Originally posted by @Jacob Michaels:
@Bill Gulley As a wholesaler myself, I can appreciate your opinion on the matter and I think there's a lot of truth in what you're saying. There's definitely a fine line to walk when wholesaling and I agree it's wrong to convince the seller their property is valued far lower than it is. There is a lot of gray area when negotiating great deals on properties and it is not an easy black or white by any means.
The way I work it is not to tell them it's a low-value property, but to tell them that based on these and these factors (comps, repairs, liens, etc) I could do ___this price. Is that something that could work for you?
Sometimes, sellers are simply not looking to make the absolute most out of a problem---believe it or not. Sometimes they value getting cash out of their property and getting rid of a headache for themselves more than getting more money.
I do think there's a need for wholesalers in certain situations and that done well we do add a lot of value to the chain. What if a seller needed to close within 7 days because they absolutely needed the money at that time? A realtor would not be able to guarantee that. A good wholesaler with a strong cash buyer network who knows exactly what their buyer can pay and that they would deliver 100% would be able to help this Seller out of their problem, where most realtors wouldn't.
I'd think, most of what you are saying, as do most all wholesalers, is what is referred to as cognitive bias, your physiological justifications as a defense to unethical dealing. There is no thin line or gray area. If it's what you want to do or what you do, you'll naturally justify your ways in a manner that makes it acceptable to you. It doesn't make it right.
The way you presented your offer is just fine, asking if that works for them, however, the tricky part is the materials, comps and repair costs shown to a seller. I could ask if that is the same material shown to a buyer, but I'm not naïve. An ethical market exists when the buyer and seller are fully informed having comparable knowledge where both negotiate their best interests. A buyer who shows skewed data that only represents their interests isn't being truthful, same with a seller. Again, knowledge guides fair negotiations, show the same comps to the seller as you would a buyer, to the buyer you'll need to explain why those homes are different and may not command the same price and explain your role and what you charge as a profit. To the buyer, those comps justify the asking price, the subject may not bring the same prices, but may also bring more depending on what value the buyer adds.
I have no idea where wholesalers get the idea that Realtors don't have cash buyers it pretty much falls in the bias developed to justify wholesalers having some unique advantage in marketing. Not true at all, Realtors probably have a much greater network of cash buyers and capable investors than any newbie buying lists of buyers. There is no secret about who cash are.
Generally, the reason Realtors don't get involved with distressed properties is that they take time, the market of buyers is smaller and there is more work involved. Some Realtors do mess with distressed properties, you'll see many fixer-uppers on the MLS. They have usually exhausted the cash buyer list by the time the property hits the MLS.
We say in RE that you make the profit on the buy side, not the selling side, that's because there is a price ceiling everyone has to work under.
If you were to go to a good attorney, you would expect to pay more than if you went to a new attorney, the difference you're paying for is more knowledge and experience. Same with a CPA, a physician who is a specialist, the same thing in RE.
Pretty hard to say how it is without being condescending, but if people didn't have inflated egos and opinions of themselves, it wouldn't as condescending now would it.
People begin in wholesaling being lied to about it being easy and the place to start. I'm not dropping back to gurus again, but I can't believe how naïve beginners are, being sold stories of RE. When I started I didn't start by flipping contracts I bought to hold, just had a job. Later I sold the place. Wasn't rocket science. Where we get most of these wholesaler types is because they are 1. desperate to make a living, 2. have no money, 3. probably no job and 4 no credit and they are told none of that matters. Yes, there is a possibility to do a deal with none of these aspects, it's rare, yet you believe because not only do you want to believe, you're probably in a position that you have to believe. That's how you get suckered in. Did these folks ever ask themselves why they are in that position? Could it be the lack of knowledge or education? Obvious and it's obvious to those who sell simple solutions to your problems! It's marketing and phycology! Not a real estate education.
Another attraction is "I'm a business person, I own my own business" fact is, newbies not only don't have a clue about the RE business, they don't understand business, any business, that's why they don't understand value. Value of anything really as the basis of any business transaction. Amateurs think buy low, sell high, simplistic thought, in between those prices is added value. It's not just what the market may bear, the value of that product or service has to be there as well.
In RE, you may have a product that is the subject of your transaction, the property, but if you don't own it, you can't sell it. Everyone in RE has an intangible product, their knowledge, not you BS line, not you spiel from your presentation, not your suit or your car, the only thing you have as your product is your knowledge.....what you know!
So, what do you really know? Usually, starting out, not much, ethically your knowledge isn't worth tens of thousands of dollars, not even several thousands. Mentioned way up there, the customary fee for a straw-man or facilitator for the sale of a residential property is already established between 6 to 10 % of the sale price. That is also set to someone who has gone to school and who has passed an exam to deal with the public, not some egotistical big headed pumped by gurus.
I am NOT opposed to wholesaling, I did one last year and I'm considering doing another on a 400-500K home here. What am I worth in such a deal? 6 to 10%! I might go with 3%! Depends. Does any new investor bring the same value to a transaction that I do? Doubt there is any logical way you could justify saying yes, but there has to be some idiot out there who would think so. You're letting greed (or need) overload your perceptions.
I mentioned above what you or a good wholesaler can bring to the table to add value, you'll need to get past what a Realtor would do to command a higher value.
Knowing a cash buyer isn't worth zip, nothing, I know Bob Jones, he has purchased properties with cash. Any busboy can overhear a conversation, my bar tender knows cash buyers, anyone can go into a courthouse and find cash buyers with very little training and assistance from the office staff. There is no value in knowing cash buyers!
What else do you bring to the table? That may vary, but it will be based on your education and knowledge. Just as that doctor brings value in treating you, as the CPA doe in your corporate accounting, just as that attorney does in representing the client, but for some wild haired idea, new wholesalers with less knowledge than a Realtor seem to find ways to justify their value beyond what they are really worth.
This is primarily for the twenty something know it alls with cocky burn the world up attitudes, but applies to all who really don't understand business, basic economic concepts, why things have value and what constitutes a market. You can not deal ethically in business or RE without understanding these concepts. And, the biggest gripe of RE professionals about wholesalers is their unethical dealings. Once you really learn the basics of this industry then you can wholesale in an ethical manner and bring value to both the public and your buyers, until then, you're spitting in the wind. :)