Is this an end to Wholesaling?

PinnedPhiladelphia, Pennsylvania
Wholesaling
2yFollow

Is this an end to Wholesaling?

Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes

Bigger pockets just released an article that goes into Wholesaling and how it can become illegal to Wholesale Real Estate in South Carolina.

Here is the link for reference:

https://www.biggerpockets.com/blog/new-south-carolina-law-wo...

Wholesaling real estate seems like a great strategy but with that strategy, I've seen a lot of fishy characters who promote things that aren't true, lie to sellers directly, lie to Buyers and intentionally misrepresent information. Some of this misrepresented information includes things like after repair values, repair costs, rental comps and more. 

I have even encountered wholesalers who push properties with title issues onto buyers that are not knowledgeable enough to understand that this issue could be a very serious problem. 

A lot of the pitch that wholesalers make to sellers is that they were going to be buying a property with cash, even though they have no cash. So if they don't end up finding a buyer to reassign the contract to, they just lied to the seller and wasted their time. 

Again, this is not to bash on all wholesalers, because I do believe that there are some decent people out there. That being said, the majority of my experience comes from people who are pushy salesman who try to get you to buy something. 

At the end of the day, wholesaling real estate is like getting a net listing for a real estate agent. Except the real estate agent discloses that they will be making the difference upfront and not lying to the seller about buying their property for cash. 

That being said, in many states and jurisdictions net listings are actually illegal. 

My personal opinion was that a lot of this Wholesaling activity couldn't go on much longer. There had to be a breaking point, where unlicensed and unaccredited individuals could be handling real estate transactions. Lots of these individuals didn't have mentors or licensed professionals to help guide them through a transaction process. And on top of that I have seen files were there has been over five wholesalers, making a cut from the sale of a property. 

So before that property went into the buyers hands it went through five other individuals. They were all making money on this transaction, and likely not being transparent with the original owner. 

I remember, speaking directly with wholesalers, who would tell me not to disclose that a profit is being made. 

Look, I respect the hustle. I am all for individuals trying to make their way in the Real Estate sphere. But there has to be a way that is more transparent with individuals. We can't have a large amount of unregulated people, pushing values, and figures onto the end consumer who will be the one that's really suffering at the end of the road. 

To extend an olive branch there are plenty of bad real estate agents that also push things onto their clients, but those individuals work under a broker who carries a fiduciary duty to their client. Here there are no licenses regulations or implemented ethics. 

What are your thoughts? 

[email protected]267-767-0111
Alan Asriants - New Century Real Estate 590 Reviews
View Page
13Reply
1,042 views

Most Popular Reply

Will GastonPro Member
Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
2y

@Alan Asriants there is a ton of nuance to these situations, but I am personally done with wholesalers who require me to tell an owner that I am their "business partner."

Transparency is best for all those acting in good faith.

16Reply
See this reply in the discussion

236 Replies

Jump to latestLatest
  • Account Closed
    MD · Member since 2018 · 195 posts · 53 votes
    2y
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Doug Smith:

    Good Post, @Alan Asriants. From a lender's perspective, we're also seeing a lot of greed with some wholesalers raising their spread to the point that the math doesn't work for the end buyer. For instance, we had an application today where the wholesaler got a home under contract for $200k and then put a $50K mark-up on it to sell it to the "C" buyer for $250K. The math didn't work at $250K, but it works at $222K. They are sticking to their full $50K. We as a lender are passing on the deal. If you're a wholesaler, one much understand that a rising tide raises all ships. If you're end buyer can't get the numbers to work, you'll likely have no deal anyway. We used to do a ton of wholesale deals, but the spreads are getting out of hand. 


    Doug the big issue to me is as a cash buyer  I do not get title insurance for the amount of the assignment fee.. I insist on it some title companies will allow it others wont.. its a big issue and I am sure many buyers out there who pay cash have no clue when they pay 250k for a property and the assingment fee is 50k they are only getting 200k in title insurance.. So if title is buggered and one has to make a claim and I seem to have to make about 1 a year with these deals coming through wholesalers if you dont have title insurance that includes the assignment fee you will lose that money.

     Jay, why are you buying anything from wholesalers? Why don't you go out and find the sellers who own property directly, so you can buy from individual homeowners and cut the middleman out? 

    Well because I am a JV partner ( I am the Money) and I live in Oregon and do these deals in 10 states.. So we get them from all sources  MLS  courthouse steps  and of course wholesalers.. And we pay cash for everything.  Thats why I was commenting on the title insurance issues which your average investor probably has no clue. 

    I get it. But if I were you and had such a negative perception of wholesalers, or any specific wholesale deal where I can't get a title fully insured, I would simply forego the assets offered by wholesaler/s. Every day I go buy things for my household I decide whether the price I pay for an item is worth it or not. If it's not, or if purchase is too risky and costly, I simply don't buy it. 

    As to assignment fee, the average is said to be $10,000, with actual fee ranging from $2,000 to $50,000 or more. It all depends on numbers. Let's assume I , as a wholesaler, after netting $2000 per deal x 20 deals I closed in an entire year, stumbled upon certain property in town A. I run comps with my agent and they come at $450,000. I have full report drawn from MLS. That's my ARV. I deduct 30% and arrive at 315K. I hire a contractor to do accurate estimate of repairs and they quote $45,000. That brings the total down to $270,000. Suppose I want to make $10,000 , so I am ready to write a contract for $260,000. That's my MAO. The seller is motivated and says they want to get out of that property ASAP and will give it to anyone who pays them $220,000. $270,000 is a fair price for that property for an investor. I run my numbers, I know the market, I know the ARV. If I send this property to my buyers I will have three people next day wanting to pay cash to buy it at $270,000. Suppose you, as an investor, also find out (through my RE agent) about that property and want to buy it. Do you think I should assign it to you for less than $270,000, so you can get full title insurance on it, while three other buyers are willing to buy it for 270K with no questions asked (and aware of the issue with title insurance)? How much should I assign it to you for? $230K? And forego other investors/buyers? If yes, please tell me why should I consider it a fair deal and give that contract to you, knowing that this house has $450K ARV after $45K spent on rehab/renovation? What I think is fair is for you to do what I did, to find that exact house or similar property on your own, close the deal at $220K and not deal with me at all. But if you go through me, then I am entitled to my fair share. You didn't pay me to work the entire year, driving one town after another, putting up signs, making cold calls, networking, paying for local ads to make $2000 on each deal I netted prior to this $50K gem. Why should I give it to you for less than it's worth in a wholesale market?


    Correct if the title company you were using would not give me insurance sufficient to cover your fee I would not buy it or fund it for one of my JV Partners.. Risk is not worth it.. We have no shortage of deals so this would just be another one in our pipeline nothing special.. And if your other TRUE cash buyers were not smart enough to know about title insurance then thats one them. I suspect a lot of your buyers to most of your buyers are getting HML Loans in that case title insurance is for the amount of the loan and if the loan included our fee then they are insured.. I am sure these are issues your probably just not experienced enough to know of.

    The reality is the writing is on the wall states are after NON licensed wholesaling assigning just is what it is.. the fact that you would make 50k on a 220k sale when a brokerage fee would be 15k.. thats 35k that is being taken from a seller who probably knows no better or has just been lied to by the wholesaler as to the real value.. and that is what the law makers and regulators are focused on.. 

     The first part of your post makes sense and I find nothing to disagree with. It's a free market, no body can force anybody to buy or sell anything. If the product/contract/service I offer is not suitable to you then I don't want you to be my customer. We both can happily part our ways under free market conditions.

    But the second part of your post implies that all sellers are idiots, or that I (or State) is a nanny that must make decisions for mentally deranged sellers , all of whom have an IQ of 10 years old child. I don't believe this to be true. On my part, I would avoid to close any transaction with someone who is handicapped, has IQ of 10 years old child and is unable to read and understand the contract they are signing. After all, if someone was clinically handicapped and not able to understand and consent to terms of the legal agreement, then the agreement itself could be declared null and void in the court of law. 

    I will be dealing with adults, not handicapped individuals. And it's their responsibility to figure what they want to ask for their property. I don't run charity, I don't run educational non-profit classes. By the way, that's one of the reasons I don't want to touch pre-foreclosures, with accounts delinquent for 60 days. Some wholesalers do, they go and offer to help sellers to stay in their homes, educate them about loss mitigation , ask if seller needs help with it and etc., before seller begs them to just rid them of their house. I will have none of it. It's none of my concern to educate or baby sit another adult in my state. No one did for to me, except for my parents, and I have no intention to parent strangers. But once I have an adult, with full cognitive abilities, who is motivated to sell and get out of that property for MAO or less, rest assured I will make my offer on that property and if they accept it I will write a contract. Let them State AG's come after me in droves, there is no crime in making an offer to someone who owns the property to buy it from them. It's marketing to public that is illegal and I have no intention to sell dilapidated , dirty , stinky and full of trash property to an end buyer in MD or anywhere. I won't sell it to investor either, I will simply secure my interest in the contract. So, which part of it is illegal or wrong? You could say I am taking it from seller if I had a contract for 220K and paid seller 185K. That would be stealing from a seller. But if seller is entitled to get more, then who is forcing them to give their property to me for 220K? Who is stopping them from finding you or other investor on their own and getting full $270K in their pocket? I certainly don't. Regulators and law makers in these blue states couldn't care less about the sellers. If they did they would have better economic policies , create safe neighborhoods and investor/business friendly atmosphere, to make their citizens prosper and able to afford the houses they live in, instead of losing it to banks in foreclosures. No, it's not the sellers they care about. They care about eating all the pie by themselves and sharing it with those who finance their campaigns and free vacations, that's what those law makers really care about. And while at it they will make sure there will be more poverty , more foreclosures and less opportunities for average Joe to make a living here. We all know the drill. I am just glad that we have 50 States and not all of them are blue and purple. So, we can still focus on doing business, even if it means we have to move out of blue and into a red state in the near future.


     so Eric you have not actually done any deals it sounds like.. U understand the 70% minus rehab costs those numbers have been going around for a long time.. its pretty tough out there right now but hopefully you can make it work.. although I always wonder why those that want to sell real estate  ( that is what your doing at the end of the day bringing a buyer and seller together) why you dont just get in the game with a license and make a career of it.. if your any good at sales and can stick to it can be a very rewarding occupation.. wholesalers they dont last very long unless they are very well capitalized and vertically integrated. 

    Good question, Jay. For couple of reasons. First, becoming REA requires 60 hours of schooling , and then you are stuck with less than 3% commission per transaction (see below link with average rates of REA's compensation), and tons of regulations on top of it while competing with hundreds of other realtors on MLS. It's just not worth doing it in my opinion. It works well for those who have been doing it for decades, but it may take at least a decade to get anywhere as REA.

    Becoming a broker takes 3 years in MD after becoming REA. You can't apply and become a broker without those 3 years under your belt. And then you split commissions with agents and have a cap limiting what you can earn on each transaction regardless of the deal you struck.  How is this fair to the broker?))

    After much research and talking to people who did it all (running crews/flipping, owning to rent/passive investment, brokering, selling real estate as agents and etc.). I concluded that wholesaling is best to start with. Gradually, if you are able to make it work, you can explore flipping, owning to rent and other options to build wealth. But none offers a quick turn around and cash flow, with the least amount of headache and financial risks (not to confuse with the least amount of WORK),  as wholesaling. It's just a good stepping stone when you enter the world of RE investment.

    LINK: https://listwithclever.com/average-real-estate-commission-rate/maryland/

    The average total real estate agent commission rate in Maryland is 5.34% of the final sale price. Based on the latest median home sale price in Maryland ($418,534), that translates to a total cost of roughly $22,350.

    Home sellers typically cover the total commission fee from their sale proceeds, which is split between the listing and buyer’s agents who handle the sale. In Maryland, the average listing agent fee is 2.76%, while the average buyer’s agent fee is 2.58%.

    Real estate agent commissions make up a significant portion of the closing costs for Maryland home sellers. But you don't have to pay the full 5.34% to a traditional agent. If you're selling a home in Maryland, you can use a discount broker to save on realtor fees. In fact, depending on your situation and the agents you work with, you could save 33% on realtor fees, or about $7,366 on average.


     this is why wholesale guru's can sell 30k packages as people drink the cool aid basically verbatim of what you just said.. Any way like I said good luck.. 


     Thank you. But from what I understand in wholesaling it's not so much luck but consistent work, good discipline, persistence and ability to analyze deal that deliver results. Discipline and consistent work would probably top the list, as analyzing the deal doesn't take much brain power and effort. Negotiating comes naturally once you properly analyze the deal.

    The gurus are another subject. May be they are the ones who should be outlawed. There is absolutely nothing one can learn in this business worth paying 30K. The rules of the game are simple, can be read and understood in less than a day. It's amount of WORK and CONCENTRATION that will make a difference between make or break, and no GURU can make you stick to your regimen and do something persistently and systematically if you can't make yourself do it. 

    1Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    2y

    I’ve bought 9 houses from wholesalers and got great deals. The sellers seemed happy to get a price they agreed to and I’m happy getting the properties at a price that works for me. I don’t have a problem with wholesalers making a quick easy buck off the whole thing.

    1Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    2y

    There are two aspects to the government “crackdown”. First, there are the laws and regulations being created that require “wholesaling” as we’ve come to define it, to require a real estate broker license. Second, there are the laws being passed introducing requirements for when and how “wholesalers” can operate, such as disclosure requirements, right to rescind, limits on profits, etc. 

    It’s important to examine the legal basis for the governments action. Primarily, the regulators argument is that the wholesaler is NOT entering into a buyer - seller relationship, but a broker - seller relationship.  Second all regs apply to owner occupied residences and NOT commercial or investment property, although in theory it should not matter.

