Wholesaling structure changing ?

19 Replies

I just watched Jerry Norton's new video and he's saying we have to change the structure of the way we wholesale or its illegal because of our intentions to sell it to a cash buyer. I'm new to this and trying to get my foot in the door of real estate so I can move on to flipping but now I feel like I might have to start all over. Is it still considered illegal even if I tell them my intentions or if I work with the real estate agent for on market properties and let them represent me as the buyers agent ?

@Jazmine Hill   In most states, if not all, it is illegal to market a property that you don't already own (i.e., your name is on the title), unless you have a real estate license. 

States heavily regulate real estate agents in order to protect the public from unscrupulous operators who would steal their equity or otherwise defraud them.  Boiled down to the bare minimum, that is exactly what wholesalers do.

Disclosing your intent to practice unlicensed real estate brokering doesn't make that illegal act into a legal act.  For example, if I were to say to you, I fully intend to rob you at gunpoint and steal your money, and then do it, it's still armed robbery and I still go to prison.

No real estate agent will work with you to wholesale a listed property.  They would have to be a blithering idiot to take part in stripping (stealing) equity from a seller.  The local real estate commission would most likely revoke their license and fine them into oblivion - and their managing broker would show them the door in a red-hot hurry.  The broker doesn't want the bad publicity when the wholesaler screws Grandma out of a $25,000 (illegal) "contract assignment" fee.

If you want to get into selling real estate, do it the right way.  Get your real estate license and subject yourself to the laws and regulations that are in place to protect the consumer. 

I was licensed in both Mass and Maine and I can tell you from first-hand experience, the exams are ridiculously easy.

@Charlie MacPherson I couldn't disagree more about the role of a wholesaler. Sure there are shady players out there. When done right though a wholesaler provides a service that benefits all parties. And they are compensated for their service. When you bring value in a business setting you are rewarded. A wholesaler spends time and $$ on marketing to find distressed properties. (Not every flipper or investor wants to do this. They would rather buy from a wholesaler). The wholesaler provides value to the seller because they have a problem that needs solving (Quick sale, the house is too run down to list on the market, they just want the problem gone, ect.). The wholesaler provides value to agents because they have a pool of buyers that the agent usually does not have. The agent can "sell" to the wholesaler and still make the deal happen. Just so you know wholesaling is legal in most states and in my opinion perfectly ethical. Just my two-cents on the subject. 

@David Frandsen   Of course you disagree.  No wholesaler likes being called out for illegal, unlicensed real estate brokering, even though that is their stock in trade.

Whether you like it or not, there is literally NOTHING that a wholesaler can do for a seller that a real estate agent can't. There isn't a house in the world that is in such bad condition that it can't be listed on MLS. I know - I've done it.

The simple fact is that listing a dilapidated house on MLS with a good agent will bring a flood of buyers within 24 hours, many of them ready, willing and able to pay cash.

I have worked with a lot of rehabbers and been at those houses the same day they were listed.  I'm talking about houses covered in mold.  Houses with flooded basements.  Condemned houses with collapsed cinder block foundations.

Every single time, we were elbow to elbow with a flood of buyers and we nearly always lost out to a higher bidder - and that's the golden nugget in all this.  The seller had multiple offers to choose from, most often on the same day, and they ended up with more money.

How many genuine buyers are in a wholesaler's list?  I mean buyers who will actually transact - not the 99.999% of dreamers.  5?  10?  Let's be crazy and say it's 100 real buyers.  

An agent who does a vanilla MLS listing will expose the property to tens of thousands of buyers. Which do you think has the better chance of finding the one buyer who will pay the highest price?

Instead of paying a wholesaler's often obscene assignment fee, with no fiduciary to represent them in the transaction and with none of the protections that the law provides sellers, they pay an agent's commission of 4%-6%.

The bottom line is that wholesalers prey on sellers who are either uninformed as to the true value of their property or are in such a desperate situation that they'll take a bad deal to get out fast.

That is the textbook definition of unethical.

A lot of people start wholesaling because they "want to get to get their foot in the door" or "get a start". They have been working a job (or not) but have never saved money. They think wholesaling is going to make their money saving problems go away. It won't. People who don't have the financial discipline to save money aren't going to be succe long term in real estate because they don't have that discipline.

I'm truly getting tired of realtors criticizing wholesalers, putting us down like we're trash, saying what we do is illegal and we're just scammers. I TOTALLY agree with David Frandsen. There are two sides to every coin, but still just one coin. Realtors and wholesalers both have a part to play in real estate and we're both in the business for that same coin. Wholesaling in NOT even remotely close to the position of a realtor, nor do we claim to be a realtor because we're not licensed and we're not doing the same job. However both jobs are legal in most states. So get off of your high horse realtors.

