have to do my own homework (due diligence), and that is true if I'm the buyer, the seller or anybody in-between. A seller SHOULD NOT rely on what "his agent", "his neighbor", "his wholesaler buyer" will say to him. SELLER HAS TO DO HIS OWN HOMEWORK. It's just like taking your car to the mechanic. Mechanics will tell you anything, but you don't just blindly believe what they say, you go out and find a good mechanic you could trust (which is not easy at all). If you have to do that with a $2K repair, why would anybody not do it with a $300K transaction??? As a seller, If you don't want to investigate the real value of your property, and prefer to trust the first person who steps into your property (in the form of a RE agent, wholesaler, neighbor, ignorant friend, etc.) then you are asking to be ripped off. That's the seller's fault, not the agent's, or the wholesaler. Do don't paint the "unaware seller" as the victim. If the seller is "unaware", then it is up to him to "become aware". There is ALL KINDS of websites where the seller can get an idea of what his house is worth. If he doesn't want to do his homework then that's his own problem, nobody is going to babysit him, so RE agents or wholesalers are not to blame. On the other hand, If agents or wholesalers don't have a remorse for taking the seller's money in the form of agent's commission, or by assigning a contract as a wholesaler for very little work (or almost no work in some cases) that's their own problem. Everyone has to look for themselves, "don't expect your country to do things for you....."
    Brandon Gill Investor from Denver, Colorado
    Replied 17 days ago
    I have been a seller, broker, wholesaler, and developer over the last 13 years so I feel that I can look at this from a neutral position. I would entirely disagree to box in any one genre of people as this article did. Let's be real, anyone that is active on a platform called "BiggerPockets" is money motivated and to say that anyone on this thread that is not operating their business with their personal intentions is not being honest with themselves. Why is it that you can be a bleeding heart realtor who is a hero for the community if you only take 6% commission but you are a rat or bottom of the barrel if you take 8%? People talk about shady people but the definition of someone being shady is not upholding their end of the bargain or their commitments. If you do what you say you are going to do and follow through on your word, that is good business practice, period. I have been on the sell side where wholesalers and brokers have made significant amount of money on me and I have no problem paying credit where credit is due. Free enterprise and I'm in full support of anyone that creates a win/win and makes a buck doing it.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    That's fine Brandon. This however has been my experience with Wholesalers over the past 20+ years and I had enough of them being glorified as saviors. I just don't see them the same way. Ever met with a seller that's been duped by one? It's eye opening to say the least.
    John Kuhrt Real Estate Agent from Landing, NJ
    Replied 17 days ago
    I have to agree I have seen way more unethical wholesalers using shady methods then any honest and transparent individuals. Anyone who says I want to buy your house cash with no intention of doing so is lying right from the beginning. Never mind walking my contractors through when it’s a buyer. Not enough parameters in place to keep the practice honest .
    Scott Swanson
    Replied 16 days ago
    Darren, I agree that there are a lot of shady wholesalers out there. Their ARV's are way too high and their rehab costs are way too low. But that doesn't mean we're all bad. You said I should operate above board and get licensed. I will never get licensed and I already operate "above board." Getting a license means nothing to me, except that I have to pay ridiculous fees to a broker and go by what he tells me to do. I work for myself and I won't work for a broker. getting a license does NOT make me "above board." It only restricts me and forces me to follow someone elses rules. We give sellers fair prices. If they accept my price, then it's a deal. I don't force people to do business with me. It's their choice! Al Mac makes a great point. Sellers need to do their homework, just like I have to, being a wholesaler. IF the person I'm dealing with is of sound mind and body and they agree to my deal, then it's a deal. They accepted it. If a seller is under a great deal of pressure and needs to sell, we will NOT push them. We tell them to call us if they want to accept our offer and we encourage them to find other buyers. It's called ethics. I can offer sellers creative financing methods to sell their home too. A realtor can't. It's sell it for cash or a mortgage and that's it. So realtors are limited on how they can help the seller. You keep talking about my fee. Do you have any idea how many times I've sold a property and made less than 5%? I don't have enough fingers to count how many times it's been. How many times have realtors sold a property for a 1% or 2% fee? ZERO times. ZERO. I answer to my buyers. A good wholesaler has to find good deals for their buyers. If I was giving them properties and the numbers were way off, do you honestly think they're coming back for more? Of course not. It takes a lot of time to put everything together, the right way, to present a deal to a buyer. Wholesalers who just throw numbers together won't last long. Buyers won't put up with that. We have specific formulas we use, to calculate all the numbers. If the property doesn't meet our formula, we don't buy it. The problem is, the bad wholesalers who leave the business, just get replaced right away with other bad ones.
