The Death of the Wholesaler?
Real Estate Agent · Philadelphia, PA · Member since 2020 · 294 posts · 245 votes
The Death of the Wholesaler?
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Simon W.Business Member
Real Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 665 votesFrom the article, it seems like the whole idea of the law is to not make false promises. I don't understand how can the Purchase Agreement will show false promises.
It's a fair game. Wholesaler are reaching out to people who aren't thinking of selling, most agents have those listings from a listing broker so I am not sure what this license is trying to accomplish.
It can't be enforced, because it is literally an assignment contract. Assignments are legal just like how you can buy an "Option" into stock and then sell that contract.
"The Greater Philadelphia Association of REALTORS has endorsed the bill." from another article.
It seems like agents are pissed that they can't make as much money as some of these wholesalers. The seller cries later to find out that s/he sold the house for much lower. If you don't know how much your house is worth, that's your fault to even agree to sell. Don't bother shopping around and getting a second opinion or get an appraiser?
I don't get why people have to always play the victim when it was themselves that didn't do the homework.
No one pointed a gun to have the person sell it at a lower price.
69 Replies
- 5ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 665 votes
From the article, it seems like the whole idea of the law is to not make false promises. I don't understand how can the Purchase Agreement will show false promises.
It's a fair game. Wholesaler are reaching out to people who aren't thinking of selling, most agents have those listings from a listing broker so I am not sure what this license is trying to accomplish.
It can't be enforced, because it is literally an assignment contract. Assignments are legal just like how you can buy an "Option" into stock and then sell that contract.
"The Greater Philadelphia Association of REALTORS has endorsed the bill." from another article.
It seems like agents are pissed that they can't make as much money as some of these wholesalers. The seller cries later to find out that s/he sold the house for much lower. If you don't know how much your house is worth, that's your fault to even agree to sell. Don't bother shopping around and getting a second opinion or get an appraiser?
I don't get why people have to always play the victim when it was themselves that didn't do the homework.
No one pointed a gun to have the person sell it at a lower price.
- Bensalem, PA · Member since 2016 · 43 posts · 20 votes5y
@Simon W. many of those sellers are lead to believe that his/her house is worth less than it really is.
- 5ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 665 votes
Originally posted by @Slawek Jakubowski:
@Simon W. many of those sellers are lead to believe that his/her house is worth less than it really is.
And they could've simply go to an agent and ask for a second opinion, no?
- 5yShawn McenteerBusiness MemberRealtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
@Dan Powers there tends to be a bad vibe that follows with many wholesale deals, this is likely the beginning of a long process of trying to create more transparency of what a wholesaler is actually doing. Most buyers are left in the dark, many times let to believe the wholesaler themselves are buying the property only to find out at closing a third party is purchasing the property at much higher price then agreed upon.
House Hacking New Jersey563 Reviews - Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes5y
@Dan Powers Consumer protection laws exist in every industry to protect the public from unscrupulous business practices. That’s why agents are licensed, have to take ethics courses, pass background checks, follow rules and are regulated by a governing body. Wholesalers are basically brokering real estate without any standards in ethics or oversight, which often leads to members of the public being hurt financially. It doesn’t seem difficult to enforce, as every real estate transaction has a paper trail of what transpired and who was involved, and wholesalers have to advertise their “services” somewhere which exposes them. Brokering without a license is already illegal in all 50 states, and despite what the gurus teach, most wholesaling practices meet the definition of brokering real estate. If wholesaling gets popular enough to be considered a real problem (currently a lot of folks try it for a few months maybe, but most never actually do a single deal), there will be more clarity on the existing laws and increased enforcement of them like we’ve already seen in a handful of states like Illinois, Ohio, Oregon, Washington, Colorado, and now Pennsylvania apparently. I don’t understand why wholesalers don’t just get their license and operate above board. It’s not like it’s difficult to get a license. Reasonably good agents make a lot more $ than 99% of wholesalers do, and deal with less BS. If somebody can make it as a wholesaler, chances are they’d make a great agent. Wholesaling is basically doing the least desirable part of being an agent, for a one time payoff through fooling a seller that will likely never want to work with you again or recommend you to their friends. Id much rather build a legit business over time based on repeat customers, referrals, and providing quality service. Wholesaling just seems like a hassle to me, and there’s always the risk of getting in trouble with the law or being sued when a seller or their heirs realize they’ve been screwed out of their equity by someone basically brokering real estate only completely the wrong way.
