What homeowners don't understand about wholesalers

Question

I have an opinion on wholesalers. One that may be unpopular (or maybe very popular). Wholesalers, are fantastic, motivated, and hard working individuals and have skills that a lot of real estate agents don't have. They are very determined to get "listings" and make the deal work. The problem (for home sellers) is that they have no fiduciary duty to the seller. Which means, a homeowner, who relies on information from their agent who listing their home, is often expecting that same loyalty from the wholesaler. It leaves a lot of homeowners feeling duped when the property finally closed. I've seen it happen many times. The seller sells a home to a wholesaler for $25,000 and then finds out the buyer who actually bought the house is buying that home for $45,000-$50,000 or more. If they had listed with an agent, they could have ended up with tens of thousands more.

For investors who are selling homes to wholesalers, how do you feel about selling for a flat fee and the wholesaler making a large amount of profit on your home? Were you aware that many wholesalers have something called a "spread" which is often large to make a profit?

For the wholesalers out there, are you disclosing that you are only out for your best interest? Do you disclose your spread? Have you ever thought of getting your real estate license for whatever state you are located in, connecting with a real estate agent where you wholesale and getting a referral fee for all those listings? It would be a lot less then most wholesalers get in their spread but would also (often) require a whole lot less work since the agent would be the one showing, marketing, etc.

I would love to hear people's thoughts on this! Good, bad or indifferent!

John Hernandez · Answer

I have no objection to anyone striking the best deal possible for themselves. If both sides consider it a “deal” then fine, that is capitalism at its best. As for my opinion of wholesalers, to me they are vultures circling a carcass. Spare me the BS line that they are “saving” the seller from future hardships. They are taking advantage of a person(s), usually financially inexperienced or lacking in money management and now have had their backs up against the wall too long. Debts have been called and they have failed to meet their obligations. This is a clear instance of taking advantage of another. Again, so what? This is life and emotions and ethics aside, it is business. What irks me are the cold calls and unsolicited texts. Like another said, I already told you “No” so stop contacting me. Everyone loves easy money, but don’t act like a wholesaler “earned” their payout.

Dwayne Byrd · Answer

Disclosure, I am a real estate broker. By the LETTER of the law in FL, IN MY OPINION (and everyone has one), wholesaling is illegal without a real estate license. Most people still have a great amount of equity in their homes, and if they need to sell almost always would make more going the traditional route of selling. The problem that I have with wholesalers, is that they send out blanket offers on every listing in my brokerage, offering 100k less than asking on a 2 or 300k property, saying that it's all cash and that we can "get the deal done". Well of course you could. I would buy any property that I have ever listed for 100k off - but I have to sleep at night as well. Again, I am not against people making money as it makes the world go round'. It's just how many do it.

The other major thing is that they "gurus" have taught people that they can do this without having money ect, and they have zero ability or intention of actually closing on the property if they can't find a buyer in time etc. Now, with that said, if they have the ability to purchase the property and resell it- that's a different story, but most are having people take their property off the market, on a gamble that they can find a buyer, and then take a substantial amount of the sellers equity for it. That is where it gets even worse and the bad wrap usually peaks! Again, if someone has equity (which is why a wholesaler would be able to make a deal work, the seller could price their home with a reputable real estate agent, have their interests protected, and sell the home reasonably quick. Most good agents always have someone in their circle that would / could buy a home quickly if someone needed to sell - while still protecting the fiduciary duties of the seller. Just my 2 cents.

Jeff Copeland · Answer

@Elise Bickel - You pretty much just outlined the reasons why wholesaling (as it is sometimes practiced, and often taught by guru courses) is actually illegal in most states.

Any person who performs the following activities, for another person, for a fee, is practicing of real estate, which requires a real estate license:

"appraises, auctions, sells, exchanges, buys, rents, or offers, attempts or agrees to appraise, auction, or negotiate the sale, exchange, purchase, or rental of...any real property or any interest in or concerning the same" or advertises the fact that they are doing so.

