Wholesaler Misrepresented himself

Wholesaler Misrepresented himself

Real Estate Agent · Davenport, FL · Member since 2015 · 45 posts · 6 votes

I am in the midst of dealing with a wholesaler that has left a bad taste in my mouth for the wholesaling business, and am wondering if this is common practice.

A little background:  So, I'm trying to sell my house and move to Central Florida for a job opportunity for my husband. The plan is for us to began a real estate business, with me focusing on it fulltime, and him eventually joining me once we are successful enough to afford it.  

The key to doing all of this is selling my home. It is an inherited home that needs updating.  We initially were selling it to a family friend so that it could stay within the family in a way, but that didn't work.  At this point, we are just interested in selling it quickly, and willing to leave a substantial amount of money on the table to do so, if necessary.  I had started filling out some of the "we buy houses" forms online to see if any investors would make it worthwhile for us.  I got several hits, and chose to go with someone who established themselves as a cash buyer who could close within 2 weeks.  I informed him of the comps in the area, and my knowledge of the property, and we haggled a price that my husband and I felt comfortable with.  I researched him a bit, seeing that he was a flipper and wholesaler.  At the time I was not too familiar with how wholesaling worked, and he had never mentioned wholesaling.  We signed an offer, sight unseen, with a 7 day inspection period.  He said he would be scheduling an inspector the next day.  The next day, he said he would schedule the inspector for early in the week because he wanted to come with him and was stuck in Broward (we are in Miami).  The following day(Saturday), he said his partner was in the area and wanted to take a look at the property. We obliged. On Monday(labor day), I asked when I should expect him and the inspector. He told me he would let me know Tuesday morning.  Tuesday morning, he asked if the inspector could come by at 7pm. I said yes and asked if he was coming also. He informed me he would not be.  Later in the day, he told me another "partner" was in the area and would like to visit the property. Again, we obliged, but I started to become more suspicious. I had already did some digging into his social media presence to see if he had listed our property with his wholesales over the weekend, and found nothing.  The next partner showed up at 5:30pm, and had another woman with her.  We chatted, and they took pictures, and left.  At 7pm, there was a knock on the door, and I assumed it to be the inspector, but it was someone different, someone who I had not been informed to expect.  I asked him if he was "blank", the inspector. He was not. He was another "partner", and mentioned "xyz" wasn't going to make it, but didn't "xyz" tell me that he was coming? No, also, I have no idea who that is. I spoke with "insert cash buyer name". "Oh, yeah. "Xyz" and "cash buyer" work in the same office." We go ahead and let this person view the property, and I check in with "cash buyer" to straighten if and when inspector is coming and who this guy was. He apologizes for his slip up, and not notifying me of the other "partner", says he will check in with the inspector and get back to me.  Inspector shows up. Now, I'm expecting and prepared for a full official home inspection.  This guy looks around the property for less than 10 minutes. He does no more than any of the "partners" do and leaves.  At this point, I'm very nervous about the whole situation, so I start digging again, and find that he has listed the property with his wholesales.  I do a bit of research on wholesaling and find out that there is a practice of putting a property under contract by identifying yourself as a cash buyer, trying to flip it to an end buyer, and then using the inspection period to back out if you can't flip it to an end buyer.  I confront the "cash buyer" with the knowledge that he has listed my property as a wholesale property.  I ask him if he intends to terminate the contract if he can't flip it to an end buyer. I don't want the property tied up unnecessarily as I am looking to move quickly.  His exact response: "Yes I either close on the property myself first or flip to an end buyer. I will know by the end of today so no worries about dragging it any further.  I knew your situation from the beginning that's why I kept the inspection to seven days only.  It's normally 15 days."  I wait until the end day and ask him what the plan is. He says that he has two cash buyers that would like to view the property tomorrow, and then will decide from there.(At least he us finally honest about who these people are)  I ask him if this means he intends to terminate the contract if he can't find an end buyer? His response: "Please give me till tomorrow afternoon I am doing absolutely everything I can to make this work. I know how important it is to you and your family"

I'm wondering if there is any recourse I have at this point.  I will wait and see what he says tomorrow, and maybe we will get lucky, and one of these investors will want the property. However, I don't have faith in that. The deal I made with him is great for an investor.  The money he has tacked on to wholesale it, makes it a little too expensive for an investment opportunity, I feel.  The whole situation has taught me some big lessons, and I'm trying hard to keep my cool.  Is this how it always works? 

