Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
Perhaps I'm generalizing, but I see some heavy hostility towards the idea of whole-saling in the forums. Why do a lot of members seem to be so against wholesale? I've seen "unethical" and "shady" thrown around a lot when discussing the topic. What are your thoughts?
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
7y
Okay, I disagree with a lot of the comments here from agents and will make
a case FOR wholsalers!
Yes, sure, many newbies have no clue, have been mislead by a guru that this is the easy way (haha!) to get started, and some, well some are shady. But none of these guys make it very long, natural selection takes care of that.
The ones who survive and thirve are very skilled and educated (more than many agents, have to say it), operate with a high level of integrity (because they know your good name and reputation is everything in our business) and just run a very good and solid business overall.
And here is where they provide value to our industry and society.
There is a market segment agents can't successfully operate in - neighborhoods with properties below 100k, manybe even 150k. The cost of doing business (professional, full service brokerage) is too high to allow an agent to survive on sub 100k properties. The percentage based comission structure is based on median priced homes (in Milwaukee 225k) and you can't just go down in price and still cover all fixed expenses using the same percentage. And yes, of course there is some overlap both ways..
This market requires a much different approach and wholesalers can provide that. They have a cost structure that allows them to operate profitable in that space. They can market properties that are in a condition most residential agents won't touch. They can accomodate time lines that a traditional sale can't handle and fulfill needs that would go otherwise unaddressed.
Without wholesalers (and their buyers) we would have a huge problem in many municipalities. They perform a vital function in our society recycleing properties in need. I can't provide this as a licensed broker with my business model and overhead burden and compliance.
BTW - there is a new breed of wholesalers and they reside in corner offices of billion dallar institutionals: iBuyers. They take the classic wholesale approach (cash, fast) to higher price points and offer instant cash offers to residential homeowners at any price point. Zillow iBuyer, Opendoor, Knock, Redfin to name a few.. not yet in Wisconsin, but in selected metro areas along the coast and growing.
I view a wholesaler as much as competition as a commercial contractor sees a residential contractor as competition - or vice versa - not at all, it's a different market segment I have no business to be in and I am glad we have wholesalers!
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
7y
unethical violation of brokerage laws victimizing the public
I turned in 3 last week and two this week that are operating in FL. They are advertising properties they do now own. This is clearly brokering real estate.
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
@John Thedford unethical in what way? How is the public being victimized by them? Doesn’t legality vary? Wholesale is widely accepted in my market from what it seems
@John Thedford unethical in what way? How is the public being victimized by them? Doesn’t legality vary? Wholesale is widely accepted in my market from what it seems
Misleading sellers as to value. Misleading sellers that they intend to buy the property and then using BS fraud and scammer escape clauses to back out. Taking prospective buyers through the property representing them as "inspectors".
The state of FL refers to these customers as VICTIMS
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
@John Thedford if they are licensed, does that change your viewpoint? I can totally see people acting dishonestly as an issue, but if they are up front with their intentions, would that change your opinion of that particular wholesale practitioner? Sorry for all the questions. Just trying to wrap my head around this.
@John Thedford if they are licensed, does that change your viewpoint? I can totally see people acting dishonestly as an issue, but if they are up front with their intentions, would that change your opinion of that particular wholesale practitioner? Sorry for all the questions. Just trying to wrap my head around this.
Yes that is different. They have oversight. We had a case in FL where an agent took a net listing and then sold the property for substantially more money. The seller sued. I do not know the outcome of that case but one of the most common lawsuits against agents is being misled as to value.
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
@John Thedford that’s interesting. I’ll have to do some digging to see if I can find any information on that case. Thank you for taking the time to answer my questions and give your input. It really did clear some things up for me.
I pursue leads from real estate agents and from a number of unlicensed individuals claiming to be wholesaling. In reality, I've yet to be offered an actual contract for assignment and instead end up making contact with sellers directly or negotiating through the go between. I support wholesaling in theory, but find that in practice 99% of the interactions or cases are just as @John Thedford describes. There are plenty of professionals and amateurs in every profession with varying degrees of integrity, there is just no barrier to entry into the field of wholesaling whereas becoming a real estate agent has licensing and reporting to a broker to encourage integrity. Additionally, I have yet to interact with an unlicensed person who wasn't misrepresenting something during our communication.