    “Real” wholesaling (at least as it was defined in the 1970s and 80s) consists of purchasing properties at “wholesale” prices, completing the purchase, keeping an inventory of properties for resale, and reselling the properties to end buyers, either users (owner occupants), fix n flippers, or buy and hold investors.  This obviously requires a fairly significant amount of capital, the ability to truly analyze deals, a deep understanding and knowledge of the local market, real end buyer contacts, and a willingness to commit one’s capital at risk.  So, nothing like what is called wholesaling today. 

    Back then when we “flipped” a contract to an end buyer and hence didn’t complete the purchase ourselves, it was the result of an opportune circumstance rather than a defined strategy; we negotiated an offer fully expecting to complete the purchase ourselves (unless something negative was discovered).  

    To me “legitimate” wholesaling can be done a number of ways, none of which seem to be promoted by the popular gurus promoting wholesaling.  The first is as described above completing the purchase and then selling to an end buyer.  The second is obtaining and buying an option on the property and attempting to find a buyer during the option period.  The third is disclosing completely that you will only close IF you are able to “sell” the property for more than the contract price.

     The option makes the most sense for those with some risk capital, knowledge of the local market, and the gumption to risk that capital.  However, desperate sellers aren’t looking for $2500 to tie up their property for 6 months, they’re looking for the fastest sale possible.  I believe that what’s best for them probably isn’t a “wholesaler” tying up their property for 60 days to see if he can flip the contract to someone else for a profit.  What’s best for the, is an offer with no contingencies at a realistically low price so they can weigh that against listing the property with a broker for a potentially higher net but taking more time and uncertainty.  

    Wholesalers will argue that they represent a legit “alternative” to homeowners the broker market can’t service.  This may be true for (1) home with values so low that 6% commissions aren’t worth pursuing, (2) homes in areas most brokers don’t want to service (though I have owned properties in VERY rough areas and never had a problem finding interested brokers or (3) properties needing so much work to make livable that broker marketing would not be effective (much less common today with many brokers specializing in investment properties and many others representing investors as a part of their client base). 

    It’s important to note that the greatest “victims” here may be the “wholesaler” themselves.  Consider the ones that paid $20k - $40k on their credit cards for the full mentorships, spent thousands more on data sites, thousands more still on direct mail, email blasts, then even more on SEO and SEM.  They may be in for $80k or more and NEVER complete a deal (I know someone this is exactly true of).  Further they may have spent 6-12 months of their time at this (opportunity cost).  

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    4Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    2y

    It has never been quite legal, because as soon as you sell houses in a repeated pattern you meet the criteria of a broker.

    The issue that as an agent I don't want anything to do with sub 200k properties, because the % commission model does not work. And I don't think buyers and sellers would be happy with a 30% commission. But as a wholesaler, you don't have to disclose how much you are making. Marking a 60k deal up to 80k - all day long.  

    That is what goes against the transparency that we are trying to achieve with the NAR settlement in hopes that home prices get cheaper because some desperate buyer's agent will do it for 1%..

    I am also not for government regulation of every last detail, I have seen that in Europe... but too many wanna-be wholesalers have caused too much damage by not being able to deliver to people that are already in a tight spot

    1Reply
  • Peter StewartBusiness Member
    Real Estate Broker · Indianapolis, IN · Member since 2018 · 160 posts · 168 votes
    2y

    The wholesaling business needs a major overhaul. It's unlicensed and unregulated, and often times we're dealing with complete amateurs due to this. There are no barriers to entry. No oversight. It's like the wild west. Personally, I'm glad some regulations are coming down the pike - they are long overdue. 

    [email protected]317-450-9202Podcast Guest on Show Deal Deep Dive: 2 Real Deals in 2023 That’ll Build Your Retirement Nest Egg
    Peter Stewart Realty4.969 Reviews
    WebsiteView Page
    1Reply
  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    2y
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Doug Smith:

    Good Post, @Alan Asriants. From a lender's perspective, we're also seeing a lot of greed with some wholesalers raising their spread to the point that the math doesn't work for the end buyer. For instance, we had an application today where the wholesaler got a home under contract for $200k and then put a $50K mark-up on it to sell it to the "C" buyer for $250K. The math didn't work at $250K, but it works at $222K. They are sticking to their full $50K. We as a lender are passing on the deal. If you're a wholesaler, one much understand that a rising tide raises all ships. If you're end buyer can't get the numbers to work, you'll likely have no deal anyway. We used to do a ton of wholesale deals, but the spreads are getting out of hand. 


    Doug the big issue to me is as a cash buyer  I do not get title insurance for the amount of the assignment fee.. I insist on it some title companies will allow it others wont.. its a big issue and I am sure many buyers out there who pay cash have no clue when they pay 250k for a property and the assingment fee is 50k they are only getting 200k in title insurance.. So if title is buggered and one has to make a claim and I seem to have to make about 1 a year with these deals coming through wholesalers if you dont have title insurance that includes the assignment fee you will lose that money.

     Jay, why are you buying anything from wholesalers? Why don't you go out and find the sellers who own property directly, so you can buy from individual homeowners and cut the middleman out? 

    Well because I am a JV partner ( I am the Money) and I live in Oregon and do these deals in 10 states.. So we get them from all sources  MLS  courthouse steps  and of course wholesalers.. And we pay cash for everything.  Thats why I was commenting on the title insurance issues which your average investor probably has no clue. 

    I get it. But if I were you and had such a negative perception of wholesalers, or any specific wholesale deal where I can't get a title fully insured, I would simply forego the assets offered by wholesaler/s. Every day I go buy things for my household I decide whether the price I pay for an item is worth it or not. If it's not, or if purchase is too risky and costly, I simply don't buy it. 

    As to assignment fee, the average is said to be $10,000, with actual fee ranging from $2,000 to $50,000 or more. It all depends on numbers. Let's assume I , as a wholesaler, after netting $2000 per deal x 20 deals I closed in an entire year, stumbled upon certain property in town A. I run comps with my agent and they come at $450,000. I have full report drawn from MLS. That's my ARV. I deduct 30% and arrive at 315K. I hire a contractor to do accurate estimate of repairs and they quote $45,000. That brings the total down to $270,000. Suppose I want to make $10,000 , so I am ready to write a contract for $260,000. That's my MAO. The seller is motivated and says they want to get out of that property ASAP and will give it to anyone who pays them $220,000. $270,000 is a fair price for that property for an investor. I run my numbers, I know the market, I know the ARV. If I send this property to my buyers I will have three people next day wanting to pay cash to buy it at $270,000. Suppose you, as an investor, also find out (through my RE agent) about that property and want to buy it. Do you think I should assign it to you for less than $270,000, so you can get full title insurance on it, while three other buyers are willing to buy it for 270K with no questions asked (and aware of the issue with title insurance)? How much should I assign it to you for? $230K? And forego other investors/buyers? If yes, please tell me why should I consider it a fair deal and give that contract to you, knowing that this house has $450K ARV after $45K spent on rehab/renovation? What I think is fair is for you to do what I did, to find that exact house or similar property on your own, close the deal at $220K and not deal with me at all. But if you go through me, then I am entitled to my fair share. You didn't pay me to work the entire year, driving one town after another, putting up signs, making cold calls, networking, paying for local ads to make $2000 on each deal I netted prior to this $50K gem. Why should I give it to you for less than it's worth in a wholesale market?


    Correct if the title company you were using would not give me insurance sufficient to cover your fee I would not buy it or fund it for one of my JV Partners.. Risk is not worth it.. We have no shortage of deals so this would just be another one in our pipeline nothing special.. And if your other TRUE cash buyers were not smart enough to know about title insurance then thats one them. I suspect a lot of your buyers to most of your buyers are getting HML Loans in that case title insurance is for the amount of the loan and if the loan included our fee then they are insured.. I am sure these are issues your probably just not experienced enough to know of.

    The reality is the writing is on the wall states are after NON licensed wholesaling assigning just is what it is.. the fact that you would make 50k on a 220k sale when a brokerage fee would be 15k.. thats 35k that is being taken from a seller who probably knows no better or has just been lied to by the wholesaler as to the real value.. and that is what the law makers and regulators are focused on.. 

     The first part of your post makes sense and I find nothing to disagree with. It's a free market, no body can force anybody to buy or sell anything. If the product/contract/service I offer is not suitable to you then I don't want you to be my customer. We both can happily part our ways under free market conditions.

    But the second part of your post implies that all sellers are idiots, or that I (or State) is a nanny that must make decisions for mentally deranged sellers , all of whom have an IQ of 10 years old child. I don't believe this to be true. On my part, I would avoid to close any transaction with someone who is handicapped, has IQ of 10 years old child and is unable to read and understand the contract they are signing. After all, if someone was clinically handicapped and not able to understand and consent to terms of the legal agreement, then the agreement itself could be declared null and void in the court of law. 

    I will be dealing with adults, not handicapped individuals. And it's their responsibility to figure what they want to ask for their property. I don't run charity, I don't run educational non-profit classes. By the way, that's one of the reasons I don't want to touch pre-foreclosures, with accounts delinquent for 60 days. Some wholesalers do, they go and offer to help sellers to stay in their homes, educate them about loss mitigation , ask if seller needs help with it and etc., before seller begs them to just rid them of their house. I will have none of it. It's none of my concern to educate or baby sit another adult in my state. No one did for to me, except for my parents, and I have no intention to parent strangers. But once I have an adult, with full cognitive abilities, who is motivated to sell and get out of that property for MAO or less, rest assured I will make my offer on that property and if they accept it I will write a contract. Let them State AG's come after me in droves, there is no crime in making an offer to someone who owns the property to buy it from them. It's marketing to public that is illegal and I have no intention to sell dilapidated , dirty , stinky and full of trash property to an end buyer in MD or anywhere. I won't sell it to investor either, I will simply secure my interest in the contract. So, which part of it is illegal or wrong? You could say I am taking it from seller if I had a contract for 220K and paid seller 185K. That would be stealing from a seller. But if seller is entitled to get more, then who is forcing them to give their property to me for 220K? Who is stopping them from finding you or other investor on their own and getting full $270K in their pocket? I certainly don't. Regulators and law makers in these blue states couldn't care less about the sellers. If they did they would have better economic policies , create safe neighborhoods and investor/business friendly atmosphere, to make their citizens prosper and able to afford the houses they live in, instead of losing it to banks in foreclosures. No, it's not the sellers they care about. They care about eating all the pie by themselves and sharing it with those who finance their campaigns and free vacations, that's what those law makers really care about. And while at it they will make sure there will be more poverty , more foreclosures and less opportunities for average Joe to make a living here. We all know the drill. I am just glad that we have 50 States and not all of them are blue and purple. So, we can still focus on doing business, even if it means we have to move out of blue and into a red state in the near future.


     so Eric you have not actually done any deals it sounds like.. U understand the 70% minus rehab costs those numbers have been going around for a long time.. its pretty tough out there right now but hopefully you can make it work.. although I always wonder why those that want to sell real estate  ( that is what your doing at the end of the day bringing a buyer and seller together) why you dont just get in the game with a license and make a career of it.. if your any good at sales and can stick to it can be a very rewarding occupation.. wholesalers they dont last very long unless they are very well capitalized and vertically integrated. 

    Good question, Jay. For couple of reasons. First, becoming REA requires 60 hours of schooling , and then you are stuck with less than 3% commission per transaction (see below link with average rates of REA's compensation), and tons of regulations on top of it while competing with hundreds of other realtors on MLS. It's just not worth doing it in my opinion. It works well for those who have been doing it for decades, but it may take at least a decade to get anywhere as REA.

    Becoming a broker takes 3 years in MD after becoming REA. You can't apply and become a broker without those 3 years under your belt. And then you split commissions with agents and have a cap limiting what you can earn on each transaction regardless of the deal you struck.  How is this fair to the broker?))

    After much research and talking to people who did it all (running crews/flipping, owning to rent/passive investment, brokering, selling real estate as agents and etc.). I concluded that wholesaling is best to start with. Gradually, if you are able to make it work, you can explore flipping, owning to rent and other options to build wealth. But none offers a quick turn around and cash flow, with the least amount of headache and financial risks (not to confuse with the least amount of WORK),  as wholesaling. It's just a good stepping stone when you enter the world of RE investment.

    LINK: https://listwithclever.com/average-real-estate-commission-rate/maryland/

    The average total real estate agent commission rate in Maryland is 5.34% of the final sale price. Based on the latest median home sale price in Maryland ($418,534), that translates to a total cost of roughly $22,350.

    Home sellers typically cover the total commission fee from their sale proceeds, which is split between the listing and buyer’s agents who handle the sale. In Maryland, the average listing agent fee is 2.76%, while the average buyer’s agent fee is 2.58%.

    Real estate agent commissions make up a significant portion of the closing costs for Maryland home sellers. But you don't have to pay the full 5.34% to a traditional agent. If you're selling a home in Maryland, you can use a discount broker to save on realtor fees. In fact, depending on your situation and the agents you work with, you could save 33% on realtor fees, or about $7,366 on average.


     this is why wholesale guru's can sell 30k packages as people drink the cool aid basically verbatim of what you just said.. Any way like I said good luck.. 


     Thank you. But from what I understand in wholesaling it's not so much luck but consistent work, good discipline, persistence and ability to analyze deal that deliver results. Discipline and consistent work would probably top the list, as analyzing the deal doesn't take much brain power and effort. Negotiating comes naturally once you properly analyze the deal.

    The gurus are another subject. May be they are the ones who should be outlawed. There is absolutely nothing one can learn in this business worth paying 30K. The rules of the game are simple, can be read and understood in less than a day. It's amount of WORK and CONCENTRATION that will make a difference between make or break, and no GURU can make you stick to your regimen and do something persistently and systematically if you can't make yourself do it. 