- 5ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 665 votes
Originally posted by @Steve K.:
@Dan Powers Consumer protection laws exist in every industry to protect the public from unscrupulous business practices. That’s why agents are licensed, have to take ethics courses, pass background checks, follow rules and are regulated by a governing body. Wholesalers are basically brokering real estate without any standards in ethics or oversight, which often leads to members of the public being hurt financially. It doesn’t seem difficult to enforce, as every real estate transaction has a paper trail of what transpired and who was involved, and wholesalers have to advertise their “services” somewhere which exposes them. Brokering without a license is already illegal in all 50 states, and despite what the gurus teach, most wholesaling practices meet the definition of brokering real estate. If wholesaling gets popular enough to be considered a real problem (currently a lot of folks try it for a few months maybe, but most never actually do a single deal), there will be more clarity on the existing laws and increased enforcement of them like we’ve already seen in a handful of states like Illinois, Ohio, Oregon, Washington, Colorado, and now Pennsylvania apparently. I don’t understand why wholesalers don’t just get their license and operate above board. It’s not like it’s difficult to get a license. Reasonably good agents make a lot more $ than 99% of wholesalers do, and deal with less BS. If somebody can make it as a wholesaler, chances are they’d make a great agent. Wholesaling is basically doing the least desirable part of being an agent, for a one time payoff through fooling a seller that will likely never want to work with you again or recommend you to their friends. Id much rather build a legit business over time based on repeat customers, referrals, and providing quality service. Wholesaling just seems like a hassle to me, and there’s always the risk of getting in trouble with the law or being sued when a seller or their heirs realize they’ve been screwed out of their equity by someone basically brokering real estate only completely the wrong way.
I am a bit confused with your statement. Do you understand what Wholesaling is? Majority of the wholesale deal makes makes a lot more than an agent.
For a common scenario:
Fair Market Value: $100K
Commission 6%: $6000
Split between 2 brokers: $3000
Split between the broker and agent (say 50%): $1500 is your take home pay
Wholesale Price: $70K
Assignment fee: $2k-$7k
Wholesaling is a legitimate business. Same as if you were selling items in bulk to retailers.
What law is there to risk lawsuit? It's a simple Purchase Agreement with the clause to assign.
If both parties sign, the seller is willingly to sell at the purchase price.
The people who think they got scammed, how did they buy their house? How did they determined how much their house cost back in the day?
How is wholesaling equal to brokering?
Listing Agents/Brokers don't have to sign the purchase agreement and close on the house. Yes, a lot of the time there is a clause for the wholesaler to get out. But Brokers don't have to sign the purchase agreement and they get to market the house for 6mo-1yr and letting it sit there without anyone buying.
With wholesaling, the agreement is short and the seller is banking either that person or someone is going to buy it by the expiration date.
Yes I understand the agents' view, but agents are doing things differently than wholesalers.
- Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes5y
Originally posted by @Dan Powers:
https://fusion.inquirer.com/ne...
I found this article that states in a few months the traditional "wholesaler" will have to get some sort of wholesaling licensee that will apparently add regulation to the profession. On the other side of things it also states how the majority of these wholesale transactions happen in the shadows and are rarely known the to public. Im curious to see how this regulation will be followed through, who is enforcing this regulation, and just the overall effectiveness of the law.
They say the law is meant to prohibit “knowingly make any substantial misrepresentations, make any false promises, untruthfully advertise, or engage in any conduct which demonstrates bad faith, dishonesty, untrustworthiness, or incompetency.” but I'm struggling to see how this will be enforced if the majority of the transactions happen outside the public eye.
I want to hear everyones thoughts on will this be successful. Are the ways of the modern day wholesaler coming to an end, or will this simply be another bump in the road the wholesaler has to overcome?
