My First Time Putting a Deal Together With a Wholesaler
Member since 2019 · 1 post · 0 votes
My First Time Putting a Deal Together With a Wholesaler
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Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
3y1. So just be aware this can cause you a lot of pain and maybe money. Run EVERYTHING by your broker.
2. My local investor friendly title company told me a couple of months ago only 30% of wholesale contracts that get turned into title actually close. I was surprised by that #, but when you think about it, that's probably true there and almost anywhere. Why is that....all kinds of reasons. I suspect plenty of title issues....that's why they're not selling with a realtor...either known or unknown....affidavits of heirship, or non-notarized deeds filed, or quit claim deeds, or bought on contract for deed with no lien releases, brother trying to sell house for someone in jail, ex wife trying to sell ex husbands home he "gave" to her, only her name not on title...and on and on and on. Plenty of new or amateur wholesalers don't research or understand title issues and some are pretty darn hard to resolve or take a long long time to resolve and money that someone doesn't want to spend.
3. Just saw a demand letter from a lawyer posted on wholesalers Linkedin page (I'm sure they don't know it yet) telling them to remove "memo" from chain of title. Very common with wholesalers in my area to file "memo" that cloud title, and then disappear or become non-responsive.
4. So you need to explain all the risks to the buyer to stay out of trouble and probably get them to sign off on all that. You could loose all your money. It may not close on time or ever. We could have plenty of issues along the way.
5. Are you dealing with a known, big, successful, long term wholesaler? or someone who went to a seminar last weekend and doesn't really understand any of what they're doing?
6. Think about how you will get paid and who is going to pay you. Are you using a one time showing agreement and commission agreement with the wholesaler? or is the buyer going to pay your fee? When are they going to pay that? Up front or at closing? What happens if you do a ton of work and it drags on and on and never closes? Did you just work for free?
7. Are you going to have a chance to talk to the end seller? Too often things weren't explained to them or promises made that aren't in the contract. Good example is when do they need to move out. Do they need to be out at closing? Do they understand that? If they get a leaseback is there significant money held back in YOUR buyer's hands to encourage them to move and leave it clean? Too often wholesalers tell you it is all taken care of, when it really isn't. Is the house vacant or occupied? Have you seen inside? Does the wholesaler have a seller's disclosure to give to your buyer? Is one required? How about LBP?
8. Is your buyer experienced investor who understands all the potential pitfalls or are they a 1st time buyer who is thinking they're moving in?
9. Is your buyer getting a loan? Is the house in a condition to get a loan? Does your buyer plan to do an inspection? How will your buyer's inspector and appraiser get access to the property? For most wholesale contracts any money paid up front is typically non-refundable, does your buyer understand this and can they afford that if things fall apart. is the wholesaler using your typical KC contract or do they have their own? If they have their own, and you and your broker are not familiar with it, is your client going to have an attorney review with them?
10. Does your buyer understand that there is probably ZERO recourse with a wholesaler if things go wrong? 90% of the wholesalers I know have ZERO money. That's why they're wholesaling. That's not all, but most. There are good and legit wholesalers, but they are few and far between.
With all this said....you have to think if you really want to do this. When things go wrong, who does your buyer look to for fixes? This can be a huge time suck for you. Are you willing to take that on? Even if you have the buyer sign all kinds of disclosures, but things go wrong, how do you look in their eyes, if they loose a lot of money on the deal? People are nice and friendly until they loose money and feel like they got hammered, then they sue....and then you have to spend even more time and money and still don't get paid.
One thing you might consider is just pairing them up and giving them a few tips. Don't represent the buyer, but be a casual resource. If they're going to fix and flip, list it on the back end when they're done, but don't try to broker this on the buy side. If you just put them together on the buy side and it doesn't work out, they may understand they don't want to buy wholesale deals, and just come to your for on market deals. Of course if you do it, you may learn a ton and will be more knowledgeable and experienced and have a great story to tell.'
Good luck and best wishes.
5 Replies
- Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes3y
1. So just be aware this can cause you a lot of pain and maybe money. Run EVERYTHING by your broker.
2. My local investor friendly title company told me a couple of months ago only 30% of wholesale contracts that get turned into title actually close. I was surprised by that #, but when you think about it, that's probably true there and almost anywhere. Why is that....all kinds of reasons. I suspect plenty of title issues....that's why they're not selling with a realtor...either known or unknown....affidavits of heirship, or non-notarized deeds filed, or quit claim deeds, or bought on contract for deed with no lien releases, brother trying to sell house for someone in jail, ex wife trying to sell ex husbands home he "gave" to her, only her name not on title...and on and on and on. Plenty of new or amateur wholesalers don't research or understand title issues and some are pretty darn hard to resolve or take a long long time to resolve and money that someone doesn't want to spend.
3. Just saw a demand letter from a lawyer posted on wholesalers Linkedin page (I'm sure they don't know it yet) telling them to remove "memo" from chain of title. Very common with wholesalers in my area to file "memo" that cloud title, and then disappear or become non-responsive.