     The issue is that many wholesalers falsely advertise themselves, lie, or keep seller in the dark to make the deal work. They lose deals unfortunately when they are transparent 

    [email protected]267-767-0111
    Alan Asriants - New Century Real Estate 590 Reviews
    View Page
    2Reply
  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    2y
    Quote from @Don Konipol:

    There are two aspects to the government “crackdown”. First, there are the laws and regulations being created that require “wholesaling” as we’ve come to define it, to require a real estate broker license. Second, there are the laws being passed introducing requirements for when and how “wholesalers” can operate, such as disclosure requirements, right to rescind, limits on profits, etc. 

    It’s important to examine the legal basis for the governments action. Primarily, the regulators argument is that the wholesaler is NOT entering into a buyer - seller relationship, but a broker - seller relationship.  Second all regs apply to owner occupied residences and NOT commercial or investment property, although in theory it should not matter.

    “Real” wholesaling (at least as it was defined in the 1970s and 80s) consists of purchasing properties at “wholesale” prices, completing the purchase, keeping an inventory of properties for resale, and reselling the properties to end buyers, either users (owner occupants), fix n flippers, or buy and hold investors.  This obviously requires a fairly significant amount of capital, the ability to truly analyze deals, a deep understanding and knowledge of the local market, real end buyer contacts, and a willingness to commit one’s capital at risk.  So, nothing like what is called wholesaling today. 

    Back then when we “flipped” a contract to an end buyer and hence didn’t complete the purchase ourselves, it was the result of an opportune circumstance rather than a defined strategy; we negotiated an offer fully expecting to complete the purchase ourselves (unless something negative was discovered).  

    To me “legitimate” wholesaling can be done a number of ways, none of which seem to be promoted by the popular gurus promoting wholesaling.  The first is as described above completing the purchase and then selling to an end buyer.  The second is obtaining and buying an option on the property and attempting to find a buyer during the option period.  The third is disclosing completely that you will only close IF you are able to “sell” the property for more than the contract price.

     The option makes the most sense for those with some risk capital, knowledge of the local market, and the gumption to risk that capital.  However, desperate sellers aren’t looking for $2500 to tie up their property for 6 months, they’re looking for the fastest sale possible.  I believe that what’s best for them probably isn’t a “wholesaler” tying up their property for 60 days to see if he can flip the contract to someone else for a profit.  What’s best for the, is an offer with no contingencies at a realistically low price so they can weigh that against listing the property with a broker for a potentially higher net but taking more time and uncertainty.  

    Wholesalers will argue that they represent a legit “alternative” to homeowners the broker market can’t service.  This may be true for (1) home with values so low that 6% commissions aren’t worth pursuing, (2) homes in areas most brokers don’t want to service (though I have owned properties in VERY rough areas and never had a problem finding interested brokers or (3) properties needing so much work to make livable that broker marketing would not be effective (much less common today with many brokers specializing in investment properties and many others representing investors as a part of their client base). 

    It’s important to note that the greatest “victims” here may be the “wholesaler” themselves.  Consider the ones that paid $20k - $40k on their credit cards for the full mentorships, spent thousands more on data sites, thousands more still on direct mail, email blasts, then even more on SEO and SEM.  They may be in for $80k or more and NEVER complete a deal (I know someone this is exactly true of).  Further they may have spent 6-12 months of their time at this (opportunity cost).  


     Very well articulated post. I appreciate you pointing out what true "wholesaling" is. The idea of buying a product at a discount then selling it for a larger price and earning the difference. In this practice you are completing a legal transaction, paying all proper taxes, and not pretending to be a buyer to make a quick buck. 

    The term wholesaling has been redifined. It should be called contract flipping. 

    [email protected]267-767-0111
    Alan Asriants - New Century Real Estate 590 Reviews
    View Page
    1Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes
    2y
    Quote from @Alan Asriants:
    Quote from @Account Closed:
    Quote from @Chaim Shwartz:
    Quote from @Russell Brazil:

    South Carolina, Virginia, Arizona, Ohio, Illinois, Maryland, Philadelphia have all recently passed wholesaling bills. Many more states have them in the works too....and in some of those states, further legislation is in the works to fill in some of the gaps in the legislation they just passed.

    So yes, it does seem like the tide is turning on this practice.

    Seems like they require you to have Insurance. 

    Most of you in the thread:
     

     It's kind of a lame excuse, to say "we don't have enough resources to go after criminals, so we will outlaw the wholesaling for good". That's like outlawing RE agents and brokers because there are some fraudsters and criminals among them and there are no resources to go after and penalize the bad guys, Therefore, all must be outlawed. I am sure brokers and RE agents love this trend, after all less competition for them is good for them. But it's business killing legislation. Wholesalers don't look for property that can be staged and sold in market to end buyers (that's what realtors and brokers do). Wholesalers look for properties that can not be sold to end buyer and, as others mentioned, realtors won't touch most of these properties because it isn't worth their time and effort when they can stage and retail a prime property in excellent or good to pass all inspections condition. Why bother with few thousands of dollars worth of deal when you can sell a house for million dollars and net 3% on it? 

    P.S. It's a nice T-shirt. Tragically, we have a lot of people who yearn for a daddy to govern them harder. As if it ever delivered any good results in past. 


     For properties in the lower tier budget I usually negotiate a flat fee commission because the sales price isn't high enough for a 3% commission to make sense. And this flat fee is certainly not killer. Im not putting a flat fee of 20k. 

    Its not just about how much wholesalers earn as much as it is about their practice. Marketing that you buy houses cash and end up just selling the contract is false advertising. Lots of sellers are kept in the dark about the final sales price and what is going on with the contract. This is the issue.


     And this needs to be and will be addressed. Colorado's proposed bill in the 2025 will be the strictest law the nation will have on this. Could be the  model. 

    0Reply
  • Account Closed
    MD · Member since 2018 · 195 posts · 53 votes
    2y
    Quote from @Alan Asriants:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Doug Smith:

    Good Post, @Alan Asriants. From a lender's perspective, we're also seeing a lot of greed with some wholesalers raising their spread to the point that the math doesn't work for the end buyer. For instance, we had an application today where the wholesaler got a home under contract for $200k and then put a $50K mark-up on it to sell it to the "C" buyer for $250K. The math didn't work at $250K, but it works at $222K. They are sticking to their full $50K. We as a lender are passing on the deal. If you're a wholesaler, one much understand that a rising tide raises all ships. If you're end buyer can't get the numbers to work, you'll likely have no deal anyway. We used to do a ton of wholesale deals, but the spreads are getting out of hand. 


    Doug the big issue to me is as a cash buyer  I do not get title insurance for the amount of the assignment fee.. I insist on it some title companies will allow it others wont.. its a big issue and I am sure many buyers out there who pay cash have no clue when they pay 250k for a property and the assingment fee is 50k they are only getting 200k in title insurance.. So if title is buggered and one has to make a claim and I seem to have to make about 1 a year with these deals coming through wholesalers if you dont have title insurance that includes the assignment fee you will lose that money.

     Jay, why are you buying anything from wholesalers? Why don't you go out and find the sellers who own property directly, so you can buy from individual homeowners and cut the middleman out? 

    Well because I am a JV partner ( I am the Money) and I live in Oregon and do these deals in 10 states.. So we get them from all sources  MLS  courthouse steps  and of course wholesalers.. And we pay cash for everything.  Thats why I was commenting on the title insurance issues which your average investor probably has no clue. 

    I get it. But if I were you and had such a negative perception of wholesalers, or any specific wholesale deal where I can't get a title fully insured, I would simply forego the assets offered by wholesaler/s. Every day I go buy things for my household I decide whether the price I pay for an item is worth it or not. If it's not, or if purchase is too risky and costly, I simply don't buy it. 

    As to assignment fee, the average is said to be $10,000, with actual fee ranging from $2,000 to $50,000 or more. It all depends on numbers. Let's assume I , as a wholesaler, after netting $2000 per deal x 20 deals I closed in an entire year, stumbled upon certain property in town A. I run comps with my agent and they come at $450,000. I have full report drawn from MLS. That's my ARV. I deduct 30% and arrive at 315K. I hire a contractor to do accurate estimate of repairs and they quote $45,000. That brings the total down to $270,000. Suppose I want to make $10,000 , so I am ready to write a contract for $260,000. That's my MAO. The seller is motivated and says they want to get out of that property ASAP and will give it to anyone who pays them $220,000. $270,000 is a fair price for that property for an investor. I run my numbers, I know the market, I know the ARV. If I send this property to my buyers I will have three people next day wanting to pay cash to buy it at $270,000. Suppose you, as an investor, also find out (through my RE agent) about that property and want to buy it. Do you think I should assign it to you for less than $270,000, so you can get full title insurance on it, while three other buyers are willing to buy it for 270K with no questions asked (and aware of the issue with title insurance)? How much should I assign it to you for? $230K? And forego other investors/buyers? If yes, please tell me why should I consider it a fair deal and give that contract to you, knowing that this house has $450K ARV after $45K spent on rehab/renovation? What I think is fair is for you to do what I did, to find that exact house or similar property on your own, close the deal at $220K and not deal with me at all. But if you go through me, then I am entitled to my fair share. You didn't pay me to work the entire year, driving one town after another, putting up signs, making cold calls, networking, paying for local ads to make $2000 on each deal I netted prior to this $50K gem. Why should I give it to you for less than it's worth in a wholesale market?


    Correct if the title company you were using would not give me insurance sufficient to cover your fee I would not buy it or fund it for one of my JV Partners.. Risk is not worth it.. We have no shortage of deals so this would just be another one in our pipeline nothing special.. And if your other TRUE cash buyers were not smart enough to know about title insurance then thats one them. I suspect a lot of your buyers to most of your buyers are getting HML Loans in that case title insurance is for the amount of the loan and if the loan included our fee then they are insured.. I am sure these are issues your probably just not experienced enough to know of.

    The reality is the writing is on the wall states are after NON licensed wholesaling assigning just is what it is.. the fact that you would make 50k on a 220k sale when a brokerage fee would be 15k.. thats 35k that is being taken from a seller who probably knows no better or has just been lied to by the wholesaler as to the real value.. and that is what the law makers and regulators are focused on.. 

     The first part of your post makes sense and I find nothing to disagree with. It's a free market, no body can force anybody to buy or sell anything. If the product/contract/service I offer is not suitable to you then I don't want you to be my customer. We both can happily part our ways under free market conditions.

    But the second part of your post implies that all sellers are idiots, or that I (or State) is a nanny that must make decisions for mentally deranged sellers , all of whom have an IQ of 10 years old child. I don't believe this to be true. On my part, I would avoid to close any transaction with someone who is handicapped, has IQ of 10 years old child and is unable to read and understand the contract they are signing. After all, if someone was clinically handicapped and not able to understand and consent to terms of the legal agreement, then the agreement itself could be declared null and void in the court of law. 

    I will be dealing with adults, not handicapped individuals. And it's their responsibility to figure what they want to ask for their property. I don't run charity, I don't run educational non-profit classes. By the way, that's one of the reasons I don't want to touch pre-foreclosures, with accounts delinquent for 60 days. Some wholesalers do, they go and offer to help sellers to stay in their homes, educate them about loss mitigation , ask if seller needs help with it and etc., before seller begs them to just rid them of their house. I will have none of it. It's none of my concern to educate or baby sit another adult in my state. No one did for to me, except for my parents, and I have no intention to parent strangers. But once I have an adult, with full cognitive abilities, who is motivated to sell and get out of that property for MAO or less, rest assured I will make my offer on that property and if they accept it I will write a contract. Let them State AG's come after me in droves, there is no crime in making an offer to someone who owns the property to buy it from them. It's marketing to public that is illegal and I have no intention to sell dilapidated , dirty , stinky and full of trash property to an end buyer in MD or anywhere. I won't sell it to investor either, I will simply secure my interest in the contract. So, which part of it is illegal or wrong? You could say I am taking it from seller if I had a contract for 220K and paid seller 185K. That would be stealing from a seller. But if seller is entitled to get more, then who is forcing them to give their property to me for 220K? Who is stopping them from finding you or other investor on their own and getting full $270K in their pocket? I certainly don't. Regulators and law makers in these blue states couldn't care less about the sellers. If they did they would have better economic policies , create safe neighborhoods and investor/business friendly atmosphere, to make their citizens prosper and able to afford the houses they live in, instead of losing it to banks in foreclosures. No, it's not the sellers they care about. They care about eating all the pie by themselves and sharing it with those who finance their campaigns and free vacations, that's what those law makers really care about. And while at it they will make sure there will be more poverty , more foreclosures and less opportunities for average Joe to make a living here. We all know the drill. I am just glad that we have 50 States and not all of them are blue and purple. So, we can still focus on doing business, even if it means we have to move out of blue and into a red state in the near future.


     so Eric you have not actually done any deals it sounds like.. U understand the 70% minus rehab costs those numbers have been going around for a long time.. its pretty tough out there right now but hopefully you can make it work.. although I always wonder why those that want to sell real estate  ( that is what your doing at the end of the day bringing a buyer and seller together) why you dont just get in the game with a license and make a career of it.. if your any good at sales and can stick to it can be a very rewarding occupation.. wholesalers they dont last very long unless they are very well capitalized and vertically integrated. 

    Good question, Jay. For couple of reasons. First, becoming REA requires 60 hours of schooling , and then you are stuck with less than 3% commission per transaction (see below link with average rates of REA's compensation), and tons of regulations on top of it while competing with hundreds of other realtors on MLS. It's just not worth doing it in my opinion. It works well for those who have been doing it for decades, but it may take at least a decade to get anywhere as REA.

