The "And/or Nominee" Catch-22

Chuck Prime · 2010-07-04T19:03:17-07:00

I'm a wholesaler in AZ. I'm new multi-family, but have wholesaled SFRs for over 5 years. I write purchase contracts, I assign them in escrow, and I show up on the HUD. I'm careful. The vast majority of my stuff closes, and always has. So far I've recently worked my first 2 commercial deals and brought successful buyers for both. But I've found an underlying problem. Most sellers of multiplexes won't sign a purchase contract where the buyer is "[my LLC] and/or Nominee". And some agents with high-DOM listings actually advise their high-DOM 'sellers' against it. These people don't believe in wholesaling, so I'm left with no protection against being ripped off. Commercial sellers say, "Bring me a buyer BEFORE I sign with you. I won't cut you out." Commercial buyers say, "Give me the property address BEFORE you have a contract. I won't go around you." The sheer gall is astonishing. I won't trust people who are unwilling to let me protect myself. So I'm missing out on a 62-plex I'm confident I can get done if the due diligence checks out. (The CAP looks to be just under 12% at 10% vacancy - still trying to verify.) Currently I'm withholding the address from all potential buyers until they make a good-faith and temporarily refundable deposit. (Yes, the title co will do it.) I already gave them all I have (pics, numbers, etc) except parcel# and address. If they make the deposit, I get my contract, it goes to title, the buyer gets the address, and all goes normally from there. Except they won't do it, and my seller won't sign WITHOUT them doing it. And even if either side eventually plays along, this reticence seems to be the norm. I need a secured position or something with the same net effect that sellers and/or buyers will actually go along with. When that happens, some of you will benefit from the deals I can throw your way. Until then... ! Many thanks for whatever y'all can tell me. Really.

Jon Holdman

Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

16y

Why not get a real estate agent license? Then you can take the buyer's side of the commission and be fully protected.

1 Reply

Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

16y

Sounds like the locals are in kahoots, you need to change your buying strategy. Can you consider using an LLC to buy and sell the company? Will they do an option? A license might be good too as Jon pointed out. Have you had a discussion with the local board of Realtors about the advice being given?

You'll need to change something if both buyers and sellers are a problem. Don't know how you are really structuring your deals, just assigning a purchase contract? Do you have cash to work with? Later, Bill

1 Reply

Edwin Brown

Real Estate Investor · Chattanooga, TN · Member since 2010 · 151 posts · 59 votes

16y

License or sell the company both good options. Its hard for me to understand a seller that doesn't want to sign a contract to sell, who cares who buys and if that guy makes a profit.
Even worse a buyer who won't agree to protect you. SFR are small enough deals that your buyer probably won't try to cut you out because its not worth it. But in commercial if they can save 50k by doing so, they will. You are wise to keep things close to the vest

0 Reply

Chuck Prime

OP

Real Estate Investor · Mesa, AZ · Member since 2010 · 11 posts · 6 votes

16y

Thanks, all.

No license for me. I don't submit to governing boards on several principles, one of them being that when they license you, they own you. I saw that fact put into practice when a friend of mine had a vindictive ex-wife who caused him to lose his license over issues that had nothing to do with the honesty or propriety of his business dealings. She wanted to hurt him, and used his licensing to do it. Well, power corrupts, and licensing is a powergrab if ever there was.

Plus there's a ceiling on what agents can make per deal. And there are issues with paying finder fees. And on and on. I won't work under political constraints. I deal with people voluntarily through open incentive (when I can offer it, that is). I don't deal with people by force of law.

I didn't ask the Board about anything, and not everyone who's being difficult is a licensee. But one realtor did say she'd sign a non-circumvent with me. Do you think it's worth relying on?

As a recent residential wholesaler in Phoenix, I don't have a lot of cash to work with. I'm hoping to change that and actually make something of myself.

I know little about options. These sellers don't seem to want me locking them into anything at all, but of course I'll give it a shot when I know more. What about an option would incent these sellers to sign with me when the contract won't?

