Alexandria, KY · Member since 2015 · 17 posts · 1 vote
Do realtors make their commission based off of the price I negotiated with the seller? Or do they make their commission based off of the price my cash buyer bought it for? If it is the latter, then in my mind I'm thinking that realtors would want to work with wholesalers.
But I keep hearing about this bad stigma between realtors and wholesalers and I'm trying to figure out how I can approach one as an aspiring wholesaler.
Realtors with a bad taste for wholesalers generally don't know or understand this component of real estate investing. Seasoned investors actually seek out and depend on wholesalers who provide research and bring value added deals to the table. These wholesalers actually earn their fee and operate based on a solid business model. Inexperienced wholesalers, on the other hand, who chase realtors and provide proof of funds that aren't worth the paper upon which they are written and misrepresent their true intentions won't survive in this very competitive market. There is no room for dishonest, unethical wholesalers nor is there room for incompetent, lazy realtors.
If the property is listed, they get paid by the listing broker, on the initial sale. The reason we don't care to deal with wholesalers is due to the very high probability that you will never close the sale, after you put it in under contract, and keep it off the market for a while. We realize that either you need to get the property under contract for way less that market value which is not in our client's best interest, or you have to find that buyer that is willing to pay more than any other buyer that it has been exposed to thru the MLS, to cover your market price offer plus your fee.......not likely to happen.
If the property is listed, they get paid by the listing broker, on the initial sale. The reason we don't care to deal with wholesalers is due to the very high probability that you will never close the sale, after you put it in under contract, and keep it off the market for a while. We realize that either you need to get the property under contract for way less that market value which is not in our client's best interest, or you have to find that buyer that is willing to pay more than any other buyer that it has been exposed to thru the MLS, to cover your market price offer plus your fee.......not likely to happen.
So if I made it clear to a realtor that the only time I will get a property under contract is if I have a cash buyer that I know will take it, and the whole thing will take less than 30 days, would one be more likely to help? Or should I just avoid them altogether or just say I am a cash investor? I mean remember, these people don't have to sell to me right? I make an offer and they say yes or no. Something is only worth what someone else is willing to pay for it, so if they agree to sell below market that is their choice. I know I'm coming off argumentative right now but I'm just playing devil's advocate.
If you can find a property to wholesale off the mls your goal as a wholesale is to control the property for as long as possible with small amount of deposit.The odds of finding an end buyer to flip it to and close in your allotted time is slim That is why most realtors dont like wholesalers. A true wholesaler finds properties off market ,for the most part to flip, and once again a realtor will not get paid.
The realtor ends up making tons of low ball offers running comps galore ,and might finally find you a property only to have the property back on the market.
If you can find a property to wholesale off the mls your goal as a wholesale is to control the property for as long as possible with small amount of deposit.The odds of finding an end buyer to flip it to and close in your allotted time is slim That is why most realtors dont like wholesalers. A true wholesaler finds properties off market ,for the most part to flip, and once again a realtor will not get paid.
The realtor ends up making tons of low ball offers running comps galore ,and might finally find you a property only to have the property back on the market.
Have you worked with wholesalers before where this was the case? Because I've been taught to get in and get out of the deal as quickly as possible. Basically My job is to find the deals that are so good, that pretty much any cash buyer will take it, as long as the numbers are ran correctly. I've heard that a lot of "wholesalers" bring buyers these awful deals that you can't make money on, and supposedly those are the ones who leave a bad taste in people's mouths.
In any profession there are the talented and trustworthy and wholesalers like yourself are the exception but as you can imagine all the newcomers with little experience,who just took some webinars,have little cash or credit and have not developed their end buyers is the vast majority.
Thanks for replying Steven. To be honest with you, I am one of those newbie wholesalers. But on top of the education I've gotten, I've been doing a whole lot of self education on websites like this and other resources. I feel I definitely have a good grasp on everything, and I want badly to be an honest and trustworthy wholesaler. I want to take care of any realtors I have on my team and make non-lowball offers that make sense. Problem is, I don't know how to tell realtors that and have them believe me. I don't want to lie and say I'm a cash buyer but it seems like there's no way around it since the opinion of wholesalers is so low.