Dan Powers - Real Estate Agent
In Pennsylvania net price listings are prohibited, and wholesaling is basically a net price listing without having a license. So if they are required to get their license (as they should if they are actually marketing the property and have no intent to purchase the property like 95% of them do) then they won't be able to make the same amount of money on a cheap property because they'd have to disclose that they are making $20,000 when the seller makes $30,000.
It's not really a question of jealousy from agents or anything. As an agent I make enough money selling properties legitimately I have no ill will towards wholesalers. It's just a question of integrity and ethics. Making $60,000 when the seller makes $40,000 just shouldn't be allowed unless it was disclosed fully that the wholesaler/agent could and likely would make that much money on it. Because if the seller knew that information then there's no way they would agree to that. It's not fair to the public at large when they sell this way. . . .and it was only a matter of time and a matter of the thousands of Instagram posts of wholesalers posting pictures of their checks online for the practice to catch up to them.
Again, personally I really don't care what people do and I have bought deals from wholesalers before, however the non-disclosure of how much they are making on a deal really tarnishes the whole investor community in the eyes of the public for a number of reasons. I know there are some legitimate wholesalers out there, and some that I respect because they have integrity, but as it has become the most prevalent "get rich quick" idea in real estate, and so many people have started doing it, regulation was in order eventually.
- Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes5y
I want to hear everyone's thoughts on will this be successful. Are the ways of the modern day wholesaler coming to an end, or will this simply be another bump in the road the wholesaler has to overcome?
I'm the chronic gadfly here, but just do one thing - FULL DISCLOSURE including
1) That the deal is a net commission
2) The "buyer" is not a licensed RE broker (usually)
3) Who the TRUE BUYER IS and WHAT HE IS PAYING BEFORE closing.
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes5y
Originally posted by @Simon W.:
Originally posted by @Steve K.:
@Dan Powers Consumer protection laws exist in every industry to protect the public from unscrupulous business practices. That’s why agents are licensed, have to take ethics courses, pass background checks, follow rules and are regulated by a governing body. Wholesalers are basically brokering real estate without any standards in ethics or oversight, which often leads to members of the public being hurt financially. It doesn’t seem difficult to enforce, as every real estate transaction has a paper trail of what transpired and who was involved, and wholesalers have to advertise their “services” somewhere which exposes them. Brokering without a license is already illegal in all 50 states, and despite what the gurus teach, most wholesaling practices meet the definition of brokering real estate. If wholesaling gets popular enough to be considered a real problem (currently a lot of folks try it for a few months maybe, but most never actually do a single deal), there will be more clarity on the existing laws and increased enforcement of them like we’ve already seen in a handful of states like Illinois, Ohio, Oregon, Washington, Colorado, and now Pennsylvania apparently. I don’t understand why wholesalers don’t just get their license and operate above board. It’s not like it’s difficult to get a license. Reasonably good agents make a lot more $ than 99% of wholesalers do, and deal with less BS. If somebody can make it as a wholesaler, chances are they’d make a great agent. Wholesaling is basically doing the least desirable part of being an agent, for a one time payoff through fooling a seller that will likely never want to work with you again or recommend you to their friends. Id much rather build a legit business over time based on repeat customers, referrals, and providing quality service. Wholesaling just seems like a hassle to me, and there’s always the risk of getting in trouble with the law or being sued when a seller or their heirs realize they’ve been screwed out of their equity by someone basically brokering real estate only completely the wrong way.
I am a bit confused with your statement. Do you understand what Wholesaling is? Majority of the wholesale deal makes makes a lot more than an agent.
For a common scenario:
Fair Market Value: $100K
Commission 6%: $6000
Split between 2 brokers: $3000
Split between the broker and agent (say 50%): $1500 is your take home pay
Wholesale Price: $70K
Assignment fee: $2k-$7k
Wholesaling is a legitimate business. Same as if you were selling items in bulk to retailers.
What law is there to risk lawsuit? It's a simple Purchase Agreement with the clause to assign.
If both parties sign, the seller is willingly to sell at the purchase price.
The people who think they got scammed, how did they buy their house? How did they determined how much their house cost back in the day?
How is wholesaling equal to brokering?