    Becoming a broker takes 3 years in MD after becoming REA. You can't apply and become a broker without those 3 years under your belt. And then you split commissions with agents and have a cap limiting what you can earn on each transaction regardless of the deal you struck.  How is this fair to the broker?))

    After much research and talking to people who did it all (running crews/flipping, owning to rent/passive investment, brokering, selling real estate as agents and etc.). I concluded that wholesaling is best to start with. Gradually, if you are able to make it work, you can explore flipping, owning to rent and other options to build wealth. But none offers a quick turn around and cash flow, with the least amount of headache and financial risks (not to confuse with the least amount of WORK),  as wholesaling. It's just a good stepping stone when you enter the world of RE investment.

    LINK: https://listwithclever.com/average-real-estate-commission-rate/maryland/

    The average total real estate agent commission rate in Maryland is 5.34% of the final sale price. Based on the latest median home sale price in Maryland ($418,534), that translates to a total cost of roughly $22,350.

    Home sellers typically cover the total commission fee from their sale proceeds, which is split between the listing and buyer’s agents who handle the sale. In Maryland, the average listing agent fee is 2.76%, while the average buyer’s agent fee is 2.58%.

    Real estate agent commissions make up a significant portion of the closing costs for Maryland home sellers. But you don't have to pay the full 5.34% to a traditional agent. If you're selling a home in Maryland, you can use a discount broker to save on realtor fees. In fact, depending on your situation and the agents you work with, you could save 33% on realtor fees, or about $7,366 on average.


     this is why wholesale guru's can sell 30k packages as people drink the cool aid basically verbatim of what you just said.. Any way like I said good luck.. 


     Thank you. But from what I understand in wholesaling it's not so much luck but consistent work, good discipline, persistence and ability to analyze deal that deliver results. Discipline and consistent work would probably top the list, as analyzing the deal doesn't take much brain power and effort. Negotiating comes naturally once you properly analyze the deal.

    The gurus are another subject. May be they are the ones who should be outlawed. There is absolutely nothing one can learn in this business worth paying 30K. The rules of the game are simple, can be read and understood in less than a day. It's amount of WORK and CONCENTRATION that will make a difference between make or break, and no GURU can make you stick to your regimen and do something persistently and systematically if you can't make yourself do it. 


     The issue is that many wholesalers falsely advertise themselves, lie, or keep seller in the dark to make the deal work. They lose deals unfortunately when they are transparent 

     A lot of people are stupid. Not just house owners/sellers, but people in general. 15 years ago I was in reverse logistics/liquidation business. I was able to consistently buy and then liquidate certain number of pallets/goods through the channel I have established. I would go to warehouses, negotiate/make an offer on a truckload of goods and then purchase one pallet at the time to help miserable seller to get rid of it. I never spent fortune to fill my warehouse with truckloads of goods, but I was buying them at the rate I could liquidate them and as long as I could liquidate them. Obviously, I profited handsomely while doing it. And what I recall is that out of 10-15 warehouses I dealt with ONLY TWO were owned by decent men who knew how to do business. One was a Chinese owned in NYC and another was owned by Hasidic Jew in New Jersey. These two were grateful to me that I was helping them clean their warehouse and get rid of their shittiest products that no one was willing to buy from them. All the rest grew resentful, angry and jealous when they saw how quickly I was moving their pallets. They were angry and resentful that I was making money on the trash that was sitting in their warehouses forever and that they couldn't sell to anyone on Earth. They would start playing games, sometimes pretending that they were not available or able to deliver goods. At others they would ghost me. Or, worst of all, try to go behind my back and find the distributor/seller I was dealing with, to cut me out of the deal. If I asked them why were they being so idiotic (of course in milder, non insulting terms), their answer would be "it's a dog eat dog town". Idiots! One of them lost the business and money couple of years later. I don't know what happened to others. But the point is, I am very well familiar with this idiotic type of product owner who is NEVER able to sell his goods, but gets angry and resentful at you if you help him to, because he thinks he is entitled to get what you get just because it's his goods that you found him a buyer for. I hope to spot sellers like that during my fist contact and send them to kick rocks and forever live in the $*it they are, with no help coming from me to get them rid of their property. 

    0Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    2y
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Doug Smith:

    Good Post, @Alan Asriants. From a lender's perspective, we're also seeing a lot of greed with some wholesalers raising their spread to the point that the math doesn't work for the end buyer. For instance, we had an application today where the wholesaler got a home under contract for $200k and then put a $50K mark-up on it to sell it to the "C" buyer for $250K. The math didn't work at $250K, but it works at $222K. They are sticking to their full $50K. We as a lender are passing on the deal. If you're a wholesaler, one much understand that a rising tide raises all ships. If you're end buyer can't get the numbers to work, you'll likely have no deal anyway. We used to do a ton of wholesale deals, but the spreads are getting out of hand. 


    Doug the big issue to me is as a cash buyer  I do not get title insurance for the amount of the assignment fee.. I insist on it some title companies will allow it others wont.. its a big issue and I am sure many buyers out there who pay cash have no clue when they pay 250k for a property and the assingment fee is 50k they are only getting 200k in title insurance.. So if title is buggered and one has to make a claim and I seem to have to make about 1 a year with these deals coming through wholesalers if you dont have title insurance that includes the assignment fee you will lose that money.

     Jay, why are you buying anything from wholesalers? Why don't you go out and find the sellers who own property directly, so you can buy from individual homeowners and cut the middleman out? 

    Well because I am a JV partner ( I am the Money) and I live in Oregon and do these deals in 10 states.. So we get them from all sources  MLS  courthouse steps  and of course wholesalers.. And we pay cash for everything.  Thats why I was commenting on the title insurance issues which your average investor probably has no clue. 

    I get it. But if I were you and had such a negative perception of wholesalers, or any specific wholesale deal where I can't get a title fully insured, I would simply forego the assets offered by wholesaler/s. Every day I go buy things for my household I decide whether the price I pay for an item is worth it or not. If it's not, or if purchase is too risky and costly, I simply don't buy it. 

    As to assignment fee, the average is said to be $10,000, with actual fee ranging from $2,000 to $50,000 or more. It all depends on numbers. Let's assume I , as a wholesaler, after netting $2000 per deal x 20 deals I closed in an entire year, stumbled upon certain property in town A. I run comps with my agent and they come at $450,000. I have full report drawn from MLS. That's my ARV. I deduct 30% and arrive at 315K. I hire a contractor to do accurate estimate of repairs and they quote $45,000. That brings the total down to $270,000. Suppose I want to make $10,000 , so I am ready to write a contract for $260,000. That's my MAO. The seller is motivated and says they want to get out of that property ASAP and will give it to anyone who pays them $220,000. $270,000 is a fair price for that property for an investor. I run my numbers, I know the market, I know the ARV. If I send this property to my buyers I will have three people next day wanting to pay cash to buy it at $270,000. Suppose you, as an investor, also find out (through my RE agent) about that property and want to buy it. Do you think I should assign it to you for less than $270,000, so you can get full title insurance on it, while three other buyers are willing to buy it for 270K with no questions asked (and aware of the issue with title insurance)? How much should I assign it to you for? $230K? And forego other investors/buyers? If yes, please tell me why should I consider it a fair deal and give that contract to you, knowing that this house has $450K ARV after $45K spent on rehab/renovation? What I think is fair is for you to do what I did, to find that exact house or similar property on your own, close the deal at $220K and not deal with me at all. But if you go through me, then I am entitled to my fair share. You didn't pay me to work the entire year, driving one town after another, putting up signs, making cold calls, networking, paying for local ads to make $2000 on each deal I netted prior to this $50K gem. Why should I give it to you for less than it's worth in a wholesale market?


    Correct if the title company you were using would not give me insurance sufficient to cover your fee I would not buy it or fund it for one of my JV Partners.. Risk is not worth it.. We have no shortage of deals so this would just be another one in our pipeline nothing special.. And if your other TRUE cash buyers were not smart enough to know about title insurance then thats one them. I suspect a lot of your buyers to most of your buyers are getting HML Loans in that case title insurance is for the amount of the loan and if the loan included our fee then they are insured.. I am sure these are issues your probably just not experienced enough to know of.

    The reality is the writing is on the wall states are after NON licensed wholesaling assigning just is what it is.. the fact that you would make 50k on a 220k sale when a brokerage fee would be 15k.. thats 35k that is being taken from a seller who probably knows no better or has just been lied to by the wholesaler as to the real value.. and that is what the law makers and regulators are focused on.. 

     The first part of your post makes sense and I find nothing to disagree with. It's a free market, no body can force anybody to buy or sell anything. If the product/contract/service I offer is not suitable to you then I don't want you to be my customer. We both can happily part our ways under free market conditions.

    But the second part of your post implies that all sellers are idiots, or that I (or State) is a nanny that must make decisions for mentally deranged sellers , all of whom have an IQ of 10 years old child. I don't believe this to be true. On my part, I would avoid to close any transaction with someone who is handicapped, has IQ of 10 years old child and is unable to read and understand the contract they are signing. After all, if someone was clinically handicapped and not able to understand and consent to terms of the legal agreement, then the agreement itself could be declared null and void in the court of law. 

    I will be dealing with adults, not handicapped individuals. And it's their responsibility to figure what they want to ask for their property. I don't run charity, I don't run educational non-profit classes. By the way, that's one of the reasons I don't want to touch pre-foreclosures, with accounts delinquent for 60 days. Some wholesalers do, they go and offer to help sellers to stay in their homes, educate them about loss mitigation , ask if seller needs help with it and etc., before seller begs them to just rid them of their house. I will have none of it. It's none of my concern to educate or baby sit another adult in my state. No one did for to me, except for my parents, and I have no intention to parent strangers. But once I have an adult, with full cognitive abilities, who is motivated to sell and get out of that property for MAO or less, rest assured I will make my offer on that property and if they accept it I will write a contract. Let them State AG's come after me in droves, there is no crime in making an offer to someone who owns the property to buy it from them. It's marketing to public that is illegal and I have no intention to sell dilapidated , dirty , stinky and full of trash property to an end buyer in MD or anywhere. I won't sell it to investor either, I will simply secure my interest in the contract. So, which part of it is illegal or wrong? You could say I am taking it from seller if I had a contract for 220K and paid seller 185K. That would be stealing from a seller. But if seller is entitled to get more, then who is forcing them to give their property to me for 220K? Who is stopping them from finding you or other investor on their own and getting full $270K in their pocket? I certainly don't. Regulators and law makers in these blue states couldn't care less about the sellers. If they did they would have better economic policies , create safe neighborhoods and investor/business friendly atmosphere, to make their citizens prosper and able to afford the houses they live in, instead of losing it to banks in foreclosures. No, it's not the sellers they care about. They care about eating all the pie by themselves and sharing it with those who finance their campaigns and free vacations, that's what those law makers really care about. And while at it they will make sure there will be more poverty , more foreclosures and less opportunities for average Joe to make a living here. We all know the drill. I am just glad that we have 50 States and not all of them are blue and purple. So, we can still focus on doing business, even if it means we have to move out of blue and into a red state in the near future.


     so Eric you have not actually done any deals it sounds like.. U understand the 70% minus rehab costs those numbers have been going around for a long time.. its pretty tough out there right now but hopefully you can make it work.. although I always wonder why those that want to sell real estate  ( that is what your doing at the end of the day bringing a buyer and seller together) why you dont just get in the game with a license and make a career of it.. if your any good at sales and can stick to it can be a very rewarding occupation.. wholesalers they dont last very long unless they are very well capitalized and vertically integrated. 

    Good question, Jay. For couple of reasons. First, becoming REA requires 60 hours of schooling , and then you are stuck with less than 3% commission per transaction (see below link with average rates of REA's compensation), and tons of regulations on top of it while competing with hundreds of other realtors on MLS. It's just not worth doing it in my opinion. It works well for those who have been doing it for decades, but it may take at least a decade to get anywhere as REA.

    Becoming a broker takes 3 years in MD after becoming REA. You can't apply and become a broker without those 3 years under your belt. And then you split commissions with agents and have a cap limiting what you can earn on each transaction regardless of the deal you struck.  How is this fair to the broker?))

    After much research and talking to people who did it all (running crews/flipping, owning to rent/passive investment, brokering, selling real estate as agents and etc.). I concluded that wholesaling is best to start with. Gradually, if you are able to make it work, you can explore flipping, owning to rent and other options to build wealth. But none offers a quick turn around and cash flow, with the least amount of headache and financial risks (not to confuse with the least amount of WORK),  as wholesaling. It's just a good stepping stone when you enter the world of RE investment.

    LINK: https://listwithclever.com/average-real-estate-commission-rate/maryland/

    The average total real estate agent commission rate in Maryland is 5.34% of the final sale price. Based on the latest median home sale price in Maryland ($418,534), that translates to a total cost of roughly $22,350.

    Home sellers typically cover the total commission fee from their sale proceeds, which is split between the listing and buyer’s agents who handle the sale. In Maryland, the average listing agent fee is 2.76%, while the average buyer’s agent fee is 2.58%.

    Real estate agent commissions make up a significant portion of the closing costs for Maryland home sellers. But you don't have to pay the full 5.34% to a traditional agent. If you're selling a home in Maryland, you can use a discount broker to save on realtor fees. In fact, depending on your situation and the agents you work with, you could save 33% on realtor fees, or about $7,366 on average.


    So much to consider in your posts, so little time.  One thing that jumps out at me that I can quickly respond to is a glaring omission of why you might not want to be a real estate agent: as one, you're a sub agent of your broker who is a fiduciary of the seller.  As such, not acting in the best interest of the seller is not a a concern of yours now, but as an agent, it would be. 