Santa Rosa, CA · Member since 2017 · 325 posts · 701 votes
7y
My personal opinion, I have a hard time with people who take advantage of other people (legal or not). Set aside the legality, lets look at the base case
- Wholesaler (WS) advertises for owners that want to sell. Not owners that want to sell at a fair market price, owners that are "in distress". One common theme that all education on wholeselling is that you have to find a "motivated seller", someone who is desperate to sell, the more desperate the better, because desperate people are emotional and emotional people make bad decisions. Bonus points for sellers who are also uneducated and socially inhibited. Like all good marketers they turn this into an feature by saying they are "solving problems". In reality, they are just finding a person with a soft spot to exploit. If you really wanted to "solve problems" you could be an agent and help them list it on the MLS to get max value.
- The WS then offers a fraction of the current value of the property, numbers from 50-70% get used a lot, with the promise of a quick sale. The owner agrees, usually without any security or research.
- Optional step, the WS does not have the money, so in fact enters into the contract in bad faith. This is not all WS, but a signification portion. Again a common theme of wholesaling education is the need for little to no money.
- The WS then markets the contract (but really the property) to someone who can actually supply the money and takes a cut.
- Optional step, they don't find a buyer and walk away leaving the desperate person 30-60 days more in desperation and with no recourse because they only received $1 in escrow to hold the property.
- Optional step, and in my opinion the most scummy, do a "subject to" and take control of the property without taking responsibility for any of the debt. So the WS can walk away at any time and leave the seller with an even more distressed asset having sucked whatever marrow they could out of the asset.
I just have a hard time getting behind any process that requires finding desperate people to work. Theoretically, if every WS told them that they could be 30% more on the MLS, in exchange for a longer time, and fully educated the seller, then maybe. The seller could then make an educated choice between max value or speed. But the reality is that is not the practice. In reality, a lot of very questionable people do very questionable things. So if you want to be a WS, you have to live being painted with that broad brush.
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
@Todd Rasmussen I can definitely see how no barrier of entry can bring in some unsavory characters. I also see how the license offers a level of oversight for the carrier. I guess without oversight, there is no accountability for integrity.
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
@John Nachtigall I agree with you to a certain extent in this response. To be fair, some of those desperate people may be on a time-line that working through traditional channels wouldn't be able to accommodate for. For example, sheriff sales. If your house is going up for sheriff sale in 30 days, you need to sell quickly. It isn't guaranteed that you will get any money for your property from the city/county. People looking to sell these properties may not have the most expensive house. If your house is worth 60k, an agent may not really want to list it. 3% of 60k is $1,800. After brokerage fees and taxes, the agent is walking away with around $844. A traditional representative may not see that as a profitable enough venture.
@Todd Rasmussen I saw that. I'm trying to educate that guy. I'm hoping he is just inexperienced rather than full of malicious intent. I don't think he understands real estate at all to be honest.
He's probably not even considering the other side of the equation. Someone got him all spun up on making tens of thousands of dollars in a weekend and he's just flying after it, probably without an understanding of the specifics. I agree probably not with malicious intent just with the reckless abandon that no barrier to entry allows.
I agree mostly but want to diverge in that I think there can be a fair transaction with a reasonable cut to the wholesaler that doesn't victimize anyone. But part of that is also in the control of the end investor. If no one bought a contract where someone was getting the shaft, it wouldn't happen.
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
@Todd Rasmussen agreed. Your point that the lack of barrier does more harm than good has been made. I'm hoping he educates himself before he does damage to somebody.
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
@Bill Plymouth well just today I got an email from a wholesaler that I never signed up for anything with.
Someone I did sign up with (another wholesaler). Likely sold my email address. Does that sound ethical to you? I know lots of companies do that but it’s still annoying. Real estate agents don’t do that.
Memphis, TN · Member since 2018 · 8 posts · 17 votes
7y
@Bill Plymouth
Bill, as an investor in Memphis, I get lots of emails from so many wholesalers that are doing 2 things that turns many of us cash buyers off. Some of us are on sideline watching and waiting for the blood on the street. The market is overheated and luring many people in. First, these wholesalers are over-inflating the ARVs (some have no clue how to represent an ARV estimate) misrepresenting what investors can make in properties. Secondly, they grossly misrepresent rehab costs and proceed to try to close without allowing inspections when requested. I only deal with proven people with honor.
Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
7y
@Robert Sanchez I can see that being an issue. Do you think that they are doing it on purpose or that they are just inexperienced? It could be a combo of the 2.
Would you deal with a reputable wholesale practitioner? Or is the general practice considered unethical to you?
