Wholetailing as a Realtor

18 Replies

I have a deal which is a prime candidate for wholetailing. Comps are around $215k and we have negotiated to purchase for what they owe at $180k. It needs very minimal work and I wouldn't put any money into it. My plan is to list the property on the MLS but am not sure how to go about doing it. The seller is aware of my intent and I have disclosed that I am a licensed Realtor. I am not representing the seller and will be a principle in the transaction.

PITI is currently $1640/month

Which is the best way to handle this?

1.Lease option it and then double close

2. Lease option and assign the contract to the end buyer

3. Purchase subject to.

Thanks in advance!

Option 2 & 3 are the best fit but the best thing to do is to speak to your broker and make sure he understands that the deal is 100% ethical & undisclosed. A lease option would be a good option because you can execute the paper work quicker but the sub to I feel may give you more control. It just may take a bit longer especially if you are waiting around for an attorney.

As an agent, I'd list it. We as agents, more than the typical wholesaler, need to be concerned about lease options and sub 2's blowing up at a later date. You may have "I walk away with no liability" clauses and disclosures, but when your assignee fails, or the seller screws the end buyer, guess who's back in the middle anyway.

@Mike Cartmell in my neck of the woods you, as a licensee you could probably get in trouble for a transaction like this.

I might be wrong on this, but for me personally as a licensee (and an investor too) it does especially sound like a textbook case of no no under the new Dodd Frank regulations in regards to "flipping" as R.E "professional"

I am curious, to see what others think.

Good Luck to you!

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@Brian Gibbons

Thanks for the reference to Shift. I wasn't aware of it, think I need to read it.

But, back to the OP. In this case he's not planning on acting as the Agent, but as the buyer/wholesaler. That was why my warning of issues with something maybe blowing up later, of which maybe I'm over concerned, but still am.

Whether I am licensed or not, I would buy it sub2, get the deed, see an attorney, and video the seller as to knowing the risks of the due on sale clause.

Then I have options as to rent it, lease 2 own, or sell it.

Brian Gibbons

Mike, you cannot list it in mls at 215k unless you have a signed listing at 215k signed by the rightful owner.

Personally, as a broker and buyer myself, I would close the deal at 180k with full disclosure that buyer is a licensed agent and is buying for profit.

Even then there have been cases where sellers caught wind of the instant gain, got pissed and filed suit. In the eyes of the judge, you are likely viewed as the professional who took advantage of the seller. Talk with your broker, and good luck!

If I were you I'd purchase the place Sub2.

Then you own it, no issues about agency since you aren't marketing a place you don't actually own.

I would not SELL to the next guy Sub2 as well as that could come back to bite you if they mess up and the original owner gets a foreclosure on their record.

BTW why would you do a "lease" option if your intent is to sell it right away? I'd see doing an option contract and marketing that for sale to get an assignment. You are looking for a much bigger payday though so absorb the cost to close a Sub2 purchase and make it cleaner.

Shaun Reilly, Real Estate Agent in MA (#9517670)

Brian, 4 issues with "Shift" concessions above 3% not 6% can be adjusted on the appraisal. Secondly, seller financing does not add value to the property for a higher price, points made before can be searched as to economic value as costs of financing, last, the foreclosure section, equity lost matters is not correct, laws of equity apply. Lastly, contract for deeds have rather new issues making deeds at the same time and circumventing foreclosure laws. All the rest I'd not bark about, overall good post.

Selling as an agent, need to look at the issues of "Net Listings" buying and then selling is the same basic issue. Significant profits made will put you in the same boat as misleading them or net listing issues.

I inform sellers that the property will be repaired, improvements made and that the property will be sold later. Such repairs should be made, simple improvements, hardware, doorknobs, light fixtures can add value. You don't need to list and price these items with a seller, so long as they know you're doing improvements they will be in the right frame of mind not to scream at you and get an attorney....at least to a reasonable point. :)

Why wouldn't they just sell it instead of having someone wholesale it for them if the comps are 215K? I get very confused when people do stuff like this.

Originally posted by @Bill Gulley :
Brian, 4 issues with "Shift" concessions above 3% not 6% can be adjusted on the appraisal. Secondly, seller financing does not add value to the property for a higher price, points made before can be searched as to economic value as costs of financing, last, the foreclosure section, equity lost matters is not correct, laws of equity apply. Lastly, contract for deeds have rather new issues making deeds at the same time and circumventing foreclosure laws. All the rest I'd not bark about, overall good post.

Selling as an agent, need to look at the issues of "Net Listings" buying and then selling is the same basic issue. Significant profits made will put you in the same boat as misleading them or net listing issues.

I inform sellers that the property will be repaired, improvements made and that the property will be sold later. Such repairs should be made, simple improvements, hardware, doorknobs, light fixtures can add value. You don't need to list and price these items with a seller, so long as they know you're doing improvements they will be in the right frame of mind not to scream at you and get an attorney....at least to a reasonable point. :)

For the unaware of listing agreement types...

1. OPEN LISTING
An open listing is almost like a "for sale by owner" listing. A home seller offers pay a sales commission, to one or more real estate agents, to the first one who brings an acceptable purchase agreement. However, no commission is owed if the seller finds a buyer on his own, without any agent's help. The open listing creates competition between the seller and agent(s) to find an willing buyer. Most agents won't take this type of listing because the seller can either sell the home alone or withdraw the listing without notice. Few agents will spend their time or money working on an open listing, except when the property is very unique or if the the inventory of homes for sale is very low.

2. EXCLUSIVE AGENCY LISTING
An exclusive agency listing contracts one agent to sell the home. If that agent, or any other licensed cooperating agent finds an acceptable buyer, the seller must pay a sales commission. Again, as with a open listing, no sales commission is owed if the home seller finds a buyer on his own. Due to the lack of control over the outcome, most real estate agents are reluctant to work on an exclusive agency listing.

3. EXCLUSIVE RIGHT TO SELL LISTING
Probably 99 percent of real estate listings are this type, where the listing agent has 100 percent control of the transaction. Whether the seller, the listing agent or a cooperating selling agent finds an acceptable buyer, the listing agent will earn the sales commission