Listing Agents/Brokers don't have to sign the purchase agreement and close on the house. Yes, a lot of the time there is a clause for the wholesaler to get out. But Brokers don't have to sign the purchase agreement and they get to market the house for 6mo-1yr and letting it sit there without anyone buying.
With wholesaling, the agreement is short and the seller is banking either that person or someone is going to buy it by the expiration date.
Yes I understand the agents' view, but agents are doing things differently than wholesalers.
Sorry you're confused. Let me be more clear. Every state has their own legal definition of brokering real estate, and most of them read a lot like this: "Any person, co-partnership or other entity who sells or offers for sale, buys or offers to buy, or negotiates the purchase, sale, or exchange of real estate. These activities would be done for a compensation or valuable consideration. Such a broker must secure a state license to engage in these activities legally. It is usually required that all active partners and officers be licensed real estate brokers in order for a license to be issued to a firm."
Here is Pennsylvania's: "Any person who lists for sale, sells or offers for sale, buys or offer to buy or negotiates the purchase or sale or exchange of real estate that they do not personally own."
More on Pennsylvania real estate laws here: https://www.dos.pa.gov/Profess...
Here is New York's: “...real estate broker” means any person, firm, limited liability company or corporation, who, for another and for a fee, commission or other valuable consideration, lists for sale, sells, at auction or otherwise, exchanges, buys or rents, or offers or attempts to negotiate a sale, at auction or otherwise, exchange, purchase or rental of an estate or interest in real estate..."
More on NY real estate license law here: https://www.dos.ny.gov/licensi...
Most states also include “marketing a property” as brokering.
Here is a good article from Brandon Turner that explains how if you're not licensed or actually closing on the property yourself and then reselling it (which very few wholesalers actually do), you're probably acting illegally:
https://www.biggerpockets.com/...
There have been many examples in the past few years of wholesalers getting into trouble and the thin excuses of having equitable interest in the property or just selling a contract and not a property have not held up in court, at all. So that can be laid to rest no matter how many gurus or misguided wholesalers repeat those falsehoods. Sure, these laws aren't enforced that often, but that seems to be changing.
Now to address your statement that wholesalers make more than agents. Simply not true in my experience because most wholesalers never close a single deal. They may be able to make a bigger cut on a single transaction than an agent ethically could, but my statement that wholesalers don't typically make as much as agents was referring to overall pay, not just on an individual deal. Of course there's no way to really know whether the average wholesaler makes more or less than the average agent, but in my market the average sales commission for agents is $20-30k, and the average agent sells 10-20 deals a year. I don't know any wholesalers making that kind of money in my market, and most that I talk to only attempt wholesaling for a short time period, realize how difficult it actually is, and quickly move on to something else. Sure there are a few that are successful, but even they are not nearly as successful as the top agents. The top agent in my market took home over $8M in commissions last year. I don't think the top wholesalers come even close to that. But I could be wrong.
- Santa Rosa, CA · Member since 2017 · 325 posts · 701 votes5y
Originally posted by @Simon W.:
Originally posted by @Steve K.:
@Dan Powers Consumer protection laws exist in every industry to protect the public from unscrupulous business practices. That’s why agents are licensed, have to take ethics courses, pass background checks, follow rules and are regulated by a governing body. Wholesalers are basically brokering real estate without any standards in ethics or oversight, which often leads to members of the public being hurt financially. It doesn’t seem difficult to enforce, as every real estate transaction has a paper trail of what transpired and who was involved, and wholesalers have to advertise their “services” somewhere which exposes them. Brokering without a license is already illegal in all 50 states, and despite what the gurus teach, most wholesaling practices meet the definition of brokering real estate. If wholesaling gets popular enough to be considered a real problem (currently a lot of folks try it for a few months maybe, but most never actually do a single deal), there will be more clarity on the existing laws and increased enforcement of them like we’ve already seen in a handful of states like Illinois, Ohio, Oregon, Washington, Colorado, and now Pennsylvania apparently. I don’t understand why wholesalers don’t just get their license and operate above board. It’s not like it’s difficult to get a license. Reasonably good agents make a lot more $ than 99% of wholesalers do, and deal with less BS. If somebody can make it as a wholesaler, chances are they’d make a great agent. Wholesaling is basically doing the least desirable part of being an agent, for a one time payoff through fooling a seller that will likely never want to work with you again or recommend you to their friends. Id much rather build a legit business over time based on repeat customers, referrals, and providing quality service. Wholesaling just seems like a hassle to me, and there’s always the risk of getting in trouble with the law or being sued when a seller or their heirs realize they’ve been screwed out of their equity by someone basically brokering real estate only completely the wrong way.
