4 Common Wholesaling Myths DEBUNKED

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4 Common Wholesaling Myths DEBUNKED

Stephen Chatto
Rental Property Investor · Yardley, PA · Member since 2012 · 436 posts · 198 votes

Real Estate Myths. I am glad my Mentor @Karl Krentzel is willing to tell me the truth so I can get deals DONE.  Her are a few myths he helped me DEBUNK

1) Myth #1 Realtors mess up deals and are a waste of time.

False - Karl has always encouraged me to work with Realtors. I am working with one now on a deal and she has been great. She found my ad on craigslist, called me up, listened to what I have to say and brought me a buyer. Now that She's involved she is keeping everything moving forward quickly and efficiently.

Extra Credit Question: Who do you think was using a higher ARV. The Buyer with the Realtor who gets to list the house after rehab or the average fix and flip investor?

2) Myth #2 - MAO = ARV *0.65 - Repairs . What a joke. I love this formula because it helps me be competitive in my market. My competition used that formula on this deal and his offer price was 50k less than mine. Plus to top it off. ARV and Repairs is completely made up. Your taking two numbers that are completely arbitrary and up to massive interpretation and then popping them in a formula to determine your offer price. COME ON. At the end of the day you need to know your market to learn where the prices should be.

3) Myth #3 - State contracts are stupid. Wow, I have learned the hard way that things run so much smother if on a state contract. As a wholesaler you are selling CONTRACT not houses. So it is fair to say that a better contract is worth more. We determined above that realtors can bring buyers. Strong buyers in fact. Do you think it is easier to sell that buyer with a Realtor a State Contract or a 2 Pager? Use a state contract and your buyer pool opens up tremendously.

4) Myth #4 - You need to know how much the repairs are, and the ARV so you can advertise your deal. What a joke. You think buyers agree with your repair cost estimates and ARV? Why waste your time. When advertising this deal I didn't include either. Here is the property. Here is What I know, Here is my Asking price. Don't think for your buyer.

I can think of multiple examples in my business when these 4 myths have been debunked. It feels good to know the truth

Hope some of you can benefit from this insight.

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Guy Gimenez
Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
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One man's myth is another man's facts. There are no absolutes in life (outside of death) or in investing..only generalities. I don't disagree with the OP on many assertions, but using one's experience to arrive at an absolute is, well, a bit of a stretch.

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  • Karl Krentzel
    Real Estate Broker · Tucson, AZ · Member since 2012 · 410 posts · 337 votes
    11y

    @Stephen Chatto! I am honored to be your coach!  You are doing AWESOME!!! Keep it up! 

    1Reply
  • Christopher Goldie
    Contractor · Columbia, SC · Member since 2014 · 241 posts · 68 votes
    11y

    My opinion:

    #1 Some agents can screw up a deal, they just don't or don't want to understand wholesaling. If your names not on the deed how can you sell it? heard that a few times as they dragged a potential buyer away. Not all, some are great and like you said can actually help make more for us.

    #2 I don't disagree with you on the formula, although I still try to qualify a deal using that or a minimum profit. However if we don't have some idea what the repair costs are how exactly do we know if it's a deal. We can't just go in blind and take whatever the absolute lowest price the seller will agree to, right? Sure we can differ on rehab costs as it's based on opinion mostly, but we should have some idea of what repair and fixed costs are so we know we're marketing a deal and not a turd. ARV should be quantified based on comps. Again how do I know if I have a deal that a rehabber would buy?

    0Reply
  • Karl Krentzel
    Real Estate Broker · Tucson, AZ · Member since 2012 · 410 posts · 337 votes
    11y
    Originally posted by @Christopher Goldie:

    My opinion:

    #1 Some agents can screw up a deal, ...Not all, some are great and like you said can actually help make more for us.

    #2 I don't disagree with you on the formula, although I still try to qualify a deal using that or a minimum profit. However if we don't have some idea what the repair costs are how exactly do we know if it's a deal. ..... Again how do I know if I have a deal that a rehabber would buy?

