How much should I get as a wholesale fee for a $4 million deal?
Jacob St. MartinPro Member
Investor · Charlottesville Virginia · Member since 2021 · 348 posts · 346 votesHow much should I get as a wholesale fee for a $4 million deal?
Most Popular Reply
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
3y@Jacob St. Martin the correct answer, generally speaking, is it doesn't matter as long as it is still a deal to the buyer. However, I applaud your considering your conscience. Not enough of us do that.
It might be helpful to consider a story. John is a car mechanic. Dan needs a new transmission. This would normally cost $2,000, but he asks John for a "friend" discount of $500 for a total cost of $1,500. From Dan's perspective, John does not lose out on anything but Dan save's $500. However, in economics/accounting, that $500 didn't come from nowhere. It came from John. John could have worked on someone else's transmission and made $2,000, or maybe he could have just had a day off. (These are opportunity costs John gave up). In economic reality, John loses out of $500 and Dan gains $500. There is a $500 gift going on. Why not have it go the other way? Why doesn't Dan offer to pay $2,500 for John's services because John is a friend?
5 Replies
- Title Representative · Irvine, CA · Member since 2017 · 874 posts · 519 votes3y
@Jacob St. Martin I believe in getting something fair, but nothing too crazy, especially since the seller and buyer are likely to find out, so maybe 1% of the purchase price approx. Just my opinion though!
- Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes3y
I would do a mix maybe of equity in a deal and then a wholesale fee. Obviously that might be harder to structure. On this size of deal 1% would be a normal fee if you only take a fee on it. Yes it's a large amount of money but it is a 4 million dollar deal
- Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes3y
Hey @Jacob St. Martin - I understand where you're coming from in terms of thinking that the 10% wholesale feel would be egregious in this instance. Typically, the larger the deal the smaller the % pay out (even as a broker).
For example, in residential transactions the sum commission for both parties is 5-6% (often lower the closer and higher you get to $1m+). In commercial, it's not unheard to have a 1-2% total commission. That being said... you found the deal AND the buyer so you're entitled to make the amount of money you deem is fit and you shouldn't leave any money on the table since you're providing most of the value here.
Why not a happy medium of 5%?
I disagree with the comments on restructuring the deal so you get some equity from it too... your buyer would likely not be too happy about that and you might not even want to. There's nothing wrong with making a profit and moving on, it's a business.
If you want to "hide" how much your assignment fee is, I recommend doing a double closing - speak to your RE attorney about that ;)
- Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes3y
@Jacob St. Martin the correct answer, generally speaking, is it doesn't matter as long as it is still a deal to the buyer. However, I applaud your considering your conscience. Not enough of us do that.
It might be helpful to consider a story. John is a car mechanic. Dan needs a new transmission. This would normally cost $2,000, but he asks John for a "friend" discount of $500 for a total cost of $1,500. From Dan's perspective, John does not lose out on anything but Dan save's $500. However, in economics/accounting, that $500 didn't come from nowhere. It came from John. John could have worked on someone else's transmission and made $2,000, or maybe he could have just had a day off. (These are opportunity costs John gave up). In economic reality, John loses out of $500 and Dan gains $500. There is a $500 gift going on. Why not have it go the other way? Why doesn't Dan offer to pay $2,500 for John's services because John is a friend?
- 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesIt’s a business to business deal - no consumer involved.
Quote from @Jacob St. Martin:
Hello everyone,
I am a real estate investor near charlottesville va, and do not specifically focus on wholesaling but will occasionally wholesale something if I think it is a good deal but doesn't work for me. I found a property that is 150 acres with 4 STR cabins that are performing well with huge room to expand. The price the seller gave to start was 4.25 million, I think I can get them a good bit lower but even at this price I have an interested buyer. My question is how large of an assignment fee do I collect on this? I see people take 10k on a 100k property but if you were to scale that to 4.25 million that is $425,000 which seems egregious. My buyer is also a charitable organization that I believe in a lot so I plan to take whatever a "reasonable" assignment fee would be and take substantially less but would still like something.
Thank you in advance!
Participants “earn” whatever “the market will bear”.
Having said that, unless you have multiple buyers competing for the right to purchase a property, you will get resistance for demanding too high a “middleman” fee.
‘Amazingly most of this resistance, but not all, is eliminated if you actually purchase the property yourself and then resell it. And if you keep it a couple of years before reselling, almost all resistance is gone.
The only reason you care about “buyer resistance” is that the buyer may not buy solely because he thinks you’re earning too much money.
You would ideally like to deal from a position of strength.
The least strong position is being a broker in a real estate deal and not possessing a real estate broker license. Arguably, you can’t even sue to collect on a commission in this case, even if you have a signed contract.
The second weakest position is being a licensed broker in the deal
A middling strong/weak position is being the middleman in a double/simultaneous closing.
A stronger position is to be able to take down the deal with outside financing and then “flip” it to an interested buyer.
Finally, the strongest position to be in is to be able to complete the purchase yourself using only your own cash.
Note that you don’t have to actually close with your own cash, or even close in your name. You just have to be able (and willing if necessary) to do it. Once people see you’re able and willing to complete the purchase yourself, their emphasis goes from being concerned with how much money You’ll be making to how much money they’ll be making.
In business negotiates, weakness brings on aggressive behavior in the other side; strength brings passive behavior.
ALWAYS TRY TO DEAL FROM A POSITION OF STRENGTH.
Also, the size of the transaction should be a secondary consideration as to an individuals compensation for finding and putting a deal together; the primary Consideration should be the profitability of the deal.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.