Do you have to lie to wholesale?
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes"I also thing it is important to be honest and upfront with people. Says "hey, I am buying your house, but I need to make money. I plan on eventually selling it. It may not be the right house for my portfolio, but I know some people it may work for." If you find phrases like that, you're not lying and you are prepping them for an assignment of contract."
If you never intend to purchase the house yourself, then the above is still a lie. I suggest telling the absolute truth; if your business model does not work when or because you are truthful, then find a different business model.
37 Replies
- Real Estate Investor · Member since 2013 · 866 posts · 487 votes12y
Originally posted by @Greg B.:
@Duncan Taylor
Maybe I should have clarified my example. I was more interested in the showing how it wasn't a lie and not the scenario. I apologize for that. But i'm still lost on the me being unethical part by selling to an end buyer. Isn't that what wholesalers do? They put up we buy houses signs and direct mail. Callers call and they go out to see the house. Get it under contract and sell to a rehabber. I don't know. If I put a property under contract and there's a double close at the lawyers office, I'm pretty sure I bought the property. If I assign the contract for a fee the property was bought because I did the work. I guess its how you look at things.Communication is sometimes a difficult thing and I apologize for being unclear.
It is not unethical for you to assign a contract to another buyer that you have an equitable interest in as a buyer.
It absolutely is unethical for you to sign a contract with a seller showing you as the buyer if you don't intend to close on that contract if you are unable to find someone to buy it from you.
See the difference?
If you sign on as the buyer and that transaction closes and the seller gets their money, NO MATTER WHAT, then there is nothing unethical about it. But, if you sign on as the buyer but back out and leave the seller hanging just because you couldn't find someone to buy your position, unethical is probably the most kind thing I could say about it.
That's the thing. Even if I knew my exit was going to sell to an end buyer I would still get it under contract, call the local private money man to secure financing, not a guarantee. BUT as soon as I hang up with the private money I'm calling every Sub2, Cash, Lease Op, Buy/Hold , etc etc buyer I could think of to deal this puppy. That's my point of it not being a lie. If I could then I would buy.
Also, aren't there contingency clauses that allow you to drop out due to lack of financing? The seller would know there isn't a guarantee I would buy. I'm basically going by what all the "gurus" teach in their overpriced "courses". It's great to actually get better advice for free
- Manchester, CT · Member since 2013 · 14 posts · 3 votes12y
Never lie to anyone, seller or buyer, in any real estate investing deal. Word will get around and people will not want to work with you in the future. You could be "Blacklisted".
Stay honest and Good Luck to you in the future!
- Real Estate Investor · Member since 2013 · 866 posts · 487 votes12y
Originally posted by @Greg B.:
@Duncan Taylor
That's the thing. Even if I knew my exit was going to sell to an end buyer I would still get it under contract, call the local private money man to secure financing, not a guarantee. BUT as soon as I hang up with the private money I'm calling every Sub2, Cash, Lease Op, Buy/Hold , etc etc buyer I could think of to deal this puppy. That's my point of it not being a lie. If I could then I would buy.
Also, aren't there contingency clauses that allow you to drop out due to lack of financing? The seller would know there isn't a guarantee I would buy. I'm basically going by what all the "gurus" teach in their overpriced "courses". It's great to actually get better advice for free
Greg, the gurus hide behind well crafted disclaimers. They can lie to you and you have no recourse. You can do exactly what they tell you to do and if you end up in court because of it I doubt they'd even send you a card much less take your call for them to help.
The financing contingency is NOT the same as an assignment. To be covered under the financing contingency it usually states you have to make a best effort to get the loan, you have to actually apply for a loan and you have to accept any loan offering reasonable terms for your given situation.
Think about it this way, if you say to the seller, "Mr and Mrs Seller. I am going to sign this contract saying I am going to buy your house. And, I REALLY wish I could buy your house. But, I can't. However, I do have a list of people who might buy it from me! So, here is what I am going to do. I am going to approach all of the people I know to see if they want to buy this from me. If they do, then we will set a closing date and you will get your money. But, if I can't find anyone to buy this, and I am going to work real hard at it, but, if I can't find anyone to buy it from me, I will have to back out. No harm, no foul right? Please sign here."
What do you think would be the next words out of their mouths?
Fair enough. That's why your the professional and I'm the newb. I appreciate the thread and not just leaving me hanging. I would still make an effort to get financing but letting them know all my options up front sounds like the way to go. The ethical way to go. Thanks
- Real Estate Investor · Member since 2013 · 866 posts · 487 votes12y
We were all newbs once. I think you will do just fine.