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Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
11y

"Wholesaler misrepresented himself."

"Water turned out to be wet."

See this reply in the discussion

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  • Developer · Astoria, NY · Member since 2015 · 88 posts · 12 votes
    11y
    Originally posted by @Brent Coombs:

    @Ken T., you have tried very hard throughout this thread to defend Wholesaling, but then you said: "The wholesaler still would have backed out of the deal if they did not find an end buyer so according to most its "morally" still wrong but 100 percent legal". Do you REALLY defend wholesalers who renege?

    You also posited: "let me ask you, are they representing others if they double close"? But why ask that? Sellers couldn't care less whether there is a single or double close. But no sort of closing happened here! THAT is what is INDEFENSIBLE! Do you get it?...

     I wasn't asking to defend or support and i wasn't talking about this specfic situation, they were legitimate questions.  cheers

  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    11y
    Originally posted by @Ken T.:
    Originally posted by @Brent Coombs:

    @Ken T., you have tried very hard throughout this thread to defend Wholesaling, but then you said: "The wholesaler still would have backed out of the deal if they did not find an end buyer so according to most its "morally" still wrong but 100 percent legal". Do you REALLY defend wholesalers who renege?

    You also posited: "let me ask you, are they representing others if they double close"? But why ask that? Sellers couldn't care less whether there is a single or double close. But no sort of closing happened here! THAT is what is INDEFENSIBLE! Do you get it?...

     I wasn't asking to defend or support and i wasn't talking about this specfic situation, they were legitimate questions.  cheers

     But now that I have called you out regarding THIS situation, what say you?...

  • Contractor · Rockville, MD · Member since 2014 · 423 posts · 135 votes
    11y

    Does anyone know how you can search for a wholesaler that may have had action taken against them or have been investigated in Maryland?  It's my understanding that the MD Real Estate Commission only regulates licensed individuals so unlicensed wholesalers wouldn't be subject to action.  I'd also be curious who to report unethical wholesalers to.   

  • Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    As a wholesaler and a flipper, I will state - without apology - "wholesaling" a deal listed on the MLS is NOT wholesaling. By definition that property has already been listed on the retail market. Therefore, it cannot be wholesaled. Additionally, anyone who calls themselves a wholesaler and actively engages in that sort of activity goes down in my book as a "Bad Wholesaler". (Also the title of a thread I started.) There are 2 large "wholesale" organizations here in the DFW area who regularly engage in that and other deceptive practices. And, yes, I do consider it deceptive. However, I also say to the buyer, "Shame on you for not doing a simple search on the property address, which would have revealed it as an MLS listed deal, which you could have then put a backup contract on for the price you would be willing to pay the so called "wholesaler". That would help the seller.

    Trade secrets are just that, secret.  However, misrepresenting the truth is lying.  There are outright lies, but there are also lies of omission.  My sellers will know from the very beginning that it will likely (We do flip some of our deals ourselves.) not be me who closes on their property.  They will also know that I will be available to them through the entire process.  We don't do a double escrow, because we don't squeeze the life blood out of deals, so I have no issue with my investor buyer knowing what our wholesale fee is.  As @Chris Clothier said, why is a buyer going to get completely torqued out about a wholesale fee, when the price as offered worked for them?  Wholesalers - good ones - provide a service to investors who can't or don't want to engage in their own deal generation activities.

    Maybe some of you believe me to be naive.  Maybe I do fewer deals than I could do.  Maybe.  What is certain is that I sleep well at night, never feel the need to apologize for how I conduct my business, and wouldn't be embarrassed to explain it to my granny!

  • Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    @Nikki Harmon

    I realize I'm late to this discussion, but did you not require an EMD from this bozo?

    There are a lot of people out there claiming to be a lot of things. It's unfortunate that the result is a generalized profile or all wholesalers. A wholesaler should be required, and willing, to post an EMD, and that EMD should be significant enough to make it painful for them to not provide a closing for the deal.

    That same wholesaler, will likely require a $5k - $10k non-refundable deposit from their end buyer to protect themselves from non-performance.  Sellers should expect nothing less.

