Ethics

13 Replies

I have a dilemma that I would love to get an opinion about. I have an acquaintance I met in the past several weeks that is a wholesaler in Atlanta. He has a house under contract in an area of Atlanta that is a hotbed of investor activity. I had my real estate agent friend, who is also a broker, that works for a huge RE Company pull comps for this house and discovered that it can go for 50k more than what he is asking for it. The wholesaler has the house grossly under priced but does not know this. The house only needs about 20k-30k rehab to make it worth the number that the comps say the ARV should be. Even if the house needed 60k of rehab it would still give the purchasing investor a $100k profit After Repairs and if retailed.

My dilemma: Is it unethical to charge a potential buyer a $10k birddog fee to introduce this deal to him or her. Of course if he does not purchase there would be no fee? I would have him to sign “a subject too” agreement stating that if he (the investor) purchases the house then he would pay me the fee for introducing the deal. Because he is not going to purchase unless he sees the potential anyway. Is this unethical or am I just taking advantage of what can be seen as a creative real estate strategy? Be brutally honest.

You hear all the time on here that wholesaler a sell to other wholesaler a because they priced it wrong. The key is relationships. If everyone is okay with it great . The question is if you subject to to with this wholesaler are you going to burn bridges.

To sum it up: will this hurt future chances of working with these people ;)

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don't charge a fee. Do it as a double close. I would tell the wholesaler about this and split the profit as a double close. You'll make less but you need to cultivate a relationship with the wholesaler. Also splitting what looks like 60k is not bad for only meeting with a buyer  

I've geard were one wholesaler gets a deal and wholesales it to another wholesaler who wholesales it to the end buyer  

@Michael Williams   I think a bird dog fee is very fair for connecting two parties together.  However, $500 - $2k is typical on most investor to investor deals.  

$100k profit for some of the hotter areas in Atlanta is not unheard of, maybe even normal, when substantial renovations are required.

Ask your wholesaler acquaintance if you find a buyer if they'd pay you a fee and ask your buyer if you get them a great deal, if they'd pay a fee.  Together, you might get $3k.  

Last but not least, keep your pricing fair and you'll continue to work with these folks.  They are your business partners.  Do them right and you'll make a lot more than $10k over time.

With so much expected profit in the deal, why would you bird-dog it?  Why not take control of the contract from the original wholesaler, then wholesale the property...or better yet, buy and rehab the property instead of leaving money on the table.  

There is no ethical issue here. 

If you have a way to complete the deal as the buyer, that would be the best way to do it.

If you see yourself working with this acquaintance a lot in the future, you may want to give him a heads up that he has the potential to make more money on the deal.

I have an investor you would like to work with in the future, referring this deal could help you do that.   If you charge a fee here, I would make it pretty minimal.

Originally posted by @Elizabeth Colegrove:

You hear all the time on here that wholesaler a sell to other wholesaler a because they priced it wrong. The key is relationships. If everyone is okay with it great . The question is if you subject to to with this wholesaler are you going to burn bridges.

To sum it up: will this hurt future chances of working with these people ;)

 Hi Elizabeth

That is way I posed the question, I have not known this guy long but we have met and hit it off well. But I have been torn because I have the logic that if I bring a buyer that is giving him the price he wants for that property and I make a fee that will put me in position to compete with other wholesalers that bring Ernest money for the good deals it is a win win. But he may not see it that way.

Originally posted by @Mike Watkins :

don't charge a fee. Do it as a double close. I would tell the wholesaler about this and split the profit as a double close. You'll make less but you need to cultivate a relationship with the wholesaler. Also splitting what looks like 60k is not bad for only meeting with a buyer  

I've geard were one wholesaler gets a deal and wholesales it to another wholesaler who wholesales it to the end buyer  

 I really have given this way a lot of thought, and am leaning towards approaching him about this. 

Originally posted by @Guy Gimenez :

With so much expected profit in the deal, why would you bird-dog it?  Why not take control of the contract from the original wholesaler, then wholesale the property...or better yet, buy and rehab the property instead of leaving money on the table.  

There is no ethical issue here. 

 That was a thought as well, but I would have to partner with a more seasoned investor to make this happen I am still a newbie. Having a end buyer to at least look at this and give me more insight would be great. 

I have a friend that has been approved for a $200k home loan and he has expressed interest in joining me in building a real estate business. I am trying to figure out a way to leverage his pre-approval for a home loan with getting this property. I know that banks are not keen on working with deals like this. I am open to ways to leverage his position if there are any. 

Originally posted by @Jesse T. :

If you have a way to complete the deal as the buyer, that would be the best way to do it.

If you see yourself working with this acquaintance a lot in the future, you may want to give him a heads up that he has the potential to make more money on the deal.

I have an investor you would like to work with in the future, referring this deal could help you do that.   If you charge a fee here, I would make it pretty minimal.

 I would love to get this property from him and professionally market it to an end buyer but it still comes down to burning a bridge if the idea is not received well. I know there will be many other deals and the relationship is more valuable and I will make the choice to go to him. I still value opinions from BiggerPocket members. I learned a lot from the replies. 

Thanks  

We wholesale deals with that kind of profit for the end user/rehabber all the time. These prices are not unheard of and there is no reason to believe the wholesaler does not know the true value of the property. And, perhaps the seller knows something about the needed rehab that you're not aware of. Also, the numbers you're getting from the agent are not necessarily spot on. There appear to be a lot of assumptions in your statement.

When selling a wholesale deal, there has to be enough profit on the other end for the buyer to fix it and still sell it below market value to get it sold and make their own profit. Perhaps your confusion is about the numbers involved in wholesale transactions in general?

If you want to keep doing business with this investor as well as anyone you would find to buy the deal, be upfront. We all expect everyone in the chain of sale to make profit, that's how this works. $10,000 seems a bit high for a birddog, but not unethical.

As @Rick Baggenstoss said, keep your pricing fair and you'll continue to work with these folks. They are your business partners. Do them right and you'll make a lot more than $10k over time.

Let us know how this turns out!

@Michael Williams  

Leverage every minute of your time and every penny of your money. With the spread you're quoting, hard or private money could be an option too. First thing to do is get the contract assigned to you. Then immediately hit the BP community in your area and/or your local REI MeetUp groups with the deal. Money is always looking for good deals...good deals don't have to look for money.

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