Whole Seller Tactics

[Donn Milton III]

Hello BP, My family has a property that I was looking in to purchasing. It is a single family home that was left to my mother and her siblings with the directions to sale and split the profits but give interested family members first priority. I did some due diligence and made an offer that should’ve been reasonable considering the condition and location of the house. When I made the offer, my mother informed me that an out of state law firm acting as a whole seller had contacted her with a letter offering a lot more. I looked at the letter and this whole seller was offering what amounted to the highest possible retail value based on the Zillow estimate sight unseen, no questions asked. I went back to my numbers and, using the BP calculators and speaking to a realtor to gather comps, I still couldn’t make what they were offering make sense. The price they’re offering would negative cash flow by hundreds of dollars for years until the rent prices caught up or something drastic changed in the neighborhood causing a rapid appreciation of the area. 

That brings me to my question. Do some wholesalers use the tactic of offering an high retail price to get prospects to bite and then dropping their offers down by thousands of dollars after inspection? Because I can’t pencil out how they would make money on this deal otherwise. What’s the angle?

[Lydia R.]

It's impossible to give you a definitive answer on this one. Ive seen hedge funds buy up properties for much more than made sense to me. Ive seen Zillow attempt to compete in the ibuyer space, paying retail or above retail for inventory and we all know how that turned out. It is entirely possible that the law firm who made the offer are over promising now and planning to give their offer a haircut after the initial due diligence period. It's also possible that they have a play that makes sense even at their offer price. I knew an investor in Dallas who specialized in seller financed properties. He had a waiting list of people who wanted to purchase homes with seller financing because getting a bank loan was not an option. He couldnt find enough off market deals to meet the demand so he started buying retail properties, and reselling them with seller financing after adding 15K to the price. He would build a portfolio of these notes and then sell them. He was able to make money even though he was paying retail for the properties. 

So I say all this to say, it's completely possible this law firm is trying to pull a fast one, but it's equally likely that they have some strategy that allows them to purchase this property at the price they offered and still make a profit. If your family decides to take that offer instead of yours, advise them to get a substantial amount of EMD, POF (make sure they verify it) and have someone look over the contract to make sure there are no 'gotchas'

Is there any way you can make your offer more enticing to your family? Or are they set on taking this too good to be true offer instead?

[Bruce Lynn]

Yes to everything you describe.

Could offer high now, try to wholesale and bail if they can't resell it.

Could offer high now, and retrade after they inspect it....this is very common.

Could want the property to complete a portfolio.

Maybe it is in an area they calculate high growth, high rental demand.

Maybe they are more cost efficient than you....like maybe they have low cost of 

Maybe they have different motivations....like just capital preservation....not ROI....I have a few investors like this...mainly foreign. Just want the money out of their country and in a safer investment in US....don't care much about returns.

Have an appraisal done....by the owners and agree to pay the appraised price....bank type appraisal...not tax/cad appraisal.

How are you going to pay?  Cash...financing?  will it finance?   Have your preapproval letter for them or proof of funds.

Write them a formal offer, on contract forms with closing dates and all required addendums.

Lots of wholesaler contracts are very one sided in favor of the wholesaler....they can back out at any time with no financial loss, so if they want to tie up the property with a wholesaler contract...make sure it is iron clad on the family side...big non-refundable earnest money, short closing window, like 1-2 weeks.  No retrade provision, no inspection provision, etc.

Do you have any family advocates that will support your offer?   Use them...have them lobby the deicison maker.

Good luck and best wishes.