  • Developer · Astoria, NY · Member since 2015 · 88 posts · 12 votes
    11y
    Originally posted by @Brent Coombs:
    Originally posted by @Ken T.:
    Originally posted by @Brent Coombs:

    @Ken T., you have tried very hard throughout this thread to defend Wholesaling, but then you said: "The wholesaler still would have backed out of the deal if they did not find an end buyer so according to most its "morally" still wrong but 100 percent legal". Do you REALLY defend wholesalers who renege?

    You also posited: "let me ask you, are they representing others if they double close"? But why ask that? Sellers couldn't care less whether there is a single or double close. But no sort of closing happened here! THAT is what is INDEFENSIBLE! Do you get it?...

     I wasn't asking to defend or support and i wasn't talking about this specfic situation, they were legitimate questions.  cheers

     But now that I have called you out regarding THIS situation, what say you?...

     Called me out? what are you trying to win something? are we in high school? i don't quite follow how my question has anything to do "with calling me out"  

    this is my stance..There are legal ways to do wholesaling and i will defend the legal process until i'm blue in the face.  wholesaling isn't wrong, bad, or illegal if done properly.  my whole stance in this post has been this guy "went about it the wrong way" and "what could he have done to go about it the right way" and "don't assume every wholesaler is like this."

    im sorry if i confused anyone with my goals in this post.

  • Real Estate Agent · Davenport, FL · Member since 2015 · 45 posts · 6 votes
    11y
    Originally posted by @Hattie Dizmond:

    @Nikki Harmon

    I realize I'm late to this discussion, but did you not require an EMD from this bozo?

    There are a lot of people out there claiming to be a lot of things. It's unfortunate that the result is a generalized profile or all wholesalers. A wholesaler should be required, and willing, to post an EMD, and that EMD should be significant enough to make it painful for them to not provide a closing for the deal.

    That same wholesaler, will likely require a $5k - $10k non-refundable deposit from their end buyer to protect themselves from non-performance.  Sellers should expect nothing less.

    He paid an $1000 EMD. I now know that this isn't enough, and require 2 percent.

  • Real Estate Agent · Davenport, FL · Member since 2015 · 45 posts · 6 votes
    11y
    Originally posted by @Hattie Dizmond:

    @Nikki Harmon

    I realize I'm late to this discussion, but did you not require an EMD from this bozo?

    There are a lot of people out there claiming to be a lot of things. It's unfortunate that the result is a generalized profile or all wholesalers. A wholesaler should be required, and willing, to post an EMD, and that EMD should be significant enough to make it painful for them to not provide a closing for the deal.

    That same wholesaler, will likely require a $5k - $10k non-refundable deposit from their end buyer to protect themselves from non-performance.  Sellers should expect nothing less.

     Also, I sent you a colleague request and forgot to send a message with it, and now it won't let me after the fact!

  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    11y
    Originally posted by @Ken T.:
    Originally posted by @John Thedford:

    @Mark Fergusoncome on man! You are a broker. You know what activities are considered brokering! If not, they are in the statutes.

    We have an MLS...multiple listing service. Why don't "wholesalers" have a WMLS--wholesalers multiple listing service? BECAUSE representing others in real estate transactions, for a fee, is a licensed activity.

    I feel like I am taking a test:) a state licensing exam!

     let me ask you, are they representing others if they double close? I know this isn't what happened but the end goal is the same exact thing.  They wholesaler still would have backed out of the deal if they did not find an end buyer so according to most its "morally" still wrong but 100 percent legal.

     Hi Ken, like high school hey? It seems to me that you are the one that was giving out a Test - to John and Mark. But really, you fell into THEIR trap when you asked "are (Wholesalers) representing others if they double close"? Because, none of the Wholesaler-bashing around here refers to Wholesalers who DO double-close! And if that's how YOU do it, everyone tips their hats off to you. See you around the playground...

  • Developer · Astoria, NY · Member since 2015 · 88 posts · 12 votes
    11y
    Originally posted by :
    Originally posted by :

     let me ask you, are they representing others if they double close? I know this isn't what happened but the end goal is the same exact thing.  They wholesaler still would have backed out of the deal if they did not find an end buyer so according to most its "morally" still wrong but 100 percent legal.