    Those are both excellent points @Christopher...   You are correct.  Many agents (and wholesaling Investors) misinterpret what an Investing Agent can do, or for that matter a non Investing agent is willing to do.  Many times, I've found it is simply easier to say "assignment" to agents versus "wholesaling" .  Agents know what that means, and it makes it much easier... thus finding more "great agents!"

    Secondly, I believe you and @Stephen are essentially saying the same thing, in a different way.  You emphasized that we do need to know what some idea of repair costs are.. which I know that Stephen would agree with.  

    All Saying The Same thing

    How you, I, Stephen, and anyone else reading this post do that is the same way... by getting out there and hitting the streets; talking to our customers, and knowing what things are costing.  

    Same thing.. same page.   

    0Reply
  • Christopher Goldie
    Contractor · Columbia, SC · Member since 2014 · 241 posts · 68 votes
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    @Karl Krentzel

    You're right most agents understand assignment of contract, but try explaining what I'm doing on a few ( I brought it on myself), and that's wholesaling a HUD property. They aren't assignable and no I don't close on them first. Explaining a double close using buyer funds, or adding the buyer to my contract and quit claiming me off at closing. Yeah that's about as fun as pulling my fingernails off. I know how some feel about that whole setup, and that's okay, it works for me. Met an awesome agent just a week ago who brought her client that bid on the property that I now hold, he saves 10k on what he was willing to pay, I make 10k and she gets 5k at closing which was more than her commission would have been. Win all the way around!

    0Reply
  • Karl Krentzel
    Real Estate Broker · Tucson, AZ · Member since 2012 · 410 posts · 337 votes
    11y
    Originally posted by @Christopher Goldie:

    @Karl Krentzel

    You're right most agents understand assignment of contract, but try explaining what I'm doing on a few ( I brought it on myself), and that's wholesaling a HUD property. They aren't assignable and no I don't close on them first. Explaining a double close using buyer funds, or adding the buyer to my contract and quit claiming me off at closing. Yeah that's about as fun as pulling my fingernails off. I know how some feel about that whole setup, and that's okay, it works for me. Met an awesome agent just a week ago who brought her client that bid on the property that I now hold, he saves 10k on what he was willing to pay, I make 10k and she gets 5k at closing which was more than her commission would have been. Win all the way around!

     That's awesome!  That's why I actually specialize in helping people with the words to say to the homeowners, the agents, the title officers, etc.  

    I specialize with the "Scripts and Skills" portion of the real estate process.  

    It sounds like you got something that works out for you!!  That's awesome! 

    1Reply
  • Christopher Goldie
    Contractor · Columbia, SC · Member since 2014 · 241 posts · 68 votes
    11y

    @Karl Krentzel

    I need to speak with you more about your speciality. I do stumble some, and I'm looking to start going after sub 2', lease options, seller finance very soon. I'm going to dig into your site over the next few days, always always room for self improvement.

    I came from the earthmoving business when there used to be buckets of money laying around. My negotiating tactic was, here's my price; take or leave it. Doesn't seem to fly quite so well anymore!

    0Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    One man's myth is another man's facts. There are no absolutes in life (outside of death) or in investing..only generalities. I don't disagree with the OP on many assertions, but using one's experience to arrive at an absolute is, well, a bit of a stretch.

    6Reply
  • Tuan Le
    Investor · Houston, TX · Member since 2014 · 142 posts · 32 votes
    11y
    Originally posted by @Christopher Goldie:

    @Karl Krentzel

    You're right most agents understand assignment of contract, but try explaining what I'm doing on a few ( I brought it on myself), and that's wholesaling a HUD property. They aren't assignable and no I don't close on them first. Explaining a double close using buyer funds, or adding the buyer to my contract and quit claiming me off at closing. Yeah that's about as fun as pulling my fingernails off. I know how some feel about that whole setup, and that's okay, it works for me. Met an awesome agent just a week ago who brought her client that bid on the property that I now hold, he saves 10k on what he was willing to pay, I make 10k and she gets 5k at closing which was more than her commission would have been. Win all the way around!