4. So you need to explain all the risks to the buyer to stay out of trouble and probably get them to sign off on all that. You could loose all your money. It may not close on time or ever. We could have plenty of issues along the way.
5. Are you dealing with a known, big, successful, long term wholesaler? or someone who went to a seminar last weekend and doesn't really understand any of what they're doing?
6. Think about how you will get paid and who is going to pay you. Are you using a one time showing agreement and commission agreement with the wholesaler? or is the buyer going to pay your fee? When are they going to pay that? Up front or at closing? What happens if you do a ton of work and it drags on and on and never closes? Did you just work for free?
7. Are you going to have a chance to talk to the end seller? Too often things weren't explained to them or promises made that aren't in the contract. Good example is when do they need to move out. Do they need to be out at closing? Do they understand that? If they get a leaseback is there significant money held back in YOUR buyer's hands to encourage them to move and leave it clean? Too often wholesalers tell you it is all taken care of, when it really isn't. Is the house vacant or occupied? Have you seen inside? Does the wholesaler have a seller's disclosure to give to your buyer? Is one required? How about LBP?
8. Is your buyer experienced investor who understands all the potential pitfalls or are they a 1st time buyer who is thinking they're moving in?
9. Is your buyer getting a loan? Is the house in a condition to get a loan? Does your buyer plan to do an inspection? How will your buyer's inspector and appraiser get access to the property? For most wholesale contracts any money paid up front is typically non-refundable, does your buyer understand this and can they afford that if things fall apart. is the wholesaler using your typical KC contract or do they have their own? If they have their own, and you and your broker are not familiar with it, is your client going to have an attorney review with them?
10. Does your buyer understand that there is probably ZERO recourse with a wholesaler if things go wrong? 90% of the wholesalers I know have ZERO money. That's why they're wholesaling. That's not all, but most. There are good and legit wholesalers, but they are few and far between.
With all this said....you have to think if you really want to do this. When things go wrong, who does your buyer look to for fixes? This can be a huge time suck for you. Are you willing to take that on? Even if you have the buyer sign all kinds of disclosures, but things go wrong, how do you look in their eyes, if they loose a lot of money on the deal? People are nice and friendly until they loose money and feel like they got hammered, then they sue....and then you have to spend even more time and money and still don't get paid.
One thing you might consider is just pairing them up and giving them a few tips. Don't represent the buyer, but be a casual resource. If they're going to fix and flip, list it on the back end when they're done, but don't try to broker this on the buy side. If you just put them together on the buy side and it doesn't work out, they may understand they don't want to buy wholesale deals, and just come to your for on market deals. Of course if you do it, you may learn a ton and will be more knowledgeable and experienced and have a great story to tell.'
Good luck and best wishes.
- Member since 2023 · 45 posts · 13 votes2y
Wow sounds miserable!
I do like your nutshell version of title problems, though: "brother selling to get someone out of jail, ex wife selling home he "gave"her, but not on title"… sellers, like their deals, are more often than not messy!
That said, can you elaborate how and when to go about researching title, as you mentioned is usually not done by wholesalers.Thanks.
- 2yChristopher Jason LloydBusiness MemberReal Estate Broker · Newport News, VA · Member since 2020 · 95 posts · 83 votes
My main questions are:
1. Is this an experienced or new wholesaler?
2. When is close of escrow?
3. How do I get paid?
4. If you're representing a buyer with FHA/VA loan, make sure you talk with your closing attorney first. They NEED to know how to close these deals. Most are cash, DSCR or conventional, but I have had a VA loan with Wholesaler and that gets tricky on the lender side. It's possible, but you need to have the right attorney in place.
I also tell my buyers "buckle up, this can get rough...". Just set low expectations with your buyer upfront so when things get bumpy, they know it was coming. We have had clean and easy transactions with wholesalers but the barrier to entry is low and there are a lot of them out there that just have no clue what they are doing and may need you to really take charge and make sure everything is getting done to close the deal.
I wish you best of luck! Working with wholesalers has opened up my clients to so many more deals that the MLS doesn't have to offer. Not easy, but can really make some happy clients!
P.S. - Run your own ARVs. 80-90% of ARVs I get from wholesalers are garbage.
Axiom Property Group4.934 Reviews - Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes2y
Quote from @Marcy Ramich:
Wow sounds miserable!
I normally do a quick check when I'm ready to write the offer, and when I see issues, call them out and ask them about it. Here for example we don't like quit claims....so when I see that as one of the transfers...immediate red flag for me. I'll ask them if they worked it out with title yet. If I see two names on title and only one signing...i start asking questions....Unfortunately so often you just don't know until title co starts working on the file.
- Member since 2023 · 45 posts · 13 votes2y
Valuable reply, thank you!
I'll try not to be "that wholesaler" that everyone knows for the wrong reasons!
Appreciate the BP community the longer I'm in it.I have no doubt it'll save me from many mistakes!
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