     Hi Ken, like high school hey? It seems to me that you are the one that was giving out a Test - to John and Mark. But really, you fell into THEIR trap when you asked "are (Wholesalers) representing others if they double close"? Because, none of the Wholesaler-bashing around here refers to Wholesalers who DO double-close! And if that's how YOU do it, everyone tips their hats off to you. See you around the playground...

     lol, huh? I thought we were done bashing wholesalers haha, I just had a legitimate question, not so much a test. and it was answered.  I was just wondering.... but it doesn't really matter because when double closing the wholesaler still markets the property before closing (which is where legal problems can arise).   hey lets be honest, real estate is a big playground :) i just wish everyone played nice.  

  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    11y

    @Ken T., you hit the nail on the head when you wrote "when double closing the wholesaler still markets the property before closing (which is where legal problems can arise)". I am curious about why YOU don't get into trouble then, if you are keen to say that even though you are Licensed, you aren't representing anyone except yourself (because you INTEND to double close)? Also curious to know, whether you try to attain a greater profit than the Commission you would get as an official Listing Agent? Cheers...

  • Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes
    11y
    Originally posted by @Brent Coombs:

    @Ken T., you hit the nail on the head when you wrote "when double closing the wholesaler still markets the property before closing (which is where legal problems can arise)". I am curious about why YOU don't get into trouble then, if you are keen to say that even though you are Licensed, you aren't representing anyone except yourself (because you INTEND to double close)? Also curious to know, whether you try to attain a greater profit than the Commission you would get as an official Listing Agent? Cheers...

    Of course he is trying to make a bigger profit than he would on a listing.

    You seem hell bent on nailing him on something so I guess this is where you hoped to do it?

    Let's take a very simple situation and do a little math...

    He takes a listing and sells a house for $100K with a 6% commission.  Seller nets $94K after paying the commission.  Assuming he doesn't double end the sale his office would get $3K.  If he is an agent and not the broker they will split that, lets give him a pretty good split of 80% so he would end up with $2.4K

    Instead he puts in under contract for $96K and assigns it to another investor for $100K.

    So in this case:

    1) Buyer gets the same house at the same price.

    2) Seller ends up with $96K instead of $94K so they have a net gain of $2K.

    3) He gets $4K instead of $2.4K so a $1,600 net gain to him.

    There are also the more intangible benefits of selling to a investor cash buyer which make it a faster and simpler transaction by avoiding the innumerable delays and hassles involved with retail buyers and banks.

    It is not hard to come up with a totally plausible scenario where all parties end up as good or better going the wholesale route instead of the listing one.

  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    11y

    @Shaun Reilly, very good. So long as @Ken T. and all Licensed Wholesalers keep within the parameters of their Seller and End-Buyer being at least as well off after closing as if the property was listed, I have no objection. Cheers...

  • Rockwall, TX · Member since 2014 · 380 posts · 211 votes
    11y
    Originally posted by @Mark Ferguson:

     If you send the email to 50 people you have a current, on-going business relationship with to see if they want to partner on the contract, that is probably not marketing

    If you send it to 5 people you hope to have a business relationship with to see if they have any interest in this particular deal, that is marketing.

    I'm not a lawyer but I do work with sales people and marketing people.

  • Rockwall, TX · Member since 2014 · 380 posts · 211 votes
    11y
    @Nikki Harmon:

    I couldn't find where you got an answer to the correct discount to ARV for buy and hold properties. Please excuse if this is a redundant answer.

    As buy and hold investors, we really don't focus on ARV. The question is, "Does it cash flow at an acceptable rate of return". This calculation starts at the other end and works backward.

         1) What will it cash flow; Period Rent (ie annual) - Period Expense and Allowances

                 $24,000 annual rent - $3000 taxes and insurance and $3000 vacancy and

                  maintenance allowances = $18,000 annual cash flow

         2) What is the maximum investable to achieve the desired rate of return?

            Desired return 10%  so $18,000 / 10% = $180,000 Max Investment

    3)  Is Acquisition Cost less than Max Investment?

            Max investment $180,00 - Repairs $30,000 and Purchase Costs, etc., $12,000

            = $138,000 Max Purchase Price

    So for the 10% buy and hold investor, buying the house at $138,000 or less meets their investment goals. 