@James Popp When you tell any decent agent you are a cash buyer, or make a cash offer, they will ask you for Your proof of funds. When you can't provide that, and start back peddling, they'll know what they're dealing with, and drop you then and there. You're trying to buy wholesale, in an open retail market, that all buyers already have access to. Used car wholesalers don't try to buy their cars off a retail car lot.
I'm both a wholesaler and a REALTOR, and wholesaled an MLS listing earlier this year, before I was licensed. When I told my REALTOR what I was doing on that deal, he was kind of dumbfounded, but I assured it was a legit deal and I could get it closed....and I did. I bought it for $20K under list price and sold it for a $5-6K profit. IIRC, it took under 2 weeks to find a buyer and 30 days or less total to close.
That said, the MLS is primarily a retail market, and in DFW at least, such opportunities are few and far between. IMO, finding off-market deals is a more productive use of your time and other resources.
That's a Loan, not a cash purchase. POF means cash in the Buyer's (your) name. And of course that transactional lender "commitment" is predicated upon there being another buyer with Their cash in escrow....not exactly a cash purchase by you.
If you have a cash buyer that you know will take it, and you trust them enough to show it prior to getting it under contract, why not just take a birddogging role instead? Get your cash buyer to put it under contract w/ a pre-negotiated agreement that they'll pay a referral/finder's fee equivalent to what your assignment fee would have been.
Back to reality, how likely are you to really have a cash buyer who will take it for sure? I have a decent sized list of cash buyers who get my props, all have diff. things that make them pull the trigger (or not). My close rate would stink if I depended on any one or few cash buyer(s).
Chris, I'm looking to get a minimum of 5,000 on my wholesale deals, do you think buyers would be willing to pay that for a bird dog? I've seen that the usual payment for bird dogging is around 1-2 grand max
Almost every "wholesaler" that has contacted me is telling me they have a "bargain" that in reality is way over retail. Some of these people have even sent me property addresses and when I looked the properties were MLS listed at substantially lower prices. As an agent, if someone submits an offer on my listing, I will advise a client not to accept long "inspection" periods. This is usually the typical lie used by someone trying to tie up a property while they shop it. Read through some of the posts on the "wholesaling" forum and get an education on the general lack of knowledge, and maybe worse than that, lack of ethics. There are tons of posts from these people where they want to know how to get out of a contract if they cannot assign it. These "buyers" never had any intention of buying, lied to the seller to get a contract, and then want to lie to the seller to get out of the contract. How is THAT for a business model? In many cases, "wholesaler" is code for unlicensed brokering. Maybe a more appropriate term is fraudster! Agents get paid when a deal closes....not on some pie in the sky promise from a "buyer" that has no intention of closing.
Almost every "wholesaler" that has contacted me is telling me they have a "bargain" that in reality is way over retail. Some of these people have even sent me property addresses and when I looked the properties were MLS listed at substantially lower prices. As an agent, if someone submits an offer on my listing, I will advise a client not to accept long "inspection" periods. This is usually the typical lie used by someone trying to tie up a property while they shop it. Read through some of the posts on the "wholesaling" forum and get an education on the general lack of knowledge, and maybe worse than that, lack of ethics. There are tons of posts from these people where they want to know how to get out of a contract if they cannot assign it. These "buyers" never had any intention of buying, lied to the seller to get a contract, and then want to lie to the seller to get out of the contract. How is THAT for a business model? In many cases, "wholesaler" is code for unlicensed brokering. Maybe a more appropriate term is fraudster! Agents get paid when a deal closes....not on some pie in the sky promise from a "buyer" that has no intention of closing.
This is an excellent description of one of the major deceptions that home sellers face in the market. Well done...
@James Popp, you said: "Basically My job is to find the deals that are so good, that pretty much any cash buyer will take it, as long as the numbers are ran correctly". Agreed.
So, at what point are you needing a Realtor to accomplish this? For THEM to bring you those deals?
You have already received multiple responses as to why that is not realistic in the real world - UNLESS you have this secret source of cash Buyers that WILL pay more than the general market! Are you up for supplying those Buyers?