This is a long thread but one of the absolute best I have ever seen on wholesaling...
http://www.biggerpockets.com/forums/93/topics/58383-the-truth-about-wholesaling-
- Mansfield, TX · Member since 2013 · 207 posts · 26 votes12y
I am the buyer period, that's how I do it if the property is vacant. I list in the addendum in plain English "Buyer has the right to assign this contract". I let them read over my addendum and its one of the top bullets, I dont try to hide it, and 99% of the time they never say anything about it so I just move forward with the contract. One of the most well respected real estate attorneys here in the Dallas area instructed me to do it like this. You have the right, by law, with a standard purchase and sales contract to assign the contract. Price your offers to SELL and you won't have this issue to begin with (learn your markets how to price out ARV and rehab)
Situations where you ABSOLUTELY MUST DISCLOSE the whole process would be in instances such as short sale, an owner occupied home (these people are moving and depending on money to be in their bank account, or anything else time sensitive. Never ever, EVER string them along and then back out of a contract if they are going to be left in a bad situation. Only present yourself as the buyer if you are willing to step in and close on the house yourself cash if your assignee falls through.
If the potential deal is more marginal and I am not certain it will sell, then I am upfront with the seller and explain the process to them and the majority of the time they don't take issue with it.
If you want to disclose every single time no matter what, I highly advice you don't pitch yourself as a middleman. I come behind new wholesalers all the time that explain the process to the seller but position themselves as a middle man. Don't do that. If you are actually good at wholesaling you are actually bringing value to the transaction. Given their time and circumstances you will do a better job as a professional being able to determine value, find an end buyer, and close the transaction in a fast amount of time than they would.
The "truth about wholesaling thread" is ok. Mostly abunch of people that never wholesale trying to tell others how to wholesale. I think newbies would do better by reading posts by Tim G. and others on this forum that do this on a full time basis.
Originally posted by @Duncan Taylor:
@Greg Brown,
We were all newbs once. I think you will do just fine. This is a long thread but one of the absolute best I have ever seen on wholesaling...
http://www.biggerpockets.com/forums/93/topics/58383-the-truth-about-wholesaling- Originally posted by @Kay H.:
Originally posted by @Bill Mitchell:
I am the buyer period, that's how I do it if the property is vacant. I list in the addendum in plain English "Buyer has the right to assign this contract". I let them read over my addendum and its one of the top bullets, I dont try to hide it, and 99% of the time they never say anything about it so I just move forward with the contract. One of the most well respected real estate attorneys here in the Dallas area instructed me to do it like this. You have the right, by law, with a standard purchase and sales contract to assign the contract. Price your offers to SELL and you won't have this issue to begin with (learn your markets how to price out ARV and rehab)
Situations where you ABSOLUTELY MUST DISCLOSE the whole process would be in instances such as short sale, an owner occupied home (these people are moving and depending on money to be in their bank account, or anything else time sensitive. Never ever, EVER string them along and then back out of a contract if they are going to be left in a bad situation. Only present yourself as the buyer if you are willing to step in and close on the house yourself cash if your assignee falls through.
If the potential deal is more marginal and I am not certain it will sell, then I am upfront with the seller and explain the process to them and the majority of the time they don't take issue with it.
If you want to disclose every single time no matter what, I highly advice you don't pitch yourself as a middleman. I come behind new wholesalers all the time that explain the process to the seller but position themselves as a middle man. Don't do that. If you are actually good at wholesaling you are actually bringing value to the transaction. Given their time and circumstances you will do a better job as a professional being able to determine value, find an end buyer, and close the transaction in a fast amount of time than they would.
The "truth about wholesaling thread" is ok. Mostly abunch of people that never wholesale trying to tell others how to wholesale. I think newbies would do better by reading posts by Tim G. and others on this forum that do this on a full time basis.
Originally posted by @Duncan Taylor:
@Greg Brown,
We were all newbs once. I think you will do just fine. This is a long thread but one of the absolute best I have ever seen on wholesaling...
http://www.biggerpockets.com/forums/93/topics/58383-the-truth-about-wholesaling-So if you don't pitch yourself as the middle man whats an example of verbiage you would use to pitch another way?
- 12yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
The crux of the benefit the wholesaler brings to a seller is (1) exposure to a market different then the retail (owner occupant, retail investors) market on MLS or FSBO and (2) a potentially faster close to buyers who do not need to qualify for financing. This actually works best with houses that need intermediate to substantial repairs (the few owner occupants people interested will usually have a devil of a time getting financing for a house not in move in condition) or houses owned by people willing to accept a substantial discount for a quick close (like the owner who needed to pay a ransom for her son kidnapped in Mexico).
This can be conveyed to the seller. Having actual examples of previous deals is a major selling point, just as it would be for a real estate broker (agent). The gurus teach a move arms length seller - wholesaler relationship, where the seller and wholesaler are adversarial in nature. Under our current legal theories and court decisions, a business to business transaction neither party owes anything to the other; in a consumer to business transaction the business owes the consumer honesty, fair dealing, and possibly agency (not to use superior knowledge to the detriment of the consumer).
From an ethical view point here's how I look at it, if it's not something I would want my elderly parents involved in, then I wouldn't want to do it to anyone else.
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