     I would never think an agent would help a client buy from a wholesaler.  You just proved me wrong!  How does she get paid $5k?  I'm trying to understand how the real estate agent protect themselves from not getting on a wholesale deal.

    0Reply
  • Christopher Goldie
    Contractor · Columbia, SC · Member since 2014 · 241 posts · 68 votes
    11y

    @Tuan Le We simply came to an agreement. I wanted $150k for the house, she told her client $155k, got him to sign a release of agent form and now she is a wholesaler JV'ing with me. So technically I am making 15k of which I pay her a JV share of 5k. Quick, simple and easy. I was willing to even split the 10k if I couldn't move quick enough.

    1Reply
  • Tuan Le
    Investor · Houston, TX · Member since 2014 · 142 posts · 32 votes
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    @Christopher GoldieSo the end buyer didn't know that you would sell for 150k?

    0Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
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    Originally posted by @Christopher Goldie:

    @Tuan Le We simply came to an agreement. I wanted $150k for the house, she told her client $155k, got him to sign a release of agent form and now she is a wholesaler JV'ing with me. So technically I am making 15k of which I pay her a JV share of 5k. Quick, simple and easy. I was willing to even split the 10k if I couldn't move quick enough.

    WOW !  Complete unethical behavior on the agents part by putting her needs/wants above her "client"

    5Reply
  • Richard C.
    Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
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    Originally posted by @Greg H.:
    Originally posted by @Christopher Goldie:

    @Tuan Le We simply came to an agreement. I wanted $150k for the house, she told her client $155k, got him to sign a release of agent form and now she is a wholesaler JV'ing with me. So technically I am making 15k of which I pay her a JV share of 5k. Quick, simple and easy. I was willing to even split the 10k if I couldn't move quick enough.

    WOW !  Complete unethical behavior on the agents part by putting her needs/wants above her "client"

     Should absolutely cost her her license.  And Christopher is using what appears to be his real name, so finding her from public records shouldn't be that hard.  Hopefully karma is about to take a big bite.

    2Reply
  • Richard C.
    Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
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    And it appears to be on a HUD house! Sham buyers on a HUD bid. How much jail time is that?

    0Reply
  • Christopher Goldie
    Contractor · Columbia, SC · Member since 2014 · 241 posts · 68 votes
    11y

    And the naysayers join in. I'm up for a debate. 

    Ok, lets break it down. The property was in investor status, so I didn't pretend to be an OO. The agent placed a bid of $165,000 on behalf of her client about a week or so prior to me getting it under contract and it was not accepted. I placed a bid at $140,000 and HUD accepted. She contacted me about the property and we came to an agreement to allow her client to purchase at $10,000 less than what he was willing to pay for the property. Not exactly sure how that's putting her needs above the clients. Way I see it she did exactly what a buyers agent should do, got her client a better deal. Everything was disclosed fully, I really don't think it would have mattered either way because he would have ended up paying commission to the agent anyway.

    As to being a sham buyer, you are entitled to your opinion, however my agent, with a large national realty company, his broker and an attorney were all consulted, informed and know exactly what my intentions were. I seriously doubt that any of these professionals would risk their licenses, professional reputations or lively hoods for me. Would it make you feel better if I closed on the property first and then sold the very next day? Not quite sure I see the difference. If I could not have closed the transaction I would have lost my EMD, and the buyer could have attempted another bid.

    Please explain what I am missing.

    1Reply
  • David Begley
    Investor · Atlanta, GA · Member since 2014 · 415 posts · 299 votes
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    Originally posted by @Stephen Chatto:

    Real Estate Myths. I am glad my Mentor @Karl Krentzel is willing to tell me the truth so I can get deals DONE.  Her are a few myths he helped me DEBUNK

    3) Myth #3 - State contracts are stupid. Wow, I have learned the hard way that things run so much smother if on a state contract. As a wholesaler you are selling CONTRACT not houses. So it is fair to say that a better contract is worth more. We determined above that realtors can bring buyers. Strong buyers in fact. Do you think it is easier to sell that buyer with a Realtor a State Contract or a 2 Pager? Use a state contract and your buyer pool opens up tremendously.

