Why Don't More Realtors® Wholesale?

34 Replies

I gotta tell you. 

I'm frustrated. 

Maybe I'm alone.  However, sometimes it feels as though I am the ONLY one who seems to "get it."   As a Realtor®, I recognize the inherent brainwashing that goes on in the industry with regards to investors, and wholesaling in general. 

But how on earth does that explain the rampant ignorance about wholesaling in the Realtor Community?

By Ignorance, I do not mean stupidity.  I mean simply being "unaware" of the benefits of adding wholesaling to their "toolbox" of skills as an Investing Realtor®.  

I just wonder, is it because we simply don't TELL them about just how much MORE money they would make? Maybeif we did, they would be more willing to cooperate?

I don't know...

What do you think? 

I'm trying to figure out how you can do it ethically.  As a seller's agent it would be totally illegal and unethical.  As a buyer's agent I am still not seeing how you can ethically sell the house to a buyer for more than the seller is asking.  I would think you would have to totally step outside of your agency and do it as a personal transaction and still I think you would have ethical issues without a LOT of disclosures.

Please explain how you are doing the process.

I could see you adding it as an option when you go on a listing appointment.  If a seller is motivated and wants to get rid of their house ASAP, you could offer them an option.  Option A is to list it as normal under seller agency or Option B is that you can make them a cash offer on the spot.  Depending on which way the seller chooses, you can either take the listing or wholesale the property.

I agree that buyer agency is much more difficult.  In that case you could always disclose the process and have the buyer agree to pay a X% commission to you.

Just my thoughts.

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So are you telling them the house is worth less than you think you can sell it for or giving them to expected sales price and then saying you will offer less? I am assuming you would do this as a private buyer in a FSBO deal (no commissions) not through your brokerage.

Maybe some states are different, but in Texas you can't do a deal as a licensed agent where the seller agrees to a price and lets you sell it for a higher amount and pocket the difference.

The only advantage I can see to having a license in this case is you are getting first dibs on people calling.  I am not sure how your broker will feel about you skimming clients though. 

@ Paul Ewing: No, our obligation through the Realtor Code of Ethics is to disclose to the Seller the true nature of the value of the home.  (Article 4).  

I did an article on my blog at TenMinuteSkill about this as to the ethics.  

@Dennis Poulson: You are right on track.  The problem lies within agency.  If the customer believes that you are acting on their behalf (Be they buyer or seller) then the agency is implied and therefore "poisons the water" in the transaction.  

What I do is provide a separate disclosure sheet upon meeting the client.  In this disclosure sheet, I disclose that I am a licensed agent, that I am not working in any capacity as their agent, that they are going to receive comparables, etc.  

When you approach it like a traditional listing or buyer appointment with the substitution of your own "Personal Agency Disclosure" then you are well on your way to ensuring that they customer does not assume you are acting in their best interests.

Obviously, this should be reiterated within the contract (NAR Code Article 7) but for Realtors®, adding this as an option can be a profitable way for both Broker as well as Realtor to make additional leads/profit.

I think what you're "frustrated" about is that you're not selling more of your "training" to Realtors.  

Presumably you decide to wholesale the deal because you think your spread will be more than your commission would otherwise be. How does this lead to a seller making more money? If they list with you, do you just dump the property on the MLS, but if they agree to sell to you, only then are you actively marketing the property to your wholesale buyers?

Realtors who make it practice to go on a listing appointment and end up negotiating a deal to "buy" (wholesale) the property, I suspect will sooner or later wind up defending themselves in front of either their board disciplinary committee or the real estate commission.

In general, it's my personal experience that too many agents and brokers are afraid of stepping outside the narrow scope of real estate in which they were trained. Many believe that once you're licensed, you give up any rights to act as a principal in a transaction. Granted, of many brokers and many attornies, but frankly, it's nothing more than opinion and I've never seen a single case that would back it up. 

As both a broker and investor, I have not had a conflict in the 15 years I've been investing. If I meet with a seller, it doesn't automatically mean I'm representing that seller. It's merely a meeting...nothing more and nothing less. I always disclose to a seller that I'm an investor as well as a broker and that this fact gives them, as a seller, additional options that most traditional agents/brokers don't offer. 

All it takes is for one judge to decide it is a net listing and the game is over. As @Paul Ewing said these are illegal in TX but I suspect in most states. Most agents are clueless to investing and what makes a good investment deal. Why would you expect wholesaling to be any different?

Originally posted by @Jay Phillips :

I think what you're "frustrated" about is that you're not selling more of your "training" to Realtors.  