I’m sure porch pirates are sick of homeowners bashing them too. If you’re going to wholesale, 99% of your peers operate sketchy at best but more likely illegally. That’s where the bad rap comes from. Although I’m sure every wholesaler reading this considers themselves part of the upstanding 1%, and are 100% transparent with the little old ladies they are fleecing. 

@Charlie MacPherson

Yes.

Let’s regulate every aspect of American life to the point that two consenting adults cannot make a real estate transaction without a licensed realtor involved.

That’s the most un-american thing I’ve ever heard.

Plus the fact that, some people don’t want the headache of dealing with realtors, they don’t want pictures of their house blasted to 10,000+ people like you claim.

They don’t want to deal with showings, they don’t want to pay realtor commissions.

They want a quick, easy transaction and are willing to sacrifice a little bit of equity for it.

Nothing wrong with that at all.

@Eric James

I think what people have to understand is wholesaling is just a vehicle, a business.

If everyone had the mindset that you just put on display, there would be no Apple, there would be no cars, we would have nothing.

Often times, people don’t just resort to entrepreneurship for the financial aspect but for the chance of freedom.

Don’t give up on being a entrepreneur.

@Joseph Fiorella   Now THAT is truly comical!  Wrap yourself in the American flag to justify screwing desperate and/or uninformed sellers out of their equity!!!

Why yes - how DARE state governments put licensing laws into effect to protect the public from unethical operators?  What is this?  Soviet Russia???  

Next thing you know, they'll want to make surgeons go to medical school.  They'll want airline pilots to be licensed.  It's all a communist plot, I tell ya!  

Honestly, until now, I thought I'd heard it all from wholesalers, but now I really have.  

Thanks for the laugh.  I'm going back to work.

@Charlie MacPherson

Yeah because, someone buying a house and Brain surgeon are very similar…

Craziest thing I’ve heard in a while lol…

And yes, because someone doesn’t want the hassle of selling with a realtor and doing showings, blasting their pictures out online… they should be forced to deal with one if they want to sell!

I hope you’re kidding

Believe it or not, there are properties that agents can't or won't sell. A good wholesaler finds these properties and puts together an ethical deal. Bad wholesalers rip people off.

Let's not pretend that all real estate agents are angels, though. While they are regulated more closely, there are sketchy deals put together by sketchy agents.

Bottom line: there are dishonest people who sell homes. Some happen to have a license, others don't.

As for Jerry's latest (which I just watched), I can only assume that he's:

1. preventing future liability, making sure he can't be sued for teaching people the wrong way to wholesale.

2. just doing his part as a wholesaling trainer to keep his students/viewers out of hot water.

Unlike a realtor, the service provided by a wholesaler is free of charge to the seller. Our fee is paid totally by the end buyer who has by way of assignment accepted full responsibility of the contract including any equity involved. Granted I'm still learning the real estate business, but I know what equity is and I know there is no way any wholesaler can rip-off any one's equity or screw the seller who has signed a contract at a agreed upon price. Sounds more like something a realtor would be able to do by making amendments to the contract.

Guy mentioned surgeons and airline pilots. Maybe he should use one such person, a brain surgeon. Or ride with a pilot on a test flight. Somewhere over Soviet Russia would be nice!!

lol yeah cuz realtors as a group are amazing upstanding people.  good and bad on both sides just one was smart enough to hire lobbyist and create laws creating a monolopy for themselves.  worked with a lot of great and terrible on both sides.  get down off your horse your nose is bleeding

Personal insults are the surest indication that you have nothing to offer in your argument.  Lawyers are taught that if you have the facts, pound the facts.  If you don't have the facts, pound the table.  You guys are pounding the table.

I'll explain this to you like you're 6 years old.

Governments put laws into place to protect people from those who can otherwise do them harm.  Yes, that includes surgeons and airline pilots.

Saying that the service provided by the wholesaler is "free to the seller" is hilarious!  Sure Mr. Seller, I won't charge you a cent for stealing your equity.  You walk away with a $25,000 markup when you sell the contract.  There's only one place that money comes from - the seller's equity that rightfully belongs in the seller's pocket.  In fact, if the end buyer had struck a deal directly with the seller at the same price, that's exactly where that assignment fee would have gone.

Saying that there are properties that Realtors don't want to sell just demonstrates a breathtaking ignorance of how real estate works in the real world.  

