I Got Screwed By a Wholesaler, Don't Make My Mistake!

I should say at the outset, I know several awesome wholesalers. I met most on BiggerPockets and have used them to some degree of success and make both them and myself some money. They have probably the toughest job in real estate! They have to find awesome deals, get them under contract for an awesome price, shop them around to potential buyers and make sure they are providing customer service to the seller along the way; not an easy task!

However, they get paid handsomely for very little risk and should be expected to maintain some sort of integrity because a lot of money gets thrown around based on their word.

Now, there are wholesalers and wholetailers. There are those who double-close and those that assign contracts. I have my preference, but in a hot market like Denver, you take what you can get!

This particular deal was to be an assignment and was presented to my wife and I because he had seen us close a flip earlier in the year in this particular condo community. He asked if we were interested and we said of course! Assignment price was $173,000 and we knew our ARV would be somewhere around $279,000. We jumped and said absolutely! 24 hours passed and no word from him. Eventually, he comes back saying the deal was so good his parents wanted to buy it instead. Okay, no big deal - kinda crappy of him, but it was his deal and we will move on. 

A week later, we are under contract with a DIFFERENT condo in the same community and he comes back saying his parents can't take the deal and if we still wanted it, the price was now $179,000. We still jumped and finally agreed on a purchase price of $175,000 and he would assign us the contract for $155,000 with his $20,000 assignment fee on top. Not a bad profit for him and we were happy to pay it to have another great deal!

Now, since we had two deals going at the same time, we needed a new funding source and reached out to a Hard Money Lender featured in BiggerPockets' Networking section. He was fantastic and started the process immediately. We decided to get a HML on both properties for purchase and use our liquid cash for funding repairs and labor. Our lender required a BPO (Broker's Professional Opinion) on both properties at the tune of $300 a piece. This is where things went South.

We ordered the BPOs before we had our assignment contract signed by both parties.

It turns out, his parents (the purchaser) had not actually signed the assignment contract and thus we were not under contract. Now we knew this, but still ordered the BPO and loan docs to be drafted thinking his verbal agreement was enough to get started. 

24 hours later, I would find out that this particular wholesaler had been shopping this deal around to other investors the entire time after giving me a (another) verbal commitment and telling me he would send the signed contract right over. Clearly, I was upset and pressured him why he was taking so long and then he admits he actually wants to keep the deal for himself because it's so good.

So, after two verbal commitments from him, he pulled out and took the deal elsewhere. After all was said and done, we lost $600 (two BPOs) and two days of our time, but the lesson was clear: don't take a verbal agreement as the truth and always cover yourself. 

This could have been easily avoided by simply demanding to have an executed contract before starting the loan process. A quick search on BP's forums might have helped this situation, but i'm still a newbie and always learning!

You could add a second layer of protection and vet the wholesaler and ask for references. This doesn't always work however because this particular wholesaler is actually a BP member with a BP reference from a flipper in Denver whom I respect. While he did nothing that is considered illegal (I think), it certainly left a sour taste in my mouth and I'll never take his call again. However, this mistake is mine and mine alone.

It is my hope that this one process can save someone else from the same frustration and monetary loss as I experienced. 

Live and learn!