I am a bit confused with your statement. Do you understand what Wholesaling is? Majority of the wholesale deal makes makes a lot more than an agent.
For a common scenario:
Fair Market Value: $100K
Commission 6%: $6000
Split between 2 brokers: $3000
Split between the broker and agent (say 50%): $1500 is your take home pay
Wholesale Price: $70K
Assignment fee: $2k-$7k
Wholesaling is a legitimate business. Same as if you were selling items in bulk to retailers.
What law is there to risk lawsuit? It's a simple Purchase Agreement with the clause to assign.
If both parties sign, the seller is willingly to sell at the purchase price.
The people who think they got scammed, how did they buy their house? How did they determined how much their house cost back in the day?
How is wholesaling equal to brokering?
Listing Agents/Brokers don't have to sign the purchase agreement and close on the house. Yes, a lot of the time there is a clause for the wholesaler to get out. But Brokers don't have to sign the purchase agreement and they get to market the house for 6mo-1yr and letting it sit there without anyone buying.
With wholesaling, the agreement is short and the seller is banking either that person or someone is going to buy it by the expiration date.
Yes I understand the agents' view, but agents are doing things differently than wholesalers.
I am not a broker or a wholesaler. I could care less how much money either brokers or wholesaler make. This is capitalism and it is not the role of government to cap profit. It is also not the reason regulation of wholesalers are needed.
1. In my opinion the primary issue is lack of funds. Specifically entering into contracts without the ability to execute those contracts. That is (best case) lack of good faith and (worst case) fraud. There is not a single wholesaler who approaches the seller and says "I want to contract to buy your house for ~70% value minus repair value and hope to sell the contract to a buyer before I have to actually produce the cash". That is the actual truth but they go to great lengths to hide it.
2. Related to the first issue is tying up properties only to back out of the contract. By targeting the "distressed" sellers they specifically put themselves into a situation where they have all the power and control leaving the seller none. Lack of education...super. Financial stress....lets go get them. Medical problems...cherry on top. Just sign my magical contract and I will solve all your problems until 2 weeks rolls around and they ghost you and you are even deeper in the hole. Search out all of the threads on biggerpockets that are title "I got my first contract now what do I do". Wholesaling is specifically marketed to novices who have no experience and no money. While there are very experienced and competent wholesalers, most of the industry are amateurs who want a quick buck. Regulation can drive them out while leaving the professionals.
3. Pretending not to market the property. I have never seen a single wholesaler market the contract. The ad copy never says "Excellent contract, Legal sized paper, 5 pages, blue ink, bonus inspection clause for 15 days, assignment available for 10k". They market the house. No one is fooled, no one thinks the loopholes or cagey language is clever. They are putting a property under contract and marketing the property for sale to cash buyers. That is brokering and that is regulated.
4. Not wholesaling directly, but as far as I am concerned there is a special circle in hell for "subject to" specialists which are just a more specialized wholesaler. Convincing someone to sign over their biggest asset while leaving them with the debt is never a "win/win". It is (IMO) quasi-legal stealing from unsophisticated desperate sellers. At least when they actually buy the property the transaction is done. With "subject to" they are still on the hook for all the debt without any asset to back it up. Their net worth plummets in exchange for an illusion of relief. In reality they are worse off than before. In my mind it is no better than maggots cleaning the very last meat off a bone when all the other carrion have had their fill. Truly disgusting.