    As long as the Cash Flow and Costs will remain stable and there is no need to sell the property ARV remains unimportant. However, since we cannot predict the future and there may eventually be a need or desire to take cash out of this investment, if the ARV is less than the Max Investment amount ($180,000) you risk lowering your overall return when you sell. Of course, if the ARV is actually $220,000 it means nothing to the cash flow investor until they find another investment that meets their cash flow goals. 'Equity' isn't real until it is monetarised.

  • Burke, VA · Member since 2014 · 23 posts · 7 votes
    10y

    He should have been honest from the beginning with his intentions. If he said "I (me) and/or my cash buyers will close" and state that he is looking for cash buyers and told you that he is a wholesaler (looking to assign the contract to end buyers with cash), it would have eradicated the unnecessary frustration. Also he kept dragging on with extra days pushed. That should only be used sparingly but he used it more than once. If the deal didn't work out well and he knew it would end like that, he should have been upfront with you and told you that the deal won't work in the much earlier phase instead of trying to push the days further thereby leaving you hanging like that and wasting your time. 

    That goes to say, you can't buy (human) trust. Someone can lie (unintentional and/or intentional) and think they can get away with it but in the end, the lies will always be discovered. I also get the feeling that he didn't do his market research correctly before approaching you. (This is just my opinion). 

    Also I would prefer the communication to be strictly via email. While there is nothing wrong with exchanging information by phone, you can't really trace back where else if the communication between him and you (as seller) is in email, it leaves evidence so there isn't any of "he said, she said" kind of situation. I know some people might disagree and say phone communication is better, I personally think email communication is much 'cleaner' (although time wise, it might not be good idea in some cases). 

  • Investor, Developer · Brookline, MA · Member since 2015 · 46 posts · 10 votes
    10y

    Let me chime in here since it happens to me all the time when I am pitched "deals" and this week took the cake:

    - wholesaler trying to make $75K - $125K for an assignment, or, if they can manage to get a HML, for a double closing. It happens to me every few weeks as I am offered deals. Most of these are multi-unit buildings that are in the $700K-$1.4MM range. Nonetheless, I still consider the assignment fee expensive. The exception to these numbers: earlier this week someone who just closed on a studio for $109K offered it to me for $250K, knowing I knew how much they paid. Shameless!

    - my favorite, it came to my inbox a few minutes ago from a "pro" I just saw on this website (no names, you know who you are). There is an LLC in their signature that is not registered with the state, aka it doesn't exist (red flag #1). Property in Stoughton marketed for $163K, needs $38K (so exact!), ARV $290K. I am thinking, why not, might be good to get and keep as a filler project. 5 minutes later I am enraged as I not only realize the ARV would be close to $300K if it had an extra bedroom and 300-400 sqft but also that the "deal" is listed on MLS for $149K. And it's in a flood zone...

    I have nothing against paying a premium for an off market property that someone spent money to find and get under contract. I also don't mind paying a 3-5% assignment fee but when the property is on MLS and/or it's marked up heavily I take that as an insult.

    Done venting...

  • Wholesaler · Clovis, CA · Member since 2011 · 31 posts · 39 votes
    10y

    I don't understand what the problem is.. If you cant give him 7 days to sell your house why did you sign the contract. Whatt dif does it make if he wholesales it? Sign up with a Realtor for 6 months and watch the lies and price drops and the foot traffic thru your house. But most times they put it on the MLS and then do nothing.

    This wholesaler is aggressively marketing your property and will walk away in 7 days if he cant sell it, the Realtor will do nothing and tie you up for 6 months.

    Why do you want to report this guy, he has done nothing wrong or illegal?

    And if your going into Real Estate yourself, why didn't you sell it yourself on Craig's List? You have an inherited house that you got for free and your acting like a spoiled child. Get an education and stop your whining.

  • Investor · Virginia Beach, VA · Member since 2016 · 90 posts · 49 votes
    10y

    On the second page and I'm ready comments saying "I don't see what he did wrong." Are you that delusional???

    I'm a wholesaler myself, so I tend to be unbiased in this business. How can you not see what the guy did wrong? I would never lie about being a cash buyer and lie about "partners" coming to inspect the property when they're potential buyers. All that lying just to get a contract signed? 

    I'm sorry you had to go through this. People like that are what give wholesalers a bad rep. HONESTY IS THE BEST WAY TO GO.

  • Consultant · Phoenix, AZ · Member since 2017 · 152 posts · 23 votes
    9y

    I find it ungodly awful

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