    Michael P. Lindekugel Real Estate Broker from Seattle, WA
    Replied 16 days ago
    Pretty much. Almost all the wholesale deals I have researched for plaintiff attorneys were dishonest. I have been expert witness against several. The wholesaler communicated to the homeowner the offer was a FMV. the wholesaler turned around and marketed it as selling for FMV and in a few instances less than FMV because of the condition. That math doesn’t work. FMV is the value today in the property’s current as-is state. That is economic FMV and financial FMV. A wholesaler cant resell for FMV while paying the seller FMV. In WA that is equity theft for misrepresentation and elder abuse when it is an older person. “your Honor, these clowns are scammers. Defense objects. The judge asks me to explain. “your Honor, these clowns clearly didn’t go to business school, so they must have gone to clown school.” Laughter in the courtroom.
    Darren Sager Investor from Summit, NJ
    Replied 16 days ago
    Well put Michael. You're spot on, you can't give and sell at FMV on both sides of a deal. Someone is losing out for the wholesaler to make their spread and in most cases we've seen, it's the seller.
    Joshua Howaniec Contractor from Indianapolis, IN
    Replied 15 days ago
    The article is mostly on point. I used to be an employee at a wholesaling company that had a great reputation and seemed to have a really good thing going for them. I only lasted 6 months there. I had gone in full of excitement but what I learned about the process made me sick. I am not a bitter guy, rather I am pretty upbeat and a hard worker. There were weeks where I got more contracts signed than the rest of the company combined. However the devil was in the details and I didn't like the smell of it. I'll give the short tale. The company would generate all the leads via FB, Google, and mailers, offering a cash purchase. I would be presented as the guy who was going to buy the house. My purpose was to get a contract signed at the price they would sell at. At first this was difficult for me. I have a construction background so I am familiar with most costs associated with construction. So when I made an offer I had repairs and profit in mind. Hence my offers with low. Eventually my boss came into the state to show me how he does it. More or less he discovered at what price they would be willing to sell, perhaps negotiated them down a bit, then got them to sign a contract. Here's where the sneak comes in. Upon having a signed contract the gears of the machine would reevaluate the deal under different scenarios. Then the machine would decide a strategy and a price that we could buy it at. "But wait!", you ask, "didn't you already agree on a price?". Yes we did. But the contract stipulated that per further evaluation of the property we had the right to change our offer. Normally that wouldn't mean the worst because the buyer has the right to refuse offers. The difference is we had the right of assignment for 30 days after their signature and they could not market their home FOR 30 DAYS! Remember, these are people who are often in a time crunch, people who need to get out fast. As I discovered how the machine worked I couldn't handle it in good conscience any more. I haven't touched wholesaling since. Personally I haven't seen that many companies do it that much differently. A good rule of thumb is if you have to find clever ways to avoid answering questions or to justify your actions then you probably aren't being ethical.
    Darren Sager Investor from Summit, NJ
    Replied 14 days ago
    Thanks for contributing this Joshua. Glad you made the decision to be able to keep a clear conscience. Your direct experience is what we've come across more often than not. And this is why when someone tells me they wholesale, red flags go up inside my head.
    James McGovern
    Replied 15 days ago
    If Susan got the price she asked for, why should we concern ourselves with whether she is upset that someone else is making money too. This is America, we are a society of capitalists. Susan needs to get over herself.