I am fully aware of the counter arguments of "solving problems no one else will solve" and "the deal maker is the most important person in a deal and needs to be compensated". Whatever benefit wholesalers bring to the property ecosystem is outweighed the damage they cause. That is why regulation is needed. Buy the house then resell it. Stop cutting corners. Safeway does not "wholesale" my lettuce and assign me a contract for the lettuce at checkout. It is not wholesaling, it is just taking advantage of desperate and/or uneducated people.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes5y
Frankly, I'm surprised that there hasn't been more action to crack down on wholesalers. It's just RE brokering without a license, regardless of what kind of fancy names you give it. States license real estate brokering not to give realtors fees (I can't speak to all states but my state doesn't regulate the commission amount at all) but to help limit the possibility of people being duped out of what is likely their only, or most valuable asset. Wholesaling only works by running up the margin, which means either shorting the seller or cleaning out the buyer. Of course value is somewhat subjective - one man's gold is another man's treasure - but RE values can generally be quantified, meaning that a reasonably knowledgeable person can take serious advantage of a person without knowledge. That's why RE brokering requires licensing, and disclosure, and maintaining insurance, and written contracts, and civil and criminal penalties, etc. The only logical reason I can come up with for someone to "wholesale" rather than just become a licensed agent is to jack up the margins. Being a licensed agent means you represent the seller (unless you are a buyer's agent), and while you are mandated to fair and ethical disclosures, your actions have to represent the best financial interests of the seller. A wholesaler's actions represent the financial interests of the wholesaler.
Skyline Properties - 5ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 665 votes
Originally posted by @JD Martin:
Frankly, I'm surprised that there hasn't been more action to crack down on wholesalers. It's just RE brokering without a license, regardless of what kind of fancy names you give it. States license real estate brokering not to give realtors fees (I can't speak to all states but my state doesn't regulate the commission amount at all) but to help limit the possibility of people being duped out of what is likely their only, or most valuable asset. Wholesaling only works by running up the margin, which means either shorting the seller or cleaning out the buyer. Of course value is somewhat subjective - one man's gold is another man's treasure - but RE values can generally be quantified, meaning that a reasonably knowledgeable person can take serious advantage of a person without knowledge. That's why RE brokering requires licensing, and disclosure, and maintaining insurance, and written contracts, and civil and criminal penalties, etc. The only logical reason I can come up with for someone to "wholesale" rather than just become a licensed agent is to jack up the margins. Being a licensed agent means you represent the seller (unless you are a buyer's agent), and while you are mandated to fair and ethical disclosures, your actions have to represent the best financial interests of the seller. A wholesaler's actions represent the financial interests of the wholesaler.
You nailed it with the financial interests of the seller vs wholesaler. Now the agents are mad that they aren't getting more of the money because wholesalers are making more money.
Notice that most agents are the ones that are against wholesalers. I am not an agent or a wholesaler. There are benefits of working for either one and there are cons. Sellers playing the victim card after an agent got mad that s/he didn't get a piece of that pie and blame it on the wholesaler.
It comes down to the seller having options to get a second opinion, which many didn't choose that route.
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes5y
Originally posted by @Simon W.:
Originally posted by @JD Martin:
Frankly, I'm surprised that there hasn't been more action to crack down on wholesalers. It's just RE brokering without a license, regardless of what kind of fancy names you give it. States license real estate brokering not to give realtors fees (I can't speak to all states but my state doesn't regulate the commission amount at all) but to help limit the possibility of people being duped out of what is likely their only, or most valuable asset. Wholesaling only works by running up the margin, which means either shorting the seller or cleaning out the buyer. Of course value is somewhat subjective - one man's gold is another man's treasure - but RE values can generally be quantified, meaning that a reasonably knowledgeable person can take serious advantage of a person without knowledge. That's why RE brokering requires licensing, and disclosure, and maintaining insurance, and written contracts, and civil and criminal penalties, etc. The only logical reason I can come up with for someone to "wholesale" rather than just become a licensed agent is to jack up the margins. Being a licensed agent means you represent the seller (unless you are a buyer's agent), and while you are mandated to fair and ethical disclosures, your actions have to represent the best financial interests of the seller. A wholesaler's actions represent the financial interests of the wholesaler.