    0Reply
  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    2y
    Quote from @Account Closed:
    Quote from @Alan Asriants:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Doug Smith:

    Good Post, @Alan Asriants. From a lender's perspective, we're also seeing a lot of greed with some wholesalers raising their spread to the point that the math doesn't work for the end buyer. For instance, we had an application today where the wholesaler got a home under contract for $200k and then put a $50K mark-up on it to sell it to the "C" buyer for $250K. The math didn't work at $250K, but it works at $222K. They are sticking to their full $50K. We as a lender are passing on the deal. If you're a wholesaler, one much understand that a rising tide raises all ships. If you're end buyer can't get the numbers to work, you'll likely have no deal anyway. We used to do a ton of wholesale deals, but the spreads are getting out of hand. 


    Doug the big issue to me is as a cash buyer  I do not get title insurance for the amount of the assignment fee.. I insist on it some title companies will allow it others wont.. its a big issue and I am sure many buyers out there who pay cash have no clue when they pay 250k for a property and the assingment fee is 50k they are only getting 200k in title insurance.. So if title is buggered and one has to make a claim and I seem to have to make about 1 a year with these deals coming through wholesalers if you dont have title insurance that includes the assignment fee you will lose that money.

     Jay, why are you buying anything from wholesalers? Why don't you go out and find the sellers who own property directly, so you can buy from individual homeowners and cut the middleman out? 

    Well because I am a JV partner ( I am the Money) and I live in Oregon and do these deals in 10 states.. So we get them from all sources  MLS  courthouse steps  and of course wholesalers.. And we pay cash for everything.  Thats why I was commenting on the title insurance issues which your average investor probably has no clue. 

    I get it. But if I were you and had such a negative perception of wholesalers, or any specific wholesale deal where I can't get a title fully insured, I would simply forego the assets offered by wholesaler/s. Every day I go buy things for my household I decide whether the price I pay for an item is worth it or not. If it's not, or if purchase is too risky and costly, I simply don't buy it. 

    As to assignment fee, the average is said to be $10,000, with actual fee ranging from $2,000 to $50,000 or more. It all depends on numbers. Let's assume I , as a wholesaler, after netting $2000 per deal x 20 deals I closed in an entire year, stumbled upon certain property in town A. I run comps with my agent and they come at $450,000. I have full report drawn from MLS. That's my ARV. I deduct 30% and arrive at 315K. I hire a contractor to do accurate estimate of repairs and they quote $45,000. That brings the total down to $270,000. Suppose I want to make $10,000 , so I am ready to write a contract for $260,000. That's my MAO. The seller is motivated and says they want to get out of that property ASAP and will give it to anyone who pays them $220,000. $270,000 is a fair price for that property for an investor. I run my numbers, I know the market, I know the ARV. If I send this property to my buyers I will have three people next day wanting to pay cash to buy it at $270,000. Suppose you, as an investor, also find out (through my RE agent) about that property and want to buy it. Do you think I should assign it to you for less than $270,000, so you can get full title insurance on it, while three other buyers are willing to buy it for 270K with no questions asked (and aware of the issue with title insurance)? How much should I assign it to you for? $230K? And forego other investors/buyers? If yes, please tell me why should I consider it a fair deal and give that contract to you, knowing that this house has $450K ARV after $45K spent on rehab/renovation? What I think is fair is for you to do what I did, to find that exact house or similar property on your own, close the deal at $220K and not deal with me at all. But if you go through me, then I am entitled to my fair share. You didn't pay me to work the entire year, driving one town after another, putting up signs, making cold calls, networking, paying for local ads to make $2000 on each deal I netted prior to this $50K gem. Why should I give it to you for less than it's worth in a wholesale market?


    Correct if the title company you were using would not give me insurance sufficient to cover your fee I would not buy it or fund it for one of my JV Partners.. Risk is not worth it.. We have no shortage of deals so this would just be another one in our pipeline nothing special.. And if your other TRUE cash buyers were not smart enough to know about title insurance then thats one them. I suspect a lot of your buyers to most of your buyers are getting HML Loans in that case title insurance is for the amount of the loan and if the loan included our fee then they are insured.. I am sure these are issues your probably just not experienced enough to know of.

    The reality is the writing is on the wall states are after NON licensed wholesaling assigning just is what it is.. the fact that you would make 50k on a 220k sale when a brokerage fee would be 15k.. thats 35k that is being taken from a seller who probably knows no better or has just been lied to by the wholesaler as to the real value.. and that is what the law makers and regulators are focused on.. 

     The first part of your post makes sense and I find nothing to disagree with. It's a free market, no body can force anybody to buy or sell anything. If the product/contract/service I offer is not suitable to you then I don't want you to be my customer. We both can happily part our ways under free market conditions.

    But the second part of your post implies that all sellers are idiots, or that I (or State) is a nanny that must make decisions for mentally deranged sellers , all of whom have an IQ of 10 years old child. I don't believe this to be true. On my part, I would avoid to close any transaction with someone who is handicapped, has IQ of 10 years old child and is unable to read and understand the contract they are signing. After all, if someone was clinically handicapped and not able to understand and consent to terms of the legal agreement, then the agreement itself could be declared null and void in the court of law. 

    I will be dealing with adults, not handicapped individuals. And it's their responsibility to figure what they want to ask for their property. I don't run charity, I don't run educational non-profit classes. By the way, that's one of the reasons I don't want to touch pre-foreclosures, with accounts delinquent for 60 days. Some wholesalers do, they go and offer to help sellers to stay in their homes, educate them about loss mitigation , ask if seller needs help with it and etc., before seller begs them to just rid them of their house. I will have none of it. It's none of my concern to educate or baby sit another adult in my state. No one did for to me, except for my parents, and I have no intention to parent strangers. But once I have an adult, with full cognitive abilities, who is motivated to sell and get out of that property for MAO or less, rest assured I will make my offer on that property and if they accept it I will write a contract. Let them State AG's come after me in droves, there is no crime in making an offer to someone who owns the property to buy it from them. It's marketing to public that is illegal and I have no intention to sell dilapidated , dirty , stinky and full of trash property to an end buyer in MD or anywhere. I won't sell it to investor either, I will simply secure my interest in the contract. So, which part of it is illegal or wrong? You could say I am taking it from seller if I had a contract for 220K and paid seller 185K. That would be stealing from a seller. But if seller is entitled to get more, then who is forcing them to give their property to me for 220K? Who is stopping them from finding you or other investor on their own and getting full $270K in their pocket? I certainly don't. Regulators and law makers in these blue states couldn't care less about the sellers. If they did they would have better economic policies , create safe neighborhoods and investor/business friendly atmosphere, to make their citizens prosper and able to afford the houses they live in, instead of losing it to banks in foreclosures. No, it's not the sellers they care about. They care about eating all the pie by themselves and sharing it with those who finance their campaigns and free vacations, that's what those law makers really care about. And while at it they will make sure there will be more poverty , more foreclosures and less opportunities for average Joe to make a living here. We all know the drill. I am just glad that we have 50 States and not all of them are blue and purple. So, we can still focus on doing business, even if it means we have to move out of blue and into a red state in the near future.


     so Eric you have not actually done any deals it sounds like.. U understand the 70% minus rehab costs those numbers have been going around for a long time.. its pretty tough out there right now but hopefully you can make it work.. although I always wonder why those that want to sell real estate  ( that is what your doing at the end of the day bringing a buyer and seller together) why you dont just get in the game with a license and make a career of it.. if your any good at sales and can stick to it can be a very rewarding occupation.. wholesalers they dont last very long unless they are very well capitalized and vertically integrated. 

    Good question, Jay. For couple of reasons. First, becoming REA requires 60 hours of schooling , and then you are stuck with less than 3% commission per transaction (see below link with average rates of REA's compensation), and tons of regulations on top of it while competing with hundreds of other realtors on MLS. It's just not worth doing it in my opinion. It works well for those who have been doing it for decades, but it may take at least a decade to get anywhere as REA.

    Becoming a broker takes 3 years in MD after becoming REA. You can't apply and become a broker without those 3 years under your belt. And then you split commissions with agents and have a cap limiting what you can earn on each transaction regardless of the deal you struck.  How is this fair to the broker?))

    After much research and talking to people who did it all (running crews/flipping, owning to rent/passive investment, brokering, selling real estate as agents and etc.). I concluded that wholesaling is best to start with. Gradually, if you are able to make it work, you can explore flipping, owning to rent and other options to build wealth. But none offers a quick turn around and cash flow, with the least amount of headache and financial risks (not to confuse with the least amount of WORK),  as wholesaling. It's just a good stepping stone when you enter the world of RE investment.

    LINK: https://listwithclever.com/average-real-estate-commission-rate/maryland/

    The average total real estate agent commission rate in Maryland is 5.34% of the final sale price. Based on the latest median home sale price in Maryland ($418,534), that translates to a total cost of roughly $22,350.

    Home sellers typically cover the total commission fee from their sale proceeds, which is split between the listing and buyer’s agents who handle the sale. In Maryland, the average listing agent fee is 2.76%, while the average buyer’s agent fee is 2.58%.

    Real estate agent commissions make up a significant portion of the closing costs for Maryland home sellers. But you don't have to pay the full 5.34% to a traditional agent. If you're selling a home in Maryland, you can use a discount broker to save on realtor fees. In fact, depending on your situation and the agents you work with, you could save 33% on realtor fees, or about $7,366 on average.


     this is why wholesale guru's can sell 30k packages as people drink the cool aid basically verbatim of what you just said.. Any way like I said good luck.. 


     Thank you. But from what I understand in wholesaling it's not so much luck but consistent work, good discipline, persistence and ability to analyze deal that deliver results. Discipline and consistent work would probably top the list, as analyzing the deal doesn't take much brain power and effort. Negotiating comes naturally once you properly analyze the deal.

    The gurus are another subject. May be they are the ones who should be outlawed. There is absolutely nothing one can learn in this business worth paying 30K. The rules of the game are simple, can be read and understood in less than a day. It's amount of WORK and CONCENTRATION that will make a difference between make or break, and no GURU can make you stick to your regimen and do something persistently and systematically if you can't make yourself do it. 


     The issue is that many wholesalers falsely advertise themselves, lie, or keep seller in the dark to make the deal work. They lose deals unfortunately when they are transparent 

     A lot of people are stupid. Not just house owners/sellers, but people in general. 15 years ago I was in reverse logistics/liquidation business. I was able to consistently buy and then liquidate certain number of pallets/goods through the channel I have established. I would go to warehouses, negotiate/make an offer on a truckload of goods and then purchase one pallet at the time to help miserable seller to get rid of it. I never spent fortune to fill my warehouse with truckloads of goods, but I was buying them at the rate I could liquidate them and as long as I could liquidate them. Obviously, I profited handsomely while doing it. And what I recall is that out of 10-15 warehouses I dealt with ONLY TWO were owned by decent men who knew how to do business. One was a Chinese owned in NYC and another was owned by Hasidic Jew in New Jersey. These two were grateful to me that I was helping them clean their warehouse and get rid of their shittiest products that no one was willing to buy from them. All the rest grew resentful, angry and jealous when they saw how quickly I was moving their pallets. They were angry and resentful that I was making money on the trash that was sitting in their warehouses forever and that they couldn't sell to anyone on Earth. They would start playing games, sometimes pretending that they were not available or able to deliver goods. At others they would ghost me. Or, worst of all, try to go behind my back and find the distributor/seller I was dealing with, to cut me out of the deal. If I asked them why were they being so idiotic (of course in milder, non insulting terms), their answer would be "it's a dog eat dog town". Idiots! One of them lost the business and money couple of years later. I don't know what happened to others. But the point is, I am very well familiar with this idiotic type of product owner who is NEVER able to sell his goods, but gets angry and resentful at you if you help him to, because he thinks he is entitled to get what you get just because it's his goods that you found him a buyer for. I hope to spot sellers like that during my fist contact and send them to kick rocks and forever live in the $*it they are, with no help coming from me to get them rid of their property. 


    Nothing wrong with buying the property and closing on it then selling it for more. That is true wholesaling. 

    But flipping contracts and tying people up into deals they are blind about is a concern

    I agree that people often times dont value your connections and are greedy to find out you can sell something for more. Best to just not work with those kinds of people. Your connections and time are certainly worth $$$

    [email protected]267-767-0111
    Alan Asriants - New Century Real Estate 590 Reviews
    View Page
    0Reply
  • Account Closed
    MD · Member since 2018 · 195 posts · 53 votes
    2y
    That property would have to be sold for more, or the seller would get less if a wholesaler had to close on it. The only parties to win when you double close are the tax-hungry state, county, and attorneys who will charge for "closing" the property you don't intend to hold. If the real purpose was to lobby for their interests then I could understand the logic. However, forcing wholesalers to buy/close on a wholesale property will simply add more cost to it. Of course, as a wholesaler, I can decide one day to buy a property for my project, I would then definitely need to close on it. But why close on it if I can assign it to an investor, without adding the cost of closing to my contract? I seem to fail to understand why so many people are hostile to wholesaling. How does flipping, if done properly, hurt anybody? And if there are folks who do it improperly, why not focus specifically on those guys instead of outlawing the entire practice? 
    0Reply
  • Account Closed
    MD · Member since 2018 · 195 posts · 53 votes
    2y
    Quote from @Peter Walther:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Account Closed:
    Quote from @Jay Hinrichs:
    Quote from @Doug Smith:

    Good Post, @Alan Asriants. From a lender's perspective, we're also seeing a lot of greed with some wholesalers raising their spread to the point that the math doesn't work for the end buyer. For instance, we had an application today where the wholesaler got a home under contract for $200k and then put a $50K mark-up on it to sell it to the "C" buyer for $250K. The math didn't work at $250K, but it works at $222K. They are sticking to their full $50K. We as a lender are passing on the deal. If you're a wholesaler, one much understand that a rising tide raises all ships. If you're end buyer can't get the numbers to work, you'll likely have no deal anyway. We used to do a ton of wholesale deals, but the spreads are getting out of hand. 