Presumably you decide to wholesale the deal because you think your spread will be more than your commission would otherwise be. How does this lead to a seller making more money? If they list with you, do you just dump the property on the MLS, but if they agree to sell to you, only then are you actively marketing the property to your wholesale buyers?

Realtors who make it practice to go on a listing appointment and end up negotiating a deal to "buy" (wholesale) the property, I suspect will sooner or later wind up defending themselves in front of either their board disciplinary committee or the real estate commission.

 Thanks for the vote of confidence @Jay Phillips..  you are right.  Inasmuch as I wish MORE Realtors® would of course buy my training.  That's certainly always a frustration.  But then, I don't need to sell training to Realtors®... they are smart enough to recognize value when they see it.

To answer your poignant question, the wholesale deal may sometimes be the appropriate response to what the Seller is requesting.  

Of course, as an Agent representing yourself, you are not trying to "make the seller more money."  

If they agree to sell the property to you while you reserve the right to assign, lease, rent, repair, or sell the property; then there is no need to worry about who you are marketing it to.

While I agree with you in principle that if a Realtor® makes it their practice to go on listing appointments, while not clearly disclosing their own agency position (as I mentioned previously in a separate disclosure) will undoubtedly face some serious problems in the future... it is a non issue when the practitioner addresses the agency issue in advance.

This is clearly outlined in the National Association of Realtor Code of Ethics, and does not preclude your absolute right to purchase on your own.

As to me teaching and training, you bet; as the Apostle Paul said... "Woud to God that you would ALL Believe."

Thanks for taking the time to read my post, as well as respond!

k

Originally posted by @Ned Carey :

All it takes is for one judge to decide it is a net listing and the game is over. As @Paul Ewing said these are illegal in TX but I suspect in most states. Most agents are clueless to investing and what makes a good investment deal. Why would you expect wholesaling to be any different?

 @Ned, that is a great observation.  Some Departments of Real Estate (Notably Ohio) have taken aim at unlicensed wholesalers because of the confusion that they bring to the marketplace.  

It is a good thought about a "net listing" (which in the Code of Ethics, we are discouraged to obtain).  However, the only challenge I would bring to your attention is again the Agency issue.

When Agents are acting on their own behalf, then there is no net listing. No listing at all. They are relegated to the status of "Buyer". As no Buyer would list the property, and as many MLS's require more than equitable interest to be sufficient for an MLS listing, the danger of a "Net Listing" is ONLY if the Listing agent enters into an agency agreement in the first place. 

So long as the agent does not confuse, nor enter into any agency agreement with the Seller during the process of buying, then subsequently selling the home, it is acceptable within the confines of the Code.  

Agency, it seems, is the challenge when Realtors® face the untrained Seller.

Originally posted by @Karl Krentzel :

When Agents are acting on their own behalf, then there is no net listing.  No listing at all.  They are relegated to the status of "Buyer". 

Karl,

No question about that. But I live in a liberal state and you don't know how the courts will rule. It would not be the first time that MD courts ruled contrary to the law to help someone they perceive as being taken advantage of.

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Originally posted by @Ned Carey :
Originally posted by @Karl Krentzel:

When Agents are acting on their own behalf, then there is no net listing.  No listing at all.  They are relegated to the status of "Buyer". 

Karl,

No question about that. But I live in a liberal state and you don't know how the courts will rule. It would not be the first time that MD courts ruled contrary to the law to help someone they perceive as being taken advantage of.

 @Ned Carey: I appreciate where you are coming from.  There is plenty of caselaw that refers to this.  Of course, you cannot guarantee justice from a courthouse. 

However, if we lived by that same standard, we would never call on expired listings (as they cannot in Canada); and we would never grow beyond that traditional role of Realtor to the buyer and the seller.  

While there is absolutely no caselaw, and no precedent to suggest that we can't, especially in light of the Code stating we can, why shouldn't we?

@Guy Gimenez  

 on the West coast specifically CA Or WA  were I am licensed you MUST disclose your a broker on ANY advertising you do  that's RE 101  I find it difficult to believe that any state would allow a licensed agent to not disclose that in their marketing.

Now granted many do this with teeny tiny writing and that works.

@Karl Krentzel  

  Many realtors already do this... Do you have the Realtors that advertise  " IF I DON'T SELL YOUR HOUSE IN 90 DAYS I WILL BUY IT"  We always have one or two in our market doing that and I can guarantee you they are wholesaling.. the pitch would be I think your market value is X but I guarantee to buy it at Y.  And of course its meaningless advertising to the unsuspecting as it clearly states at a price you both agree on.