    I can think of multiple examples in my business when these 4 myths have been debunked. It feels good to know the truth

    Hope some of you can benefit from this insight.

     I have never encountered a Wholesaler willing to use a Realtor State Contract on a deal.  Please elaborate how you overcome this obstacle - I've probably lost several deals because of this, but have also likely avoided some losses or headaches too.  I bet there isn't a single Wholesaler on this forum that consistently uses state contracts in their business.  

    0Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
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    Originally posted by @Christopher Goldie:

    @Tuan Le We simply came to an agreement. I wanted $150k for the house, she told her client $155k, got him to sign a release of agent form and now she is a wholesaler JV'ing with me. So technically I am making 15k of which I pay her a JV share of 5k. Quick, simple and easy. I was willing to even split the 10k if I couldn't move quick enough.

    First off, I never said you did anything wrong or unethical. As a broker/investor, I have sold many HUD homes to previous bidders at a price lower than their bid. We used to be able to see which brokerage firm placed all the bids even those that were not accepted. I would often contact them to see if their client was still interested in the property. Great job on your part to get a deal done !

    However,  an agent who is a Realtor, agrees to abide by a certain code of conduct that you are not and that is to promote their clients needs over their own.  Here is a  part of the code of ethics we agree to abide by :

    Duties to Clients and Customers
    Article 1
    When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly. (Amended 1/01)

  • Standard of Practice 1-1
      REALTORS®, when acting as principals in a real estate transaction, remain obligated by the duties imposed by the Code of Ethics. (Amended 1/93)

  • Standard of Practice 1-2
      The duties imposed by the Code of Ethics encompass all real estate-related activities and transactions whether conducted in person, electronically, or through any other means.

      The duties the Code of Ethics imposes are applicable whether REALTORS® are acting as agents or in legally recognized non-agency capacities except that any duty imposed exclusively on agents by law or regulation shall not be imposed by this Code of Ethics on REALTORS® acting in non-agency capacities.

      As used in this Code of Ethics, “client” means the person(s) or entity(ies) with whom a REALTOR® or a REALTOR®’s firm has an agency or legally recognized non-agency relationship; “customer” means a party to a real estate transaction who receives information, services, or benefits but has no contractual relationship with the REALTOR® or the REALTOR®’s firm; “prospect” means a purchaser, seller, tenant, or landlord who is not subject to a representation relationship with the REALTOR® or REALTOR®’s firm; “agent” means a real estate licensee (including brokers and sales associates) acting in an agency relationship as defined by state law or regulation; and “broker” means a real estate licensee (including brokers and sales associates) acting as an agent or in a legally recognized non-agency capacity. (Adopted 1/95, Amended 1/07)

      • Clearly,  having a client who is interested in a particular property and going to do a joint venture(Your words) to sell it to their client is a clear violation of the code of ethics that we as Realtors must abide by
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  • Christopher Goldie
    Contractor · Columbia, SC · Member since 2014 · 241 posts · 68 votes
    11y

    @Tuan Le, yes at this point the buyer knows that I'm getting my asking price of 150, and she is getting 5k. I would have felt it would bemore unethical for him to cut his agent out after the work she put in finding and showing him properties. He is fully aware, full disclosure. Additionally, she was vital to this deal as the buyer is Chinese and does not speak English very well, not enough for the two of us to communicate properly. She is bilingual and therefore I may have had to pay her to translate anyway. Everybody is happy, he got a better deal than he would have without me.

    0Reply
  • Christopher Goldie
    Contractor · Columbia, SC · Member since 2014 · 241 posts · 68 votes
    11y

    @Greg H. I think I see what you are getting at. Not being an agent (yet) I am not versed in the code of ethics. My point of view was she simply got a better deal for her client. If it was a violation, then unfortunately that was on her. I don't see how a third agent could have fit into this deal, being their is the listing agent and my buyers agent. I'm sure it could be done, I just don't have the knowledge. Again everbody is fully aware and disclosed.