    Doug the big issue to me is as a cash buyer  I do not get title insurance for the amount of the assignment fee.. I insist on it some title companies will allow it others wont.. its a big issue and I am sure many buyers out there who pay cash have no clue when they pay 250k for a property and the assingment fee is 50k they are only getting 200k in title insurance.. So if title is buggered and one has to make a claim and I seem to have to make about 1 a year with these deals coming through wholesalers if you dont have title insurance that includes the assignment fee you will lose that money.

     Jay, why are you buying anything from wholesalers? Why don't you go out and find the sellers who own property directly, so you can buy from individual homeowners and cut the middleman out? 

    Well because I am a JV partner ( I am the Money) and I live in Oregon and do these deals in 10 states.. So we get them from all sources  MLS  courthouse steps  and of course wholesalers.. And we pay cash for everything.  Thats why I was commenting on the title insurance issues which your average investor probably has no clue. 

    I get it. But if I were you and had such a negative perception of wholesalers, or any specific wholesale deal where I can't get a title fully insured, I would simply forego the assets offered by wholesaler/s. Every day I go buy things for my household I decide whether the price I pay for an item is worth it or not. If it's not, or if purchase is too risky and costly, I simply don't buy it. 

    As to assignment fee, the average is said to be $10,000, with actual fee ranging from $2,000 to $50,000 or more. It all depends on numbers. Let's assume I , as a wholesaler, after netting $2000 per deal x 20 deals I closed in an entire year, stumbled upon certain property in town A. I run comps with my agent and they come at $450,000. I have full report drawn from MLS. That's my ARV. I deduct 30% and arrive at 315K. I hire a contractor to do accurate estimate of repairs and they quote $45,000. That brings the total down to $270,000. Suppose I want to make $10,000 , so I am ready to write a contract for $260,000. That's my MAO. The seller is motivated and says they want to get out of that property ASAP and will give it to anyone who pays them $220,000. $270,000 is a fair price for that property for an investor. I run my numbers, I know the market, I know the ARV. If I send this property to my buyers I will have three people next day wanting to pay cash to buy it at $270,000. Suppose you, as an investor, also find out (through my RE agent) about that property and want to buy it. Do you think I should assign it to you for less than $270,000, so you can get full title insurance on it, while three other buyers are willing to buy it for 270K with no questions asked (and aware of the issue with title insurance)? How much should I assign it to you for? $230K? And forego other investors/buyers? If yes, please tell me why should I consider it a fair deal and give that contract to you, knowing that this house has $450K ARV after $45K spent on rehab/renovation? What I think is fair is for you to do what I did, to find that exact house or similar property on your own, close the deal at $220K and not deal with me at all. But if you go through me, then I am entitled to my fair share. You didn't pay me to work the entire year, driving one town after another, putting up signs, making cold calls, networking, paying for local ads to make $2000 on each deal I netted prior to this $50K gem. Why should I give it to you for less than it's worth in a wholesale market?


    Correct if the title company you were using would not give me insurance sufficient to cover your fee I would not buy it or fund it for one of my JV Partners.. Risk is not worth it.. We have no shortage of deals so this would just be another one in our pipeline nothing special.. And if your other TRUE cash buyers were not smart enough to know about title insurance then thats one them. I suspect a lot of your buyers to most of your buyers are getting HML Loans in that case title insurance is for the amount of the loan and if the loan included our fee then they are insured.. I am sure these are issues your probably just not experienced enough to know of.

    The reality is the writing is on the wall states are after NON licensed wholesaling assigning just is what it is.. the fact that you would make 50k on a 220k sale when a brokerage fee would be 15k.. thats 35k that is being taken from a seller who probably knows no better or has just been lied to by the wholesaler as to the real value.. and that is what the law makers and regulators are focused on.. 

     The first part of your post makes sense and I find nothing to disagree with. It's a free market, no body can force anybody to buy or sell anything. If the product/contract/service I offer is not suitable to you then I don't want you to be my customer. We both can happily part our ways under free market conditions.

    But the second part of your post implies that all sellers are idiots, or that I (or State) is a nanny that must make decisions for mentally deranged sellers , all of whom have an IQ of 10 years old child. I don't believe this to be true. On my part, I would avoid to close any transaction with someone who is handicapped, has IQ of 10 years old child and is unable to read and understand the contract they are signing. After all, if someone was clinically handicapped and not able to understand and consent to terms of the legal agreement, then the agreement itself could be declared null and void in the court of law. 

    I will be dealing with adults, not handicapped individuals. And it's their responsibility to figure what they want to ask for their property. I don't run charity, I don't run educational non-profit classes. By the way, that's one of the reasons I don't want to touch pre-foreclosures, with accounts delinquent for 60 days. Some wholesalers do, they go and offer to help sellers to stay in their homes, educate them about loss mitigation , ask if seller needs help with it and etc., before seller begs them to just rid them of their house. I will have none of it. It's none of my concern to educate or baby sit another adult in my state. No one did for to me, except for my parents, and I have no intention to parent strangers. But once I have an adult, with full cognitive abilities, who is motivated to sell and get out of that property for MAO or less, rest assured I will make my offer on that property and if they accept it I will write a contract. Let them State AG's come after me in droves, there is no crime in making an offer to someone who owns the property to buy it from them. It's marketing to public that is illegal and I have no intention to sell dilapidated , dirty , stinky and full of trash property to an end buyer in MD or anywhere. I won't sell it to investor either, I will simply secure my interest in the contract. So, which part of it is illegal or wrong? You could say I am taking it from seller if I had a contract for 220K and paid seller 185K. That would be stealing from a seller. But if seller is entitled to get more, then who is forcing them to give their property to me for 220K? Who is stopping them from finding you or other investor on their own and getting full $270K in their pocket? I certainly don't. Regulators and law makers in these blue states couldn't care less about the sellers. If they did they would have better economic policies , create safe neighborhoods and investor/business friendly atmosphere, to make their citizens prosper and able to afford the houses they live in, instead of losing it to banks in foreclosures. No, it's not the sellers they care about. They care about eating all the pie by themselves and sharing it with those who finance their campaigns and free vacations, that's what those law makers really care about. And while at it they will make sure there will be more poverty , more foreclosures and less opportunities for average Joe to make a living here. We all know the drill. I am just glad that we have 50 States and not all of them are blue and purple. So, we can still focus on doing business, even if it means we have to move out of blue and into a red state in the near future.


     so Eric you have not actually done any deals it sounds like.. U understand the 70% minus rehab costs those numbers have been going around for a long time.. its pretty tough out there right now but hopefully you can make it work.. although I always wonder why those that want to sell real estate  ( that is what your doing at the end of the day bringing a buyer and seller together) why you dont just get in the game with a license and make a career of it.. if your any good at sales and can stick to it can be a very rewarding occupation.. wholesalers they dont last very long unless they are very well capitalized and vertically integrated. 

    Good question, Jay. For couple of reasons. First, becoming REA requires 60 hours of schooling , and then you are stuck with less than 3% commission per transaction (see below link with average rates of REA's compensation), and tons of regulations on top of it while competing with hundreds of other realtors on MLS. It's just not worth doing it in my opinion. It works well for those who have been doing it for decades, but it may take at least a decade to get anywhere as REA.

    Becoming a broker takes 3 years in MD after becoming REA. You can't apply and become a broker without those 3 years under your belt. And then you split commissions with agents and have a cap limiting what you can earn on each transaction regardless of the deal you struck.  How is this fair to the broker?))

    After much research and talking to people who did it all (running crews/flipping, owning to rent/passive investment, brokering, selling real estate as agents and etc.). I concluded that wholesaling is best to start with. Gradually, if you are able to make it work, you can explore flipping, owning to rent and other options to build wealth. But none offers a quick turn around and cash flow, with the least amount of headache and financial risks (not to confuse with the least amount of WORK),  as wholesaling. It's just a good stepping stone when you enter the world of RE investment.

    LINK: https://listwithclever.com/average-real-estate-commission-rate/maryland/

    The average total real estate agent commission rate in Maryland is 5.34% of the final sale price. Based on the latest median home sale price in Maryland ($418,534), that translates to a total cost of roughly $22,350.

    Home sellers typically cover the total commission fee from their sale proceeds, which is split between the listing and buyer’s agents who handle the sale. In Maryland, the average listing agent fee is 2.76%, while the average buyer’s agent fee is 2.58%.

    Real estate agent commissions make up a significant portion of the closing costs for Maryland home sellers. But you don't have to pay the full 5.34% to a traditional agent. If you're selling a home in Maryland, you can use a discount broker to save on realtor fees. In fact, depending on your situation and the agents you work with, you could save 33% on realtor fees, or about $7,366 on average.


    So much to consider in your posts, so little time.  One thing that jumps out at me that I can quickly respond to is a glaring omission of why you might not want to be a real estate agent: as one, you're a sub agent of your broker who is a fiduciary of the seller.  As such, not acting in the best interest of the seller is not a a concern of yours now, but as an agent, it would be. 


     There are many places where goods are sold without much care for sellers' or buyers' interests. Take government or public auctions where cars are sold. Unlike Manheim, you can't test the car, you can't check the car, you can't turn its engine on, and so on. Government and public auction holders have been doing it for years, but no one seems to care. Do you know why? It's because people who come to those auctions are adults and understand the risks. And if they don't and are fools, then it's on them. Adults who don't want to accept the risk of buying in an auction shouldn't go there. That's just one example. Now, if this hypocritical government can sell junk cars at auctions and profit from it, what moral grounds does it have to ban Joe Six-packs from wholesaling properties, which btw are checked by buyers and sold with the content of homeowners? Why suddenly such concern for a seller? In my opinion, all this talk about caring for sellers is a smokescreen the gov uses to take under control, tax, and regulate another free market enterprise. And since wholesalers appear to be  "little guys" (the ones with the least amount of capital required to enter the field), they also appear to be the lowest in the food chain that anyone with more capital is happy to eliminate/kill. hence all this negative talk about wholesalers. Fortunately, I have been around long enough to not be so naive and suppose that it's a concern for the sellers that drives the push by mostly blue and purple states to outlaw wholesaling. Greed is the only driving force in it. 

    P.S. This is not to say that everyone who opposes wholesaling is driven by the same motive. Someone can be naive about it and believe the narrative pushed by crooked legislators, I just say the drive itself is fueled and driver by those in the know, and those "in the know" are the ones that are least of all concerned about some poor guy forced to sell his property for less than 70% of its market value. Anyone concerned about sellers should ask why we have so many people unable to afford their homes and motivated to get rid of it on short notice, with most or all of their mortgages already paid off. But asking such questions would anger mayors, legislators, and politicians of blue and purple states. After all, it is none of their concern that so many people are destitute, clueless, and unable to survive in these so-called "progressive" states. As long as they succeed in keeping everyone but a chosen few poor their mission is accomplished. 

    0Reply
  • Account Closed
    MD · Member since 2018 · 195 posts · 53 votes
    2y
    Quote from @Marcus Auerbach:

    It has never been quite legal, because as soon as you sell houses in a repeated pattern you meet the criteria of a broker.

    But wholesalers do not pretend to "sell" the unit they don't own. They are selling a contract, assigning it to an investor, with their interest secured on it (which is VERY MUCH justified, based on the fact that the off-market property was located). "Selling" the house without owning it, as opposed to assigning a contract, is and has always been illegal. There is no need to outlaw what is already illegal. 

    As to fees charged/added by wholesalers, as noted so many times before,  those properties don't just fall on wholesaler's laps. It costs time, a lot of effort, and money to get a deal. No one should feel entitled to get it for free. Anyone who doesn't like wholesalers is free to do it on their own, locate the off-market property, make an offer, and save ~$10K you would have to pay a wholesaler to get the same house. 

    0Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    2y
    Quote from @Account Closed:
    Quote from @Marcus Auerbach:

    It has never been quite legal, because as soon as you sell houses in a repeated pattern you meet the criteria of a broker.

    But wholesalers do not pretend to "sell" the unit they don't own. They are selling a contract, assigning it to an investor, with their interest secured on it (which is VERY MUCH justified, based on the fact that the off-market property was located). "Selling" the house without owning it, as opposed to assigning a contract, is and has always been illegal. There is no need to outlaw what is already illegal. 

    As to fees charged/added by wholesalers, as noted so many times before,  those properties don't just fall on wholesaler's laps. It costs time, a lot of effort, and money to get a deal. No one should feel entitled to get it for free. Anyone who doesn't like wholesalers is free to do it on their own, locate the off-market property, make an offer, and save ~$10K you would have to pay a wholesaler to get the same house. 


    Totally agree with you, wholesaleing is everything but easy! You have to work hard for your money, most who try never make a buck. I have bought deals from wholesalers and I never ask how much they make, well deserved profit.

    My point was: the law was intended to prevent this practice. Selling a contract is a viable workaround, but it is not what the lawmakers intended. You become very aware of this when you get licensed.

    Wholesalers also service a market that would otherwise not be serviced at all. So if they change legislation in Wisconsin, I hope it also includes a viable solution for HOW this market can be serviced. As a licensed agent I am being held to a higher standard, I could not even service a seller in this way if I wanted to.

