Backed out of a deal because something smelled fishy...

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Backed out of a deal because something smelled fishy...

Shoor Kalam
Frisco, TX · Member since 2013 · 19 posts · 0 votes

Hi guys. Just wanted to share my story and get some input... hopefully some affirmation that I did the right thing. If I didn't do the right thing, then I'll have to chalk it up to a learning experience I suppose.

Ran the numbers on a property in Grand Prairie, TX and it was showing a cash flow of $535 a month with about $17,000 out of pocket using hard money. Wholesaler was asking for a $2,500 non-refundable earnest money deposit to put the property under contract. Nothing out of the ordinary I thought, and I went to my lender to start getting everything in order.

That's when it started getting weird. The wholesaler was calling me daily, pressuring me to get a close date from the lender. In addition, he asked for an additional $5,000 in earnest money to "show we're serious and convince the seller to give him an extension on his wholesale contract" and "if we don't get your answer and the earnest money today then this deal will die".

I'm the kind of person that reacts negatively to sales pressure. In addition, the thought of giving $7,500 in earnest money without getting the chance to see the property really set my spidey sense off. So I told him thanks but no thanks and walked away.

My question is, is this type of sales pressure/jacking up earnest money normal? Was I right to walk away?

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  • Marc RamsayPro Member
    Investor · Ojochal, Costa Rica · Member since 2013 · 288 posts · 164 votes
    12y

    Sounds like the wholesaler was running out of time on the deal and needed to get it closed quickly or lose it himself. He probably wanted the extra money to entice the seller to wait a little longer. I agree with your spidey sense. It was probably a good idea to walk away and look for the next deal.

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  • Rick Baggenstoss
    Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
    12y

    Very fishy! Keep after the deal, but ditch the unsavory wholesaler.

    0Reply
  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    12y

    Sounds to me like a wholesaler that had already lost a contract and was running out of time and about to lose the deal completely.

    How much time were you in this deal? You write that he was calling your daily, which would imply that it took a while for you. Few wholesalers would accept a deal with normal lending time frames of weeks. So, did you have a HML involved and were going over the deadline?

    7500 seems excessive and I don't think I would have felt comfortable with it. But how much time did you have to close on your contract and were you going over that time? If so, then I wouldn't be happy as a wholesaler and would put pressure on you or go with a back-up contract, if my time was about to run out with the seller

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  • Amy Davidson
    Investor · Clearwater, FL · Member since 2013 · 69 posts · 38 votes
    12y

    Hi Shoor,

    I agree that you should ALWAYS listen to your gut. I've always had a bit of nerves when I sign on the dotted line, simply because there are so many other properties to invest in and I hope I've gotten the very best one.

    But only one time did I feel so uncomfortable that I almost didn't get in the car to go to closing, almost didn't get out of the car at the title company and almost didn't sign the paperwork when it was in front of me. And that was the time when I was serious scammed by an unethical wholesaler and it's set my investing back years trying and sort it out.

    Mark Ramsey is right, the wholesaler probably had some pressure to meet a deadline, but if you were feeling that there was something more going on, or that he wasn't completely trustworthy, then he probably wasn't.

    Never ignore your gut.

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  • Shoor Kalam
    OP
    Frisco, TX · Member since 2013 · 19 posts · 0 votes
    12y

    Thanks guys. To clarify, I saw the property on myhomedeals.com on Tuesday, and was told Thursday that I needed to give the $7,500 or else the deal would die. I tried to see it from his perspective as much as I could, but in the end it was the $7500 that made me say thanks but no thanks.

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    12y

    yes, that time line was not reasonable for him to be putting that pressure on. Walking away was a good thing

    0Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    12y

    Did you sign the contract? Did you make the initial $2500 deposit?

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  • Shoor Kalam
    OP
    Frisco, TX · Member since 2013 · 19 posts · 0 votes
    12y

    @Jon Klaus, no I did not make the initial deposit.

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  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    12y

    Good. Sounds like it wasn't a deal with all the sales pressure. If it were, someone else would have taken it when you didn't.

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  • Shoor Kalam
    OP
    Frisco, TX · Member since 2013 · 19 posts · 0 votes
    12y

    Really appreciate the feedback guys. And if a deal comes across your desk in the Dallas area that you can't work, please feel free to contact me. I'm trying to get my first deal under my belt.

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  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    12y
    Originally posted by Shoor Kalam:
    Really appreciate the feedback guys. And if a deal comes across your desk in the Dallas area that you can't work, please feel free to contact me. I'm trying to get my first deal under my belt.

    Buy and hold?

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y

    That's when it started getting weird. The wholesaler was calling me daily, pressuring me to get a close date from the lender. In addition, he asked for an additional $5,000 in earnest money to "show we're serious and convince the seller to give him an extension on his wholesale contract" and "if we don't get your answer and the earnest money today then this deal will die".


    Did he actually say "this deal will die"? If so, IMO it's never a mistake to pass on working with people who talk like that.

    To be honest, I don't consider $7500 EM unreasonable, but I don't like someone who changes their mind on EM. If he had asked for it upfront and I thought it was a good deal, I'd put it in escrow with a signed contract. But going from $2500 to $7500 indicates to me that the wholesaler was losing control of his deal.

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  • Shoor Kalam
    OP
    Frisco, TX · Member since 2013 · 19 posts · 0 votes
    12y

    @Jon Klaus: Yessir... looking to buy and hold

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    Shoor,

    Are you a cash buyer and can you closed in 10 days.

    Joe Gore

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  • Shoor Kalam
    OP
    Frisco, TX · Member since 2013 · 19 posts · 0 votes
    12y

    @Joe Gore... should receive the proof of funds letter either today or Monday from my hard money lender. If you have any leads you can email me at [email protected] and we can go from there

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  • Rick Baggenstoss
    Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
    12y

    @Shoor Kalam So were you buying without proof of funds? And your hard money lender doesn't care about the property?

    Still smells fishy to me.

    0Reply
  • Saundra Plummer
    Wholesaler · Denver, CO · Member since 2013 · 1 post · 0 votes
    12y

    As a new investor, I really appreciate you sharing your experience. Did the wholesaler fail to discuss his time-line for closing with you?

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  • Shane Johnson
    Hudson, WI · Member since 2012 · 189 posts · 30 votes
    12y

    @Rick Baggenstoss

    Lets not jump to cynical conclusions. I would think that he intended to have the POF letter upon needing it for this deal. I am sure all the ducks weren't in a row so to speak, and he didn't have this ahead of time, because he is just getting started and learning the process.

    Also, where did you see that the HML did not care about the property? Did I miss something in the post? I believe the OP said it was listed online. (details, address and pictures I would think)

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  • Rick Baggenstoss
    Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
    12y

    @Shane Johnson I've not drawn any conclusions except that I don't care for the source of this deal. Poor, unreasonable tactics.

    Agreed, not all his ducks were in a row, e.g. financing. He did mention daily calls (saw the deal Tuesday, EM increase Thursday). Walked away Thursday. Hoping to get POF on Monday or Tuesday.

    "... should receive the proof of funds letter either today or Monday from my hard money lender. If you have any leads ..." POF doesn't sound like it's tied to a specific deal ...

    IMHO,@Shoor Kalam if you want to win a deal (for better prices and terms), you need to have your financing together and be credible in your interactions with the other parties. My guess is the wholesaler sensed issues.

    That's all. Live and learn. There are plenty of deals out there and much better people with whom to do business.

    Can you share what you might do differently next time?

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