This definition is from Florida, but is presumably similar in other states.

At their core, real estate licensing laws are about consumer protection, for all of the reasons you outlined.

Douglas Mallett · Answer

i see this at times - the claim of 'it's just business' excusing abhorrent behavior.

the are no exemptions to doing right.

!

Account Closed · Answer

@Elise Bickel I used to fish with a guy in Port Aransas Texas, every time we caught a hard head instead of a redfish or trout he would say, everybody has to eat😋

Jeff Copeland · Answer

An investor buying a property without a real estate agent has nothing to do with wholesaling.

Wholesaling, at least the kind that gives it a bad name, as it's often taught by gurus, consists of:

1. A buyer with no money and no intention of closing a transaction* finds a distressed seller and gets their house under contract well below it's actual value, with very little earnest money deposit, and a very liberal inspection contingency (say 15 or 30 days).

2. Now they have 15 to 30 days to find an actual buyer with actual money who actually does want to buy the house.

3. Before and/or during their marketing of the house for sale, they build a "buyers list", often through guerilla marketing such as bandit signs, scrubbing email lists, etc.

4. They assign the contract to the end buyer, charge then an assignment fee, and the new buyer steps in and takes their place on the contract/purchase.

Best case: The distressed seller loses out on lots of their hard earned equity because they sold at a steep discount. (But to be fair, they may have also been saved from a looming foreclosure or whatever. *There are legit ways to do this if you have the intent and the funding).

Worst case: On day 29, the "buyer" cancels the contract, and loses nothing, and leaves the seller in even more of a bind, having wasted 30 days with their property tied up by the bogus contract.

To be clear: Not all wholesalers are crooks, obviously. But there's no denying that some of them use sketchy practices that skirt around state laws designed to protect consumers.

Becca F. · Answer

@Elise Bickel

I've been contacted by wholesalers so many times in the last 3 years with 2 SFHs. I can appreciate their motivation and hard work but I don't have a favorable opinion of them. One of them constantly texted me after I told her no multiple times, like she can't even remember I told her I wasn't interested. I started telling them I'll sell if for 3x the market value since home prices and interest rates are higher I wouldn't be able to replace it with a similar house at the low price I bought it for - this is for my SFH in the Midwest. They had no reply lol

Two of them offered me well below market price on a house in the San Francisco Bay Area. I saved the letter this one person mailed me - the offer was so insultingly low that I thought it was joke. If I was a completely uninformed person about the market value of California properties, I could have possibly been taken advantage of. I had the house appraised before and after the renovation.

Both homes are being rented out and have no plans to sell them. If I were to sell either home, I'm using a real estate agent. I do understand someone starting out in real estate who doesn't have enough capital to buy investment property and they choose to wholesale. However, they won't get any business from me especially if I'm selling, to be brutally honest.

Douglas Mallett · Answer

This is hilarious!

Are we demonizing capitalism here?

Profit? Oh my - not that!

Margin disclosures? Of course, as we always know what our margins are before the deal even inks!

Telling the seller we are interested in ourselves, our own betterment and not theirs? Of course! "Hi! My name is Jackson, and I don't care for other people's bank balances, relatives or cats as much as I care for my own. Now - let's make a deal!"

Consider this... your boss may stop by tomorrow and say these words to you:

"Elise! So good to see you! Have you thought of becoming an independent contractor so I can use your labor without paying your health benefits or retirement contributions? It would be a lot less money, but it would... um... uh... it would be a really good thing, trust me! Just sign right here, thanks in advance..."

And so on...

!

Eliott Elias · Answer

Too many people get caught up on the fee they are making, if they can manage to mark up the price and get it, it should be no one elses business. It keeps them motivated to get the deal done and as long as the seller is happy with the original purchase price there is no issue.

What homeowners don't understand about wholesalers

What homeowners don't understand about wholesalers

Most Popular Reply

13 Replies