    1Reply
  • Account Closed
    MD · Member since 2018 · 195 posts · 53 votes
    2y
    Quote from @Marcus Auerbach:
    My point was: the law was intended to prevent this practice. Selling a contract is a viable workaround, but it is not what the lawmakers intended. You become very aware of this when you get licensed.
    Wholesalers also service a market that would otherwise not be serviced at all. So if they change legislation in Wisconsin, I hope it also includes a viable solution for HOW this market can be serviced. As a licensed agent I am being held to a higher standard, I could not even service a seller in this way if I wanted to.
    The first one I believe requires a bit of clarification. The law never intended to prevent wholesalers from assigning a contract (the fact that it's not illegal is the only reason they want to pass a law in MD to outlaw it, like they did in SC and IL, and some other states). If it was illegal to assign contracts they wouldn't bother to pass another law to outlaw it, it would be redundant thing to do. What wholesaling under current law bans is marketing to the public. I can't find a seller, offer a discounted price to buy his house, and then sell it or assign a purchase contract to a retail buyer/member of the public. That's what REA's are for. 
    My buyer should be a business owner, someone in the business of buying distressed homes AS-IS, understanding and taking a risk of such purchase as a business owner (not retail buyer/member of the public), and who is closing a deal as part of a risky venture (taking a calculated risk to profit). That is not illegal under current law, whether I do double closing or assign a contract without purchasing a house. 

    As to markets served by wholesalers, you are correct. What a lot of people who have negative views of wholesalers don't consider is that a TRUE wholesale deal doesn't fall like a pie from the skies. It COSTS, it costs TIME/EFFORT and MONEY. Moneywise, one may spend $5000 in marketing (posting ads, buying lists, paying VA to male cold calls and etc.) before one closes a deal. Or one may have to spend tens of hours, driving around (and paying for gas/insurance/maintenance of the car), posting signs to get leads (and those signs cost money too), knocking on doors, going to events to network and etc. Everybody sees $10,000 profit made by a wholesaler who assigned a contract, but few seem to realize what it takes to get a VIABLE, TRUE wholesale deal. You have to deduct that money/effort spent from $10,000, and then you may realize that the actual profit is nowhere near 10K when the assignment fee is. The real net profit could be $8,000, $5,000 or less. And when we use $10,000, we use the average charged by wholesalers in a single transaction as an assignment fee. There are some deals where that fee is as low as $2,000. It all depends on the property and the deal. And if you regulate this industry to death (which is what gov is good at, regulating and stifling everything to death), then who do you think would want to bother with wholesaling at all? How desperate one would have to be to do it for free or less than half of what they net now? Do you think this underserved market will benefit from making it so much costlier and less profitable to get into that industry? 
    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Marcus Auerbach:
    Quote from @Account Closed:
    Quote from @Marcus Auerbach:

    It has never been quite legal, because as soon as you sell houses in a repeated pattern you meet the criteria of a broker.

    But wholesalers do not pretend to "sell" the unit they don't own. They are selling a contract, assigning it to an investor, with their interest secured on it (which is VERY MUCH justified, based on the fact that the off-market property was located). "Selling" the house without owning it, as opposed to assigning a contract, is and has always been illegal. There is no need to outlaw what is already illegal. 

    As to fees charged/added by wholesalers, as noted so many times before,  those properties don't just fall on wholesaler's laps. It costs time, a lot of effort, and money to get a deal. No one should feel entitled to get it for free. Anyone who doesn't like wholesalers is free to do it on their own, locate the off-market property, make an offer, and save ~$10K you would have to pay a wholesaler to get the same house. 


    Totally agree with you, wholesaleing is everything but easy! You have to work hard for your money, most who try never make a buck. I have bought deals from wholesalers and I never ask how much they make, well deserved profit.

    My point was: the law was intended to prevent this practice. Selling a contract is a viable workaround, but it is not what the lawmakers intended. You become very aware of this when you get licensed.

    Wholesalers also service a market that would otherwise not be serviced at all. So if they change legislation in Wisconsin, I hope it also includes a viable solution for HOW this market can be serviced. As a licensed agent I am being held to a higher standard, I could not even service a seller in this way if I wanted to.


    Marcus  can you explain what you mean that you could not service a seller ??  I know brokers thats all they do is list and sell the beat up fixers.. which is what most wholesalers fixate on.
    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    2y
    Quote from @Account Closed:
    Quote from @Marcus Auerbach:
    My point was: the law was intended to prevent this practice. Selling a contract is a viable workaround, but it is not what the lawmakers intended. You become very aware of this when you get licensed.
    Wholesalers also service a market that would otherwise not be serviced at all. So if they change legislation in Wisconsin, I hope it also includes a viable solution for HOW this market can be serviced. As a licensed agent I am being held to a higher standard, I could not even service a seller in this way if I wanted to.
    The first one I believe requires a bit of clarification. The law never intended to prevent wholesalers from assigning a contract (the fact that it's not illegal is the only reason they want to pass a law in MD to outlaw it, like they did in SC and IL, and some other states). If it was illegal to assign contracts they wouldn't bother to pass another law to outlaw it, it would be redundant thing to do. What wholesaling under current law bans is marketing to the public. I can't find a seller, offer a discounted price to buy his house, and then sell it or assign a purchase contract to a retail buyer/member of the public. That's what REA's are for. 
    My buyer should be a business owner, someone in the business of buying distressed homes AS-IS, understanding and taking a risk of such purchase as a business owner (not retail buyer/member of the public), and who is closing a deal as part of a risky venture (taking a calculated risk to profit). That is not illegal under current law, whether I do double closing or assign a contract without purchasing a house. 

    As to markets served by wholesalers, you are correct. What a lot of people who have negative views of wholesalers don't consider is that a TRUE wholesale deal doesn't fall like a pie from the skies. It COSTS, it costs TIME/EFFORT and MONEY. Moneywise, one may spend $5000 in marketing (posting ads, buying lists, paying VA to male cold calls and etc.) before one closes a deal. Or one may have to spend tens of hours, driving around (and paying for gas/insurance/maintenance of the car), posting signs to get leads (and those signs cost money too), knocking on doors, going to events to network and etc. Everybody sees $10,000 profit made by a wholesaler who assigned a contract, but few seem to realize what it takes to get a VIABLE, TRUE wholesale deal. You have to deduct that money/effort spent from $10,000, and then you may realize that the actual profit is nowhere near 10K when the assignment fee is. The real net profit could be $8,000, $5,000 or less. And when we use $10,000, we use the average charged by wholesalers in a single transaction as an assignment fee. There are some deals where that fee is as low as $2,000. It all depends on the property and the deal. And if you regulate this industry to death (which is what gov is good at, regulating and stifling everything to death), then who do you think would want to bother with wholesaling at all? How desperate one would have to be to do it for free or less than half of what they net now? Do you think this underserved market will benefit from making it so much costlier and less profitable to get into that industry? 

    I am not advocating to outlaw wholesaling, it is the only viable solution at the moment for many of these sellers; agents can't operate profitably in this market given the restrictions we have on commission. Just to the contrary, I would like to see it recognized and regulated to certain minimum standards.

    My point was that Wisconsin law is specific about when you need a broker's license and yes, selling a contract is a workaround, but when you read the Wisconsin Statute 452.01 below, tell me again the intention was not to require wholesalers to operate as a broker. 

    “Broker" means any person not excluded by sub. (3), who does any of the following:(a) For another person, and for commission, money, or other thing of value, negotiates or offers or attempts to negotiate, whether directly or indirectly, a sale, exchange, purchase, or rental of, or the granting or acceptance of an option to sell, exchange, purchase, or rent, an interest or estate in real estate, a time share, or a business or its goodwill, inventory, or fixtures, whether or not the business includes real property.(b) Is engaged wholly or in part in the business of selling or exchanging interests or estates in real estate or businesses, including businesses' goodwill, inventory, or fixtures, whether or not the business includes real property, to the extent that a pattern of sales or exchanges is established, whether or not the person owns the real estate or businesses. Five sales or exchanges in one year or 10 sales or exchanges in 5 years is presumptive evidence of a pattern of sales or exchanges.

    0Reply
  • Alan AsriantsBusiness Member
    OP
    Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
    2y
    Quote from @Marcus Auerbach:
    Quote from @Account Closed:
    Quote from @Marcus Auerbach:
    My point was: the law was intended to prevent this practice. Selling a contract is a viable workaround, but it is not what the lawmakers intended. You become very aware of this when you get licensed.
    Wholesalers also service a market that would otherwise not be serviced at all. So if they change legislation in Wisconsin, I hope it also includes a viable solution for HOW this market can be serviced. As a licensed agent I am being held to a higher standard, I could not even service a seller in this way if I wanted to.
    The first one I believe requires a bit of clarification. The law never intended to prevent wholesalers from assigning a contract (the fact that it's not illegal is the only reason they want to pass a law in MD to outlaw it, like they did in SC and IL, and some other states). If it was illegal to assign contracts they wouldn't bother to pass another law to outlaw it, it would be redundant thing to do. What wholesaling under current law bans is marketing to the public. I can't find a seller, offer a discounted price to buy his house, and then sell it or assign a purchase contract to a retail buyer/member of the public. That's what REA's are for. 
    My buyer should be a business owner, someone in the business of buying distressed homes AS-IS, understanding and taking a risk of such purchase as a business owner (not retail buyer/member of the public), and who is closing a deal as part of a risky venture (taking a calculated risk to profit). That is not illegal under current law, whether I do double closing or assign a contract without purchasing a house. 

    As to markets served by wholesalers, you are correct. What a lot of people who have negative views of wholesalers don't consider is that a TRUE wholesale deal doesn't fall like a pie from the skies. It COSTS, it costs TIME/EFFORT and MONEY. Moneywise, one may spend $5000 in marketing (posting ads, buying lists, paying VA to male cold calls and etc.) before one closes a deal. Or one may have to spend tens of hours, driving around (and paying for gas/insurance/maintenance of the car), posting signs to get leads (and those signs cost money too), knocking on doors, going to events to network and etc. Everybody sees $10,000 profit made by a wholesaler who assigned a contract, but few seem to realize what it takes to get a VIABLE, TRUE wholesale deal. You have to deduct that money/effort spent from $10,000, and then you may realize that the actual profit is nowhere near 10K when the assignment fee is. The real net profit could be $8,000, $5,000 or less. And when we use $10,000, we use the average charged by wholesalers in a single transaction as an assignment fee. There are some deals where that fee is as low as $2,000. It all depends on the property and the deal. And if you regulate this industry to death (which is what gov is good at, regulating and stifling everything to death), then who do you think would want to bother with wholesaling at all? How desperate one would have to be to do it for free or less than half of what they net now? Do you think this underserved market will benefit from making it so much costlier and less profitable to get into that industry? 

    I am not advocating to outlaw wholesaling, it is the only viable solution at the moment for many of these sellers; agents can't operate profitably in this market given the restrictions we have on commission. Just to the contrary, I would like to see it recognized and regulated to certain minimum standards.

    My point was that Wisconsin law is specific about when you need a broker's license and yes, selling a contract is a workaround, but when you read the Wisconsin Statute 452.01 below, tell me again the intention was not to require wholesalers to operate as a broker. 

    “Broker" means any person not excluded by sub. (3), who does any of the following:(a) For another person, and for commission, money, or other thing of value, negotiates or offers or attempts to negotiate, whether directly or indirectly, a sale, exchange, purchase, or rental of, or the granting or acceptance of an option to sell, exchange, purchase, or rent, an interest or estate in real estate, a time share, or a business or its goodwill, inventory, or fixtures, whether or not the business includes real property.(b) Is engaged wholly or in part in the business of selling or exchanging interests or estates in real estate or businesses, including businesses' goodwill, inventory, or fixtures, whether or not the business includes real property, to the extent that a pattern of sales or exchanges is established, whether or not the person owns the real estate or businesses. Five sales or exchanges in one year or 10 sales or exchanges in 5 years is presumptive evidence of a pattern of sales or exchanges.


     I do agree. Wholesalers do help service those with lower price point homes. 

    An 80k house ven with 3% commission is $2400 before splits and fees. For a solid agent, this deal is not the best use of time. 

    But for a wholesaler making 5k on the contract flip, makes more sense.

    I think net listings should be allowed for lower end markets.

    It the same when you enter the 1-2M+ space. Commissions get capped. Sellers aren't paying the full 3% of a $2M sale. 

    the 3% model works well for the in between (200k-1M)

    [email protected]267-767-0111
    Alan Asriants - New Century Real Estate 590 Reviews
    View Page
    1Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    2y
    Quote from @Jay Hinrichs:
    Quote from @Marcus Auerbach:
    Quote from @Account Closed:
    Quote from @Marcus Auerbach:

     As a licensed agent I am being held to a higher standard, I could not even service a seller in this way if I wanted to.


    Marcus  can you explain what you mean that you could not service a seller ??  I know brokers thats all they do is list and sell the beat up fixers.. which is what most wholesalers fixate on.

    Jay the low price point in Milwaukee is the issue, that probably looks better in Oregon. Your wife is a very succesful broker so you know the numbers. For any other reader I'll break it down. 

    On a 100k property GCI (gross commission income) would typically be $3,000. The brokerage takes (typically) at least a third (or half for a new agent), leaving you with $2,000. You have fixed expenses for office, vehicle, insurance, equipment, marketing, license, CE and like 30 other little things of let's say 10k a month. (That would not even include payroll for my W2 TC and admin). If you'd do 10 of these deals a month, fixed cost is 1k, leaving you $1,000 and a third of that goes to Uncle Sam, so net profit is $700. And it may take 2 to 6 months of work to get the job done.

    Run the same numbers for a 50k deal. Percentage commission does not scale down, the work is the same as it is for a 300k or 500k house. 

    Actually, it's more work. I got talked into listing for an OOS investors by a friend who desperately wanted to get rid of their class D property and it is really hard to sell them retail. Buyers in that price segment are so flakey, you have to sell it 2 or 3 times before you get one of them all the way to the closing table. It's a really hard segment to work in!