    Darren Sager Investor from Summit, NJ
    Replied 14 days ago
    Was the deal done by taking advantage of an unknowing individual? Capitalism or not. Read Michael P. Lindekugel's input. There's no win win in Wholesaling. Someone's losing.
    Steven Jones New to Real Estate from Kitsap County, WA
    Replied 15 days ago
    Newbie landlord and investor here. Also, wannabe wholesaler and real estate agent here. I appreciate this well written article. You really did a good job of laying out some of the reasons 'wholesalers' get a bad rap and has helped me be mindful of some of the practices I should avoid while figuring out how to land a deal. I am learning wholesaling as an exit strategy while trying to find my own properties, but holy crap it would be wonderful to replace my day job with income from wholesale transactions and/or agent commissions. In my opinion, the skills learned via wholesaling are a must have to be a successful real estate investor. A real estate license is just a 'check-box certification' that is enforceable by the government, but isn't really a good measure of ethics in the world of real estate investing.
    Darren Sager Investor from Summit, NJ
    Replied 14 days ago
    Steven, my personal opinion here, I don't think it's possible to operate ethically as an agent if you're doing both despite some agents claiming they are. Reason is the way you'll look at each deal will be the way that you can personally benefit from it the most. Should I wholesale, or should I list it? If you're asking that question it's really about your wallet regardless in my opinion and there's no acting as a fiduciary. I have yet to come across a real estate deal here in NJ that despite what anyone says couldn't be done as a listing. Oh, and I wish BP didn't remove the entire part of this blog about wholesalers flaunting their deals on Insta, FB and TikTok. I thought that part was rather amusing.
    Ryan Kramer Real Estate Agent from Muncie, IN
    Replied 14 days ago
    I am an investor, Realtor, and a partner in a brokerage...... The biggest moral challenge I have faced is offering a customer or client an offer on a property they have either listed with my company or called upon me to make them an offer. I have found that to satisfy not only my own conscience, but also the customer / client confidence, I always try to offer several options and outs prior to closing an investment where we instantly have equity through the deal. I always want the customer / client to feel as if they had every opportunity possible to make more money. We offer options of considering all offers prior to closing, an auction of the property, or reducing / setting prices to be competitive to get other offers. The surprising part to me is how many people are willing to take the no hassle cash price over potentially making more money. I just think it is extremely important to instill confidence in the consumer that they knew their options and the market value of the property prior to considering an offer from me. I do hesitate to consider wholesale deals for the very reasons above. Ryan- RE/MAX Real Estate Groups, Muncie, IN
    Nick Falcone Foreclosure Specialist from Grosse Pointe Shores, MI
    Replied 12 days ago
    I have never wholesaled a property but have purchased a few through the years. I prefer to buy homes in various states of foreclosure instead. That said, what a cavalier and self righteous attitude to take towards wholesalers. Just like in any profession, there are good and bad people doing the job. I addition, oaths or not, there are plenty of unscrupulous realtors I would never deal with as well. So take a harder look at your own profession first.
    Darren Sager Investor from Summit, NJ
    Replied 11 days ago
    Sometimes those addicted to drugs don't like people messing with their dealers and will defend them too. I kind of get that vibe here. Just an FYI: Seems the city of Philadelphia has caught onto the BS of it all and just passed legislation cracking down on the practice. I personally don't think they've gone far enough, but it's a good first step. https://www.inquirer.com/news/real-estate-wholesalers-flippers-regulation-realtors-philadelphia-law-20201119.html
    Rhonda Leifur
    Replied 6 days ago
    Wow. You sure are dealing with the wrong people. Wholesalers I know are up front with the sellers. They are legit. In your scenario, there was no room for a flipper, who buy from wholesalers. Every wholesaler I know will tell a seller they can try to sell it on the MLS but tellbthem what the repairs are. Which wholesalers DO know how to calculate. Also can do ARV correctly, and most work with agents to verify the ARV on the MLS anyhow. You seem to be talking about newbies in the wholesaling business, with no mentors. Sure, there's bad apples, but that goes foe realtors also. Start doing business with reputable companies.