You nailed it with the financial interests of the seller vs wholesaler. Now the agents are mad that they aren't getting more of the money because wholesalers are making more money.
Notice that most agents are the ones that are against wholesalers. I am not an agent or a wholesaler. There are benefits of working for either one and there are cons. Sellers playing the victim card after an agent got mad that s/he didn't get a piece of that pie and blame it on the wholesaler.
It comes down to the seller having options to get a second opinion, which many didn't choose that route.
I don’t think agents are necessarily against wholesalers. I’m not personally against wholesalers and I do business with several that operate within the law (because they’re licensed). It’s just good to be aware of the laws as in some states the first offense is a misdemeanor and the second is a felony.
- Investor · VA but NOT in real estate · Member since 2020 · 57 posts · 55 votes5y
I'm not an agent and am disappointed that licensed real estate agents haven't made more of an issue of wholesalers. Wholesalers operate in a legal grey area and have a reputation of taking advantage of people who are in difficult straits. Further, lying and deception seem to be fairly common. "Seller beware!" only goes so far when you're talking vastly different levels of knowledge.
As others have suggested, getting a real estate license isn't that difficult. So get the license and abide by the ethical guidelines. Frankly I think an influx of licensed wholesalers would be good for the industry.
- Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes5y
No amount of regulation is going to deter wholesaling. Until regulations are done at the guru level it won't matter since that's where legions of wholesalers are getting their guidance and information from. And gurus aren't going to mention anything that would deter their students (victims) from maxing out their credit cards to pay the guru.
- Real Estate Agent · Philadelphia, PA · Member since 2013 · 451 posts · 369 votes5y
@Simon W. Agents aren't mad at wholesalers. The types of sellers that wholesalers go after typically are extremely uneducated, poor, elderly and/or have serious health complications (many times all of the above). That isn't the target market of any successful real estate agent. I typically won't even bother with any transaction under $250K for that reason, effort per transacted dollar is too low. I do get annoyed when I hear the ever too common tale of a wholesaler convincing an elderly person with serious health complications to part with their most significant asset and making them destitute in the process (or their children / grandchildren losing out on a small inheritance that could mean the difference between them being able to live in an affordable home).
- Real Estate Agent · Philadelphia, PA · Member since 2020 · 294 posts · 245 votes5y
@Account Closed Thank you everyone for the discussion, there's a lot of valuable information exchanged here and I agree with most of it.
I do at the end of the day think the amount of wholesalers are going to decrease dramatically due to this simply law, but those who go through with it and get the license will be back to their normal habits due to the lack of oversight and consequences. It certainly will be interesting to see how this plays out and I will definitely do a follow up post about this some time in the future.
Dan Powers - Real Estate Agent
- Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes5y
One argument against wholesalers is that most of them are trying to get a deal done without really understanding the relevant laws. For example, I must have met over 200 wholesalers over the years since I joined BP. I have met less than a handful of wholesalers who understands the interaction between RESDL disclosures and "as is" clauses. This can have a DEVASTING impact on the seller. Likewise, I have met very few wholesalers who can intelligently discuss how realty transfer taxes work during assignments in Pennsylvania.
One cure for such issues is for parties to use attorneys. But most wholesale deals do not have enough profit for the parties to afford their own attorneys. So that's not a viable option.
In terms of the economic side of it, I don't really think it's a matter of realtors getting jealous of wholesalers making more money. Most wholesalers I met over the years have struggled to make money on the deals because it's a fairly difficult way to make money. In my experience, most realtors/brokers seem to look at wholesalers as oddballs more than anything. I have never gotten a sense that they see wholesalers as competitors because they typically don't want the properties that the wholesalers deal with.
I would also note that this particular law appears to be a Philadelphia specific law. The real threat to wholesalers is at the Commonwealth level. The State Real Estate Commission has taken notice of wholesalers. The concerns that the legislature has are similar to my concern --- that wholesalers do not really know what they are doing with all the relevant laws that govern residential transactions.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Simon W.:
From the article, it seems like the whole idea of the law is to not make false promises. I don't understand how can the Purchase Agreement will show false promises.