@Jay Hinrichs  

I would normally agree, but too many states have too many different versions of rules relating to real estate licensees.  

For Texas licensee's, advertising is defined as a communication (can be either written or oral) which induces a member of the public to use the services of the real estate licensee. 

When I'm advertising through my investment company, I'm not in any form or fashion attempting to induce the public to use the services of my brokerage or to use my services as a licensee, so no disclosure is mandated. 

However, when I submit an offer to purchase I must disclose in the offer that I'm a licensee. Also, when selling, any property in which I have a 10% or greater interest or any entity to which I am a member where the entity has a 10% or greater interest in a property being sold, I must disclose my relationship.

@Guy Gimenez  

  yup that definitely would not fly on the West coast. whether your acting as a principal or an agent.. you MUST disclose that your an agent in any form of media.

that said as an agent you can buy wholesale  one just needs to disclose that your an agent.

Its common to just add this verbiage

" Buyer discloses that they are a RE broker and is buying the property for profit or loss."

Net listings are illegal in MD. 

My thought is to be clear throughout the entire discourse with the prospective client.  In MD we must present and have the potential client sign off on a doc called "Whom Real Estate Agents Represent" - this does not obligate the potential client (I really should call them a "customer" - getting customer level service) to any agency rep at all.  But we must present it no later than the first face-to-face meeting. 

And after that,  then I'd verbally reiterate that if and until a listing or buyer's agency rep form is signed, I'm not representing ANYONE in this discussion, including myself. Then I'd go the route of @Dennis Poulsen    - in the course of finding out what the seller needs, offer up options.

Now - where I think it gets into a real gray area is the purchase of the property if you go the "wholesale route."  Am I going to literally buy this property and take title.... or am I going to bring another party in to buy this property and not take title but get paid for ....... essentially brokering a deal?  As a licensed agent, this - to me - is where it really starts getting blurry because even though I'm acting in my own interest as a buyer/principal in this transaction and I'm NOT involving my broker, if I'm not closing the deal myself and wholetailing it aren't I essentially brokering a deal? 

Unless I have the seller sign off on a million different disclosures (and I do have something I pulled off of BP where someone created a disclosure notice for sellers to sign if one intends to resell the property, maybe @Brian Gibbons developed it....)  but as @Ned Carey  

mentioned in MD that may amount to a hill of beans in court.

@Guy Gimenez  

Is this the right forum to post that the Cowboys got screwed ?

Guy , I will have to differ with you here.  I was contacted by TREC legal regarding a craigslist post several years ago where I had an investment property of my own listed. I even put " contact Greg Hall with Horizon Properties for more information" and TREC legal stated that was not good enough and I had to add Broker or Agent in all advertising even as a principal

@Greg H. 

I don't disagree with you or TREC at all in that scenario. 

1.  per my previous post, because you own a 10% or greater interest in the property you're advertising, you must disclose your status as a licensee.

2.  advertising under the umbrella of your brokerage, you must disclose your status as a broker, agent, etc. so the public is not confused as to which you are. 

When mailing out marketing pieces geared toward distressed seller's (always done outside my brokerage), I have no requirement to disclose my status as a licensee. However, I do disclose my status at the first substantial conversation with a prospect who responds to that marketing piece. 

I cannot find anything in the REALTOR rules or codes that specifically disallow wholesaling but anything 'unethical' is not allowed.... A net listing is where the seller receives a certain price no matter what while the agent or broker can then turn around and sell it for any price and pocket the difference without taking possession of the property. This is illegal in MANY states and considered unethical basically everywhere. Whole-saling is a form of a net listing if you really think about it and is probably a border-line activity at best. The REALTOR association doesn't look kindly upon net-listings and probably wouldn't like any sort of borderline activity such as wholesaling. I think wholesaling is risky business for any person, but it seems like a terrible idea for a licensed sales person and REALTOR.

@Karl Krentzel   This is a fantastic discussion!  I would like to ask Karl, what are you frustrated about?  I think you understand wholesaling and know how to use it as an effective tool in your business. The reason wholesaling may get less than rave reviews from agents and other investors, in my opinion,  is greed and ignorance. (Ignorance in the lack of knowledge and understanding about something and greed by forsaking the bird in hand for something that appears to be better elsewhere.)

As pointed out by many of the posters in this thread, it is possible to wholesale legally and ethically with and without a license.  It is all a matter of understanding tthe wholesale business and applying the knowledge in the correct scenario.  Any tool will work if the person using the tool understands how it operates, has or creates a need to use it and uses it to the best of their ability.