    0Reply
  • Account Closed
    MD · Member since 2018 · 195 posts · 53 votes
    2y
    Quote from @Alan Asriants:
    Quote from @Marcus Auerbach:
    Quote from @Account Closed:
    Quote from @Marcus Auerbach:
    My point was: the law was intended to prevent this practice. Selling a contract is a viable workaround, but it is not what the lawmakers intended. You become very aware of this when you get licensed.
    Wholesalers also service a market that would otherwise not be serviced at all. So if they change legislation in Wisconsin, I hope it also includes a viable solution for HOW this market can be serviced. As a licensed agent I am being held to a higher standard, I could not even service a seller in this way if I wanted to.
    The first one I believe requires a bit of clarification. The law never intended to prevent wholesalers from assigning a contract (the fact that it's not illegal is the only reason they want to pass a law in MD to outlaw it, like they did in SC and IL, and some other states). If it was illegal to assign contracts they wouldn't bother to pass another law to outlaw it, it would be redundant thing to do. What wholesaling under current law bans is marketing to the public. I can't find a seller, offer a discounted price to buy his house, and then sell it or assign a purchase contract to a retail buyer/member of the public. That's what REA's are for. 
    My buyer should be a business owner, someone in the business of buying distressed homes AS-IS, understanding and taking a risk of such purchase as a business owner (not retail buyer/member of the public), and who is closing a deal as part of a risky venture (taking a calculated risk to profit). That is not illegal under current law, whether I do double closing or assign a contract without purchasing a house. 

    As to markets served by wholesalers, you are correct. What a lot of people who have negative views of wholesalers don't consider is that a TRUE wholesale deal doesn't fall like a pie from the skies. It COSTS, it costs TIME/EFFORT and MONEY. Moneywise, one may spend $5000 in marketing (posting ads, buying lists, paying VA to male cold calls and etc.) before one closes a deal. Or one may have to spend tens of hours, driving around (and paying for gas/insurance/maintenance of the car), posting signs to get leads (and those signs cost money too), knocking on doors, going to events to network and etc. Everybody sees $10,000 profit made by a wholesaler who assigned a contract, but few seem to realize what it takes to get a VIABLE, TRUE wholesale deal. You have to deduct that money/effort spent from $10,000, and then you may realize that the actual profit is nowhere near 10K when the assignment fee is. The real net profit could be $8,000, $5,000 or less. And when we use $10,000, we use the average charged by wholesalers in a single transaction as an assignment fee. There are some deals where that fee is as low as $2,000. It all depends on the property and the deal. And if you regulate this industry to death (which is what gov is good at, regulating and stifling everything to death), then who do you think would want to bother with wholesaling at all? How desperate one would have to be to do it for free or less than half of what they net now? Do you think this underserved market will benefit from making it so much costlier and less profitable to get into that industry? 

    I am not advocating to outlaw wholesaling, it is the only viable solution at the moment for many of these sellers; agents can't operate profitably in this market given the restrictions we have on commission. Just to the contrary, I would like to see it recognized and regulated to certain minimum standards.

    My point was that Wisconsin law is specific about when you need a broker's license and yes, selling a contract is a workaround, but when you read the Wisconsin Statute 452.01 below, tell me again the intention was not to require wholesalers to operate as a broker. 

    “Broker" means any person not excluded by sub. (3), who does any of the following:(a) For another person, and for commission, money, or other thing of value, negotiates or offers or attempts to negotiate, whether directly or indirectly, a sale, exchange, purchase, or rental of, or the granting or acceptance of an option to sell, exchange, purchase, or rent, an interest or estate in real estate, a time share, or a business or its goodwill, inventory, or fixtures, whether or not the business includes real property.(b) Is engaged wholly or in part in the business of selling or exchanging interests or estates in real estate or businesses, including businesses' goodwill, inventory, or fixtures, whether or not the business includes real property, to the extent that a pattern of sales or exchanges is established, whether or not the person owns the real estate or businesses. Five sales or exchanges in one year or 10 sales or exchanges in 5 years is presumptive evidence of a pattern of sales or exchanges.


     I do agree. Wholesalers do help service those with lower price point homes. 

    An 80k house ven with 3% commission is $2400 before splits and fees. For a solid agent, this deal is not the best use of time. 

    But for a wholesaler making 5k on the contract flip, makes more sense.

    I think net listings should be allowed for lower end markets.

    It the same when you enter the 1-2M+ space. Commissions get capped. Sellers aren't paying the full 3% of a $2M sale. 

    the 3% model works well for the in between (200k-1M)

     I think Broker, as defined by law, is someone who works for the Buyer (or Seller). As such:

    A) Broker works with the buyer and identifies the need of a specific buyer before acquisition of the property. And Broker in this case has fiduciary duty to his buyer. Example: I sign a contract with the buyer who wants single family home located in so and so Zip code, with x number of beds and baths and etc. Then I go and look for those properties and notify him when I find what he looks for. 

    B) Broker may just as in example A work on behalf of the Seller, locating a buyer for secured property, with fiduciary duty to work in seller's interest.


    As a wholesaler I don't have any duty to anyone. I am not working on behalf of the buyer, I work on behalf of myself. I can look for any property (just as if I was wholesaling goods). And once I struck the deal (and I never know in advance what it will be) I can contact potential buyers on my list and ask if they are interest. I have zero fiduciary duty to seller and buyer in this case. All I do is get the best deal I can from any seller I find out there. And I offer to assign a contract to a highest bidder once I secure it as a wholesaler. 

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Marcus Auerbach:
    Quote from @Jay Hinrichs:
    Quote from @Marcus Auerbach:
    Quote from @Account Closed:
    Quote from @Marcus Auerbach:

     As a licensed agent I am being held to a higher standard, I could not even service a seller in this way if I wanted to.


    Marcus  can you explain what you mean that you could not service a seller ??  I know brokers thats all they do is list and sell the beat up fixers.. which is what most wholesalers fixate on.

    Jay the low price point in Milwaukee is the issue, that probably looks better in Oregon. Your wife is a very succesful broker so you know the numbers. For any other reader I'll break it down. 

    On a 100k property GCI (gross commission income) would typically be $3,000. The brokerage takes (typically) at least a third (or half for a new agent), leaving you with $2,000. You have fixed expenses for office, vehicle, insurance, equipment, marketing, license, CE and like 30 other little things of let's say 10k a month. (That would not even include payroll for my W2 TC and admin). If you'd do 10 of these deals a month, fixed cost is 1k, leaving you $1,000 and a third of that goes to Uncle Sam, so net profit is $700. And it may take 2 to 6 months of work to get the job done.

    Run the same numbers for a 50k deal. Percentage commission does not scale down, the work is the same as it is for a 300k or 500k house. 

    Actually, it's more work. I got talked into listing for an OOS investors by a friend who desperately wanted to get rid of their class D property and it is really hard to sell them retail. Buyers in that price segment are so flakey, you have to sell it 2 or 3 times before you get one of them all the way to the closing table. It's a really hard segment to work in!


    on low value assets commissions are adjusted .. thats what I see on the HUDS normally a  5k or 10k minimum.. kind of like the wholesaler and the props are sold to investors not homeowners just like what wholesalers do.. thats what I see.. I agree with U if you had to stick to 6% these are not financially viable.. I did this when I was starting out selling land I had a fix fee or many times my commish was 15 to 30%  a lot of the props I sold were hour drive on dirt forest service roads one way and you had to show the props 3 to 5 times before someone bought it..  So I get it.. I would not just exclude those props  I would just charge accordingling..  Same thing goes in my lending bizz I do a ton of stuff most HML wont do  IE under 75k fundings but I have a minimum we dont use the 2 points 12% like other lenders in the space one would go broke charging 2 points on a 50k loan..
    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    2y
    Quote from @Jay Hinrichs:
    Quote from @Marcus Auerbach:
    Quote from @Jay Hinrichs:
    Quote from @Marcus Auerbach:
    Quote from @Account Closed:
    Quote from @Marcus Auerbach:

     As a licensed agent I am being held to a higher standard, I could not even service a seller in this way if I wanted to.


    Marcus  can you explain what you mean that you could not service a seller ??  I know brokers thats all they do is list and sell the beat up fixers.. which is what most wholesalers fixate on.

    Jay the low price point in Milwaukee is the issue, that probably looks better in Oregon. Your wife is a very succesful broker so you know the numbers. For any other reader I'll break it down. 

    On a 100k property GCI (gross commission income) would typically be $3,000. The brokerage takes (typically) at least a third (or half for a new agent), leaving you with $2,000. You have fixed expenses for office, vehicle, insurance, equipment, marketing, license, CE and like 30 other little things of let's say 10k a month. (That would not even include payroll for my W2 TC and admin). If you'd do 10 of these deals a month, fixed cost is 1k, leaving you $1,000 and a third of that goes to Uncle Sam, so net profit is $700. And it may take 2 to 6 months of work to get the job done.

    Run the same numbers for a 50k deal. Percentage commission does not scale down, the work is the same as it is for a 300k or 500k house. 

    Actually, it's more work. I got talked into listing for an OOS investors by a friend who desperately wanted to get rid of their class D property and it is really hard to sell them retail. Buyers in that price segment are so flakey, you have to sell it 2 or 3 times before you get one of them all the way to the closing table. It's a really hard segment to work in!


    on low value assets commissions are adjusted .. thats what I see on the HUDS normally a  5k or 10k minimum.. kind of like the wholesaler and the props are sold to investors not homeowners just like what wholesalers do.. thats what I see.. I agree with U if you had to stick to 6% these are not financially viable.. I did this when I was starting out selling land I had a fix fee or many times my commish was 15 to 30%  a lot of the props I sold were hour drive on dirt forest service roads one way and you had to show the props 3 to 5 times before someone bought it..  So I get it.. I would not just exclude those props  I would just charge accordingling..  Same thing goes in my lending bizz I do a ton of stuff most HML wont do  IE under 75k fundings but I have a minimum we dont use the 2 points 12% like other lenders in the space one would go broke charging 2 points on a 50k loan..

    Yeah, we are restricted. One solution would be to allow licensed brokers to follow the wholesale business model (=allowing wholesalers to be licensed), but I can't see lawmakers go for that; consumer protection concerns.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Marcus Auerbach:
    Quote from @Jay Hinrichs:
    Quote from @Marcus Auerbach:
    Quote from @Jay Hinrichs:
    Quote from @Marcus Auerbach:
    Quote from @Account Closed:
    Quote from @Marcus Auerbach:

     As a licensed agent I am being held to a higher standard, I could not even service a seller in this way if I wanted to.


    Marcus  can you explain what you mean that you could not service a seller ??  I know brokers thats all they do is list and sell the beat up fixers.. which is what most wholesalers fixate on.

    Jay the low price point in Milwaukee is the issue, that probably looks better in Oregon. Your wife is a very succesful broker so you know the numbers. For any other reader I'll break it down. 

    On a 100k property GCI (gross commission income) would typically be $3,000. The brokerage takes (typically) at least a third (or half for a new agent), leaving you with $2,000. You have fixed expenses for office, vehicle, insurance, equipment, marketing, license, CE and like 30 other little things of let's say 10k a month. (That would not even include payroll for my W2 TC and admin). If you'd do 10 of these deals a month, fixed cost is 1k, leaving you $1,000 and a third of that goes to Uncle Sam, so net profit is $700. And it may take 2 to 6 months of work to get the job done.

    Run the same numbers for a 50k deal. Percentage commission does not scale down, the work is the same as it is for a 300k or 500k house. 

    Actually, it's more work. I got talked into listing for an OOS investors by a friend who desperately wanted to get rid of their class D property and it is really hard to sell them retail. Buyers in that price segment are so flakey, you have to sell it 2 or 3 times before you get one of them all the way to the closing table. It's a really hard segment to work in!


    on low value assets commissions are adjusted .. thats what I see on the HUDS normally a  5k or 10k minimum.. kind of like the wholesaler and the props are sold to investors not homeowners just like what wholesalers do.. thats what I see.. I agree with U if you had to stick to 6% these are not financially viable.. I did this when I was starting out selling land I had a fix fee or many times my commish was 15 to 30%  a lot of the props I sold were hour drive on dirt forest service roads one way and you had to show the props 3 to 5 times before someone bought it..  So I get it.. I would not just exclude those props  I would just charge accordingling..  Same thing goes in my lending bizz I do a ton of stuff most HML wont do  IE under 75k fundings but I have a minimum we dont use the 2 points 12% like other lenders in the space one would go broke charging 2 points on a 50k loan..

    Yeah, we are restricted. One solution would be to allow licensed brokers to follow the wholesale business model (=allowing wholesalers to be licensed), but I can't see lawmakers go for that; consumer protection concerns.


    not to Argue with you Marcus but restricted by KW right not by real estate commission.  Commissions are negotiable always have been.. U can negotiate down like what they are trying to do with the NAR lawsuit and UP if the seller or buyer will agree to it.. no one is forcing anyone to do it.  I closed a heck of a lot of deals in Detroit when it melted down and my clients were paying 10 to 20k for homes that banks foreclosed on and the realtors by and large had 5k minimum fees.
    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    2y
    Quote from @Account Closed:
    Quote from @Alan Asriants:
    Quote from @Marcus Auerbach:
    Quote from @Account Closed:
    Quote from @Marcus Auerbach:
    Yes and this is where the Wisconsin Department of Agriculture, Trade an​d Consum​er Protection (DATCP) comes in as the state’s primary consumer protection agency. They are worried about buyers and sellers not being protected by the law and a brokers' fiduciary duties. I am not saying that I am in favor of this notion, but that's where the rub is


    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free