When I was licensed, I actively sought out these properties to both list and to help my rehabber clients to buy.  I knew that if I played my cards right, I'd get two transactions out of them.  One on the buy side (low price, crappy commission) and again on the sell side (all fixed up, much higher commission).

You guys sound like a street level drug dealer trying to rationalize selling heroin.  Yes, Judge, I sold him the drugs, but it was only to save him from the horrors of opiate withdrawal.  I did it to save him!  I'm a hero I tell ya!

BTW, I'm no longer a Realtor, so I have no dog in this hunt.  I just hate seeing people get screwed.

Thanks Nick, if it was not all so stupid it might be funny. I noticed Mr. Charlie didn't reply, I wonder why. I have nothing against realtors, I'm sure some are good, understanding, trustworthy people. It's the one's that are ignorant of the role that a wholesaler plays that I have trouble with. Can't we all just get along??

Atta boy @Charlie MacPherson . I get 30 texts, calls and snail-mails a week from some wholescammer wanting to buy my property for pennies on the dollar.  They don't even know what's on the property, but paid for some list that shows me as the owner.  They bug property owners looking for that 1 person out of a 1,000 that is in a desperate situation and can be taken advantage of.  Realtors and auctioneers provide broad sales visibility, visibility provides competition, competition increases sales prices. The last thing a wholescammer wants is competition on their offer. It's a practice best done in the dark with no one looking.  Wholesalers are to realtors as payday lenders are to credit unions.  I can't swing a dead cat without hitting 3 wholesalers. Good grief.  

@Randall E Collins   You guys crack me up.

Ignore all the replies and arguments I made and then say "Mr. Charlie didn't reply."  All you have to do is read the replies that are right in front of your face to see that I actually did reply after Nick's comment.  The best part of all is that posts and replies here are logged in chronological order, so your flippant ignorance will be here on display for as long as BP exists.

Instead of spouting demonstrably and colossally wrong garbage, you could at least try to respond to the points I've made.

I clearly understand the role of wholesalers.  You find people who are either so desperate to get out of a bad situation that they'll take a horrible deal to get fast cash, or they're so ignorant of the true value of their property that you can screw them without them realizing it.

Again, there is not a single thing that a wholesaler can do for a seller that a Realtor can't, including getting 100% cash offers in a red hot hurry, no matter how bad the property condition is.  I know - I've done it.

You go ahead and market to all 5 on your buyers list. A Realtor will get it on MLS and market it to tens of thousands in the same amount of time. As @Terrell Garren so eloquently said, more exposure = more competition = more money for the seller.

My advice is to do this the RIGHT way.  Get your license and subject yourselves to the regulations that are put in place to protect consumers.  

Serious question: Why would you not want to subject yourself to those regulations if it's not to screw consumers at will?  Is is just laziness on your part?  Then shame on you.  Is it to run roughshod over sellers?  Then even more shame on you.

States are cracking down on you unethical operators - and all I can say is that if I find out that you screwed one of my family members, may God have mercy on your soul.  I sure as hell won't.

@Charlie MacPherson You seem to be taking this all very personally for some unknown reason. I suspect that:

  1. your business has been hurt by wholesalers.
  2. you are upset that wholesalers haven't earned their stripes with a license like you have.
  3. you know somebody that was ripped off by a wholesaler and you're mad about it.

You pound the table and insult others while accusing others of pounding the table and insulting you. Self-awareness is a good thing, my friend.

Wholesalers and agents serve different but valuable purposes in the market. If that weren't the case, the market would have eliminated them long ago. Some do bad business, just like some licensed agents do bad business.

Remember that we are here to learn from each other and play on the same team. Best of luck to you,

@Aaron Smith   Nice try, but you only got one right.  I have seen innocent people get screwed by wholesalers and it ticks me off no end.  I hate seeing people getting ripped off, especially when it's patently illegal.

Here's a REAL LIFE EXAMPLE of the kind of thing I'm talking about: https://www.biggerpockets.com/...

Real estate law is set in place to protect "civilians" (those not in real estate as a profession) from unethical operators.  If a licensed agent did the crap that wholesalers do, they would face fines, license suspensions and revocations.

Wholesalers think that because they haven't been caught yet, they're above the law.  They're not.  They're simply unlicensed real estate brokers gambling that nobody in authority will find out that they're ripping off the public.

Do all the back flips you want to try to rationalize what wholesalers do, but no matter how you slice it, defrauding people of their equity is a shameful way to make a living.