And if on the other hand you are trying to bring good off-market contracted deals to Agents, how do you think your Sellers will feel when they THEN see their property on the MLS for a much higher price than they agreed to - even before they have been paid! You must agree, the Seller could have done THAT themselves and saved at least $5k into the bargain.
Do you see Uber asking the Taxi Industry to help them (or vice versa)?...
Realtors with a bad taste for wholesalers generally don't know or understand this component of real estate investing. Seasoned investors actually seek out and depend on wholesalers who provide research and bring value added deals to the table. These wholesalers actually earn their fee and operate based on a solid business model. Inexperienced wholesalers, on the other hand, who chase realtors and provide proof of funds that aren't worth the paper upon which they are written and misrepresent their true intentions won't survive in this very competitive market. There is no room for dishonest, unethical wholesalers nor is there room for incompetent, lazy realtors.
You are correct, investors do rely on wholesalers to bring them deals BUT those deals should be off market. An investor that closes will already have a realtor or multiple that will bring them the MLS deals. Why would I pay a wholesaler a fee for something listed on the MLS, I could just put my offer in as a backup and wait for the wholesaler to fall through. If you want to sell off the MLS get your license, line up buyers and have them pay you a higher % for bringing you the deal first.
Your best bet when picking up properties to wholesale is to make sure that all of your numbers check out. If you really have found a property, weather on or off market,(and it will almost always be off market) that you can get under contract for around 65% of market value, minus the repair cost (that you have had verified by a contractor or you are absolutely certain is correct) and add in all the other expenses involved in actually doing a rehab or holding the property then you wont have a problem finding a buyer, hard money or partner to do the deal. Don't bother putting any property under contract that you wouldn't be willing to close on and handle yourself. Any buyer that you will be advertising to is going to do their own analysis of the property and if your numbers don't make sense you will lose credibility with that potential buyer right away. The best way to stay on good terms with anyone, agent or not is to do what you say your going to do, no matter what, and do your homework so you know what your talking about!
I work with investor friendly realtors who occasionally will bring me MLS deals that I am not prepared to purchase myself. Knowing exactly what other buyers are seeking allows me to negotiate terms with the seller and wholesale them to buyers I know and trust; the key word being "trust." But I certainly don't rely on the MLS for most of these kinds of deals. Hopefully, this post has educated both aspiring wholesalers and realtors who have had bad experiences working with this niche group.
I am trying to get my feet wholesaling and have the same mindset you do about making sure deals are strong before getting them under contract, because of that I have not closed a deal in over 6 months of trying. Some have come close, while some possibilities have not been good at all. My wife is a realtor so I have been able to hand off some to her to list on the MLS which is a nice benefit. She has been writing offers for a wholesaler for a couple weeks now, 1-3 a week. He did not disclose his intentions to her, but it is obvious. Seriously low, cash offers, long option periods, with the ability to list the home with a signed contract. She is relatively new to the business so she does not mind right now, but I can see how more experienced/busy realtors would not want to deal with this type of client.
Realtors with a bad taste for wholesalers generally don't know or understand this component of real estate investing. Seasoned investors actually seek out and depend on wholesalers who provide research and bring value added deals to the table. These wholesalers actually earn their fee and operate based on a solid business model. Inexperienced wholesalers, on the other hand, who chase realtors and provide proof of funds that aren't worth the paper upon which they are written and misrepresent their true intentions won't survive in this very competitive market. There is no room for dishonest, unethical wholesalers nor is there room for incompetent, lazy realtors.
Thanks for saying that man, it's nice to have a response from someone actually in the wholesale business. Yeah I've heard about the "wholesalers" that take an hour long seminar then try to go out and do it and discredit actual wholesalers. I've gotten education in the whole process and I've been doing a lot of self educating on sites like these too, and I have every intention on making my business respected and reputable. My understanding is that, even though other buyers may have access to the mls, they still find wholesalers valuable because they extend the buyers reach, and give them the chance to see deals they may not have seen otherwise because of time or any other factors. Is that about right?
James Popp, if you are willing to be the boots on the ground for other buyers and work as hard for them as you would yourself, and always work with integrity, you will make money. Otherwise, you are in the wrong business.