I structure like this: buyer is me and/or Nominee, contingent on successful assignment to Nominee, earnest $ to be deposited by Nominee when named. The title co handles it all and dispurses the Nominee's funds to pay everyone. My assignment fee shows up on the settlement sheet. The rest is all specific to each particular deal.

Yeah, I kinda suspected the cut-out risk was more when the total $ amounts are so much higher. Plus my buyers and sellers aren't always local - that realtor I mentioned represents buyers from Canada. She's local, but what will the buyers lose if they make an enemy of me? Or of her? They have less incentive to stay on our good side.

1 Reply

Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

16y

You know, there is kind of a who's who network in every town. Owners of commercial properties are usually known in the community. Realtors know them, if not personally, by reputation and other dealings through the official grapevine. You mentioned that you were, maybe a little short on cash. Might mean too that you're not running in the right circles so to speak with those who can speak well enough about you to say "he can do this deal". Commercial owners are not really jumping through hoops to meet just anyone off the street who wants to tie up their property.

While you work on a new strategy, look for the back doors to comnnect with people who might help you as well. The best place to get in the loop in any community is through non-profit volunteer groups, maybe there is one in yoiur area that deals with housing. Just a thought....good luck, Bill

0 Reply

Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

16y

Commercial investors are a lot more sophisticated that homeowners. When dealing with a homeowner you are dealing with a product consumer, when dealing with a commercial property investor you are dealing with a business person.

Most commercial owners (or their brokers) will recognize your offer for what it is - a free option for you to try to find a buyer at a higher price, that will only close if you can find the ultimate buyer, with no intention on your part to close on the purchase yourself (and from what you said probably not having the financial means to close yourself anyway).

For any seller the strongest offer is an all cash, no financing offer with no contingencies. Offers get progressively weaker once contingencies and/or credit are added to the equation. An offer from a wholesaler dependent on finding a buyer at a higher price is the weakest offer of all, and usually made at a bargain price to boot!

Interesting, IMO, wholesalers exist to fill a market function that many real estate brokers are too lazy or inexperienced to fill. Many brokers do not have buyers lists, further many merely stick the listing on an MLS and let another broker do the heavy lifting. This opens a market gap where a wholesaler can be of value by direct marketing the property to prescreened investors. Of course this is not the best option for the seller; the best option for the seller is to hire a broker that will market to and does maintain a buyers list. This way the seller will not have to pay the additional payment (thru a lower price) to a wholesaler for services he is already paying a broker for.

Private Mortgage Financing Partners, LLC

Website View Page

2 Reply

Chuck Prime

OP

Real Estate Investor · Mesa, AZ · Member since 2010 · 11 posts · 6 votes

16y

Thanks again, guys.

Financexaminer:

You're right that I need to build a rep, and that there should be Who's Who groups around here. But still, many buyers and sellers are out-of-state and even out-of-country. Many deals with them would be once-only, and they don't know many local people. Maybe I should build a reference sheet, and I already halfway started one on my website. But wouldn't that be kind of cornball and amateur? Of course people do sometimes keep SOLD listings on their website, which is pretty much what I started doing. Hmmm...

Don:

Yep, you get the picture. And yep, I have two distinct commercial mailing lists both of which are handpicked, one of which is very unique and brought the buyer for my very first commercial deal. I also have other marketing outlets that many people don't use.

On beating up prices to make room for me, I sure do, and I also do it to make profitability for my buyers. I can't move overpriced properties or bad CAP rates.

On my offer being weak, absolutely, but I only target distress situations, whether commercial or residential. I should have mentioned that upfront, but I just assumed it would be understood. I don't target new listings or stuff that's likely to be marketed well without me. I try to know when I'm needed and when I'm not. Usually I'm not, so I don't waste time on those cases.