    Maybe you wouldn't mind shedding some light on how you would handle this situation. Always looking to learn more.

    0Reply
  • Christopher Goldie
    Contractor · Columbia, SC · Member since 2014 · 241 posts · 68 votes
    11y

    And @Richard C. How about elaborate a little more on the "sham buyer" and jail time please. Yes that's quite possibly my real name and picture of myself, don't feel I have any reason to hide.

    0Reply
  • Braden C.
    Real Estate Investor · FL · Member since 2011 · 586 posts · 360 votes
    11y

    So it sounds like the buyer got a better deal on the house, the agent still made a commission (with full disclosure to buyer), and you made a nice profit from wholesaling a HUD house during the investor period which is perfectly legal. PHEW! Good thing nobody jumped the gun and started making assumptions and throwing around accusations without knowing some facts first.

    4Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    11y

    @Braden C.

    Please elaborate ?

    According to the OP, the agent withdrew as an agent and became a JV partner which would be a clear violation of the Code of Ethics. She did not make a commission. A BIG difference.

    As I stated, I have no problem with what the OP did as he is not subject to the same Code

    I can't tag Wayne Brooks but I would be interested in his opinion

    0Reply
  • Christopher Goldie
    Contractor · Columbia, SC · Member since 2014 · 241 posts · 68 votes
    11y

    @Greg H. So in this situation she should have withdrawn as the agent? I guess where I'm hung up is this: listing agent and my buyers agent's commissions are set at 3% each by HUD. Could, now, a third agent be involved? At 3%, 6%, agreed upon amount? The buyer did agree to the whole setup, may still be a violation but at least he knew.

    Even though I feel it was fair all around ( not that my feelings mean squat in regards to the law), I would at the least feel bad if there were consequences for this agent.

    0Reply
  • Christopher Goldie
    Contractor · Columbia, SC · Member since 2014 · 241 posts · 68 votes
    11y

    What I'm digging for is this: if the agent chooses to proceed knowing its a clear violation, I would want to be in cover my butt mode.

    0Reply
  • Dev HornPro Member
    Flipper/Rehabber · Arlington, TX · Member since 2013 · 1k+ posts · 2k+ votes
    11y

    What started out reading like a cloaked advertisement for coaching services turned into a rather spirited debate.  Cool!

    In regard to the idea that there you cannot know ARV and your cannot know repairs needed - man, that is a recipe for DISASTER.  This is one of the big problems in this business - people are sold the idea that the realities of real estate don't matter to you if you want to "flip houses".  Do this for a while and you will know how wrong that assumption is.

    You'd better know recent comps to get a median price per sq. foot to get you an ARV. And you'd better understand the basics of looking at an HVAC unit and knowing if it's in good shape or 100 years old and non-functional. If not, you will get your head handed to you on a platter in this business, OR....

    just do what most naive wholesalers are doing and just write up offers that you cannot move to a cash buyer because you have no idea what you're talking about.   Deals with bad numbers are non-starters that waste EVERYONE'S TIME and especially hurt the seller who thinks an "investor" is buying their house...

    6Reply
  • Gary Alford
    Investor · Norfolk, VA · Member since 2014 · 164 posts · 51 votes
    11y

    The OP made some valid points but as a wholesaler our purpose is partly to provide a service to our end buyers. So to not know your numbers and present the buyer with enough information to be able to give it a quick look over to know if its even worth looking into further when they receive countless emails from people all day is crazy. If we are to be building a true business we should be adding value to those we serve. So how do you know you have a deal if you do not have a ballpark at least of what repairs are and how much it can sell for after. I'm not saying repair estimates should be perfect because they're not going to be but they should be close. 

    However, I myself have come to realize how flawed the 65% rule can be and that it does not apply to all buyers. I have buyers that say as long as they make 25k minimum they will take it and they use cash not hard money. If most or all your buyers are using hard money then that is the rule you use but if they are real cash buyers then they can pay more. The BP calculator doesn't even use the 65% or 70% rule. 

    I'm not super experienced with hundreds of deals under my belt or anything but this is just my 2 cents.

    1Reply
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