Rental Property Investor · Memphis, TN · Member since 2017 · 155 posts · 151 votes
7y
Wholesaling is a necessarily evil, in my opinion. Many may not agree with it, but it feeds the entire industry. I think it is safe to say that 70% of the turnkey market in Memphis is delivered by 'educated' wholesalers. I'm sure there are unethical ones, just as there are agents, contractors, etc. I will agree that the practice is diluted more so than other aspects of the industry by uneducated people who don't know a lick of real estate, but that's due to the draw of "make money with no money in real estate" seminars sending masses out to the field.
I market to potential sellers every day, and I've yet to run into a situation where someone was willing to accept a drastically undervalued offer for their home because they didn't know any better. I've heard about it happening, but that's like a unicorn deal. You're telling me that an investor finds a seller willing to take $30k for their $140k property, and you're not going to close on it because it's "unethical"?
Most of your educated, successful wholesalers work in private. DIrectly texting, emailing or calling their pool of buyers that they've built relationships with overtime. They aren't on Craigslist or Facebook marketing to the masses. Find a deal that makes all the sense to any investor and you've got the option to assign it for a quick flip, or there will be a private lender who will happily loan you on it.
In my honest opinion, there is no way to stop what's done in private and only shown on the buyer's HUD. Start working with a successful wholesaler, and your opinion will be changed.
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
7y
They need to know the laws and write contracts. They are not entitled to receive a commission since they are not licensed, finger printed and do not carry error and omission insurance. This is not to say this gray area not well regulated there are no skilled people around.
Perhaps I'm generalizing, but I see some heavy hostility towards the idea of whole-saling in the forums. Why do a lot of members seem to be so against wholesale? I've seen "unethical" and "shady" thrown around a lot when discussing the topic. What are your thoughts?
Hmmm, not sure but you can ask this lady: (I think it was a wholesaler at work)
"I am selling my rental in San Diego and received all cash as is offer of $320,000 from investor/agent. We signed the purchase contract 7/11/2019 and scheduled to close on 9/3/2019 when the current tenant moves out. Escrow was opened with $1000 deposit. I was surprised to see my rental is now listed on mls for sale $359,000 and the buyer acting as my agent.
I feel I have been scammed. It looks like his intention was to purchase only if he found a buyer.
Now the buyer is telling me he is not going to complete the purchase. Contract states "PROPERTY TO BE SOLD AS-IS. ALL CASH OFFER". No contingencies. Can the buyer just cancel the purchase contract? Is there anything I can do?"
Perhaps I'm generalizing, but I see some heavy hostility towards the idea of whole-saling in the forums. Why do a lot of members seem to be so against wholesale? I've seen "unethical" and "shady" thrown around a lot when discussing the topic. What are your thoughts?
Personally I do not like wholesalers because they prey on desperate people, entering into contracts that they have no ability to preform, and them dump the contract and people when they can not preform, leaving these poor people who depended on them and really needed help, and without a care in the world that they hurt someone. They are in it for themselves, cheating people who do not have an understanding of real estate, value of their asset, or time and energy to go the traditional route.
Rental Property Investor · Clearwater & Daytona Beach, FL · Member since 2019 · 194 posts · 197 votes
7y
I get contacted regularly. I got a text today and a voicemail yesterday to purchase my properties. Once I respond and ask if they are interested in wholesaling the property, I never get a response. I guess they prefer to be deceptive which gives them a bad reputation. Don’t make offers if you have no ability to pay for it yourself!
Professional · Parsippany, NJ · Member since 2013 · 384 posts · 262 votes
7y
I am a real estate investor and state certified real estate appraiser so my market analysis HAS to be on point just for my day to day job as an appraiser. The problem with Wholesalers (in my area at least) is that they are placing homes under contract over what the actual "AS IS" DISTRESSED VALUES should be, estimated repairs significantly low and providing ARV'S over the actual market value. The three numbers are so far off where they should be that the deals make no sense. The actual market value (ARV) is lower than the wholesalers "ARV" which is not verified. Thus, making the end buyer unable to FLIP or BRRR the deal......
Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
7y
Most don't have a clue what they're doing and some are unethical. Wholesaling has always been in a gray area in real estate so there's lots of controversy and frankly a lot of people don't understand the business. For example, some people here think it's okay to wholesale if you have a license which is a big NO. You can't represent the seller and also negotiate against them at the same time...conflict of interest. That is why net listings are not allowed in most places.
@Caleb Heimsoth The moment I got my license, I started getting advertising and cold calls from all kinds of brokerages, marketing consultants and CRM companies. How did they get my brand new email address?