It's a fair game. Wholesaler are reaching out to people who aren't thinking of selling, most agents have those listings from a listing broker so I am not sure what this license is trying to accomplish.
It can't be enforced, because it is literally an assignment contract. Assignments are legal just like how you can buy an "Option" into stock and then sell that contract.
"The Greater Philadelphia Association of REALTORS has endorsed the bill." from another article.
It seems like agents are pissed that they can't make as much money as some of these wholesalers. The seller cries later to find out that s/he sold the house for much lower. If you don't know how much your house is worth, that's your fault to even agree to sell. Don't bother shopping around and getting a second opinion or get an appraiser?
I don't get why people have to always play the victim when it was themselves that didn't do the homework.
No one pointed a gun to have the person sell it at a lower price.
well many people are trusting and cant fathom that anyone would lie to them.. maybe its a cultural thing.. in certain cultrals its cut throat barter no one tells the truth. but in apple pie America and older folks .. they cant imagine someone not telling the truth
and thats why you have the FTC and other agencies protecting the public from those that would just flat lie about the true value of a home.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes5y
Wholesaling isn't already dead?
- Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes5y
Originally posted by @Simon W.:
From the article, it seems like the whole idea of the law is to not make false promises.
You mean like:
1) The guy writing will be the actual buyer and
2) Price the seller gets is what the true buyer pays?
I don't know false, but I'd say deceitful promises.
- Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes5y
@James Wise It would take a Christmas miracle for that to happen.
- 5ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 665 votes
Originally posted by @Steve Morris:
Originally posted by @Simon W.:
From the article, it seems like the whole idea of the law is to not make false promises.
You mean like:
1) The guy writing will be the actual buyer and
2) Price the seller gets is what the true buyer pays?
I don't know false, but I'd say deceitful promises.
Right.
1. Buyer should not sign what Buyer doesn't understand. Read the clauses: if buyer doesn't understand it; get an attorney.
2. Price the seller gets is what the Buyer pays what it will be recorded in the Deed. Not total cost including the assignment fee. So should we include Closing Cost to what the Purchase price is for a normal transaction?
- Investor · Top of the World · Member since 2016 · 165 posts · 40 votes5y
As a wholesaler and Investor who does complete ethical transactions with complete intent to help property sellers that have a problem, solve them. My mentor is extremely ethical, I am in training to get my Broker's License. I have completed 40 Deals in the last 90 days, without one cancellation, and only one extension. Please do not put all wholesalers in the group that are unethical and practice manipulating sellers with lowball prices. The "Grey Area" that will always be there is those properties that have sellers that want to sell an they either want to sell fast without updating the property, or can not afford to upgrade the properties. There is going to be a huge wave of new Agents and wholesaler friendly Brokerages appearing. The company that my mentor owns, that has offices in many markets has only licensed agents responsible for wholesale activities. I work with Agent all of the time on my transactions both in acquisitions and dispositions of deals.
The issue with the modification of the law in Philidelphia, Chicago, Oregon, and OK are to deter unscrupilous activity. During the vote Phili they should have had some of the investors/wholesalers in that community discuss the pros and cons of the restrictions. I have an associate that owns 2,000 Doors there and they are involved in legal action that will change the restrictions very soon.
Over the next few years, in my opinion, wholesaling with be inclusive an monitored by each states commision.
- Real Estate Agent · Philadelphia, PA · Member since 2020 · 294 posts · 245 votes5y
@Simon W. I've noticed in different markets there are vast differences in the amount of trust someone has with anyone involved in the transaction. In the Dallas/Houston, really the Texas market in general, people are overall much more trusting in the transaction. In my experience there is less explaining of the contract, less overall questions during the process, and a less stressful transaction overall.
Compared to the Philly market. I generally have to run through every line in the contract, which I have no problem doing because its my job to make them completely informed about the transaction. But, people are simply less trusting up here.
In terms of including closing costs in the purchase price, they vary for each transaction and aren't generally known till you generate a HUD. Whats including in the closing costs are the transfer tax, title policy, and any additional fees that are including in the transaction. Also the transfer tax is based off the acquisition price for an assignment contract not the sale price.
Dan Powers - Real Estate Agent
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