Because I target distress situations, I essentially target sellers and brokers who DON'T know what they're doing, else they wouldn't be in distress. But they keep beating their heads against the same brick wall, getting the same results. Heaven forbid they try something new, like locking in for a while with a wholesaler.

Just a few years ago, "creative real estate investors" (and gurus) were developing counters to "seller objections" raised by homeownwers. Most such counters were legit, and most worked. Is anyone doing this with commercial, or do we have a chance to blaze a new trail here?

Hmm. Maybe that's part of the problem: maybe these commercial people haven't had their assumptions challenged.

First, we need to find out what their assumptions and objections really are. I guess that's why I'm here. I'm way too new to figure it out on my own.

0 Reply

Steve Babiak

Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes

16y

Read my post here for an alternative idea:
http://www.biggerpockets.com/forums/93/topics/34139--how-do-you-wholesale-a-building-

Your votes are always appreciated :cool:

0 Reply

Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

16y

Chuck, it is obvious from your posts that you do indeed add value for the seller and that you do really understand the wholesale process and when to invest your time and effort and when not to. I think what you are saying is that you have found instances where you can add value, but both the brokers and sellers do not seem to be receptive.

Since I am often a seller of commercial property, I do have an educated opinion as to why commercial sellers are non responsive. Most wholesalers (or wanna be) do not add value, are not competent, are not experienced, and do not really understand the process. Once a commercial seller has a bad experience with any wholesaler, he becomes wary of dealing with any wholesaler and tends to lump them all together. A bad experience is defined as a deal that does not close.

I think perhaps the best approach in this case would be to lay everything on the line with the seller, including your past successful record of closing transactions. If you could show actual transactions you were able to close this could induce a desperate seller to sign your contract. Of course, no seller likes to believe he is "leaving money on the table", by receiving less than is paid by the ultimate buyer. This may be the bigger problem to overcome. A homeowner usually just wants to get out, a commercial investor may have an ego problem with not getting every dollar he can.

That said, I think a market exists in commercial for your operation, I do not know quite how to approach the market, but I wish you the best and do think that if you can figure it out it will be extremely profitable!

Private Mortgage Financing Partners, LLC

Website View Page

0 Reply

Chuck Prime

OP

Real Estate Investor · Mesa, AZ · Member since 2010 · 11 posts · 6 votes

16y

Thanks as always.

Steve:

I appreciate the link, but my problem is getting the seller under contract in the first place. I have to find a solution to that, and I ain't giving up.

Don:

I agree that a commercial market exists for good wholesalers. Certainly there's a fairly common need, and if that ain't a market, I don't know what is.

Yes, neither sellers nor buyers/brokers are generally receptive to me. "Once bitten twice shy" makes sense. I could definitely try to counter it with the deal history. Last week I already put a half-hearted version on my website. After closing, I can ask my sellers if I can use them as references. And I can ask the 2 I've already had. That's a weird request, but probably worth a shot. Thanks.

Are sellers reluctant to leave money on the table, or reluctant to admit that they need a wholesaler? Either way, maybe this should be my opener: "I'm sure you'd prefer a full-price cash buyer over a reduced-price wholesaler. But I'm a specialist at knowing who the cash buyers are and how to bring them into closing quickly. My offer is carefully structured to make it worthwhile for all of us: for them, for you, and for me."

Someone else suggested that sellers are afraid of accumulating a lot of brokers in the "daisy chain", who the sellers presume they will have to pay. If so, I think a line or two in my purchase contract can fix it. "Buyer pays commission of any broker or agent hired by Buyer." And I've already been approached by at least one agent over that big multiplex - which is not on MLS. I wonder if she expects my seller to pay her.

She also volunteered out of the blue to sign what I guess is supposed to be a non-circumvent agreement with me. I don't know...

Do non-circumvent agreements actually offer any protection, especially since they don't make you a principal in the deal?

0 Reply

The "And/or Nominee" Catch-22

The "And/or Nominee" Catch-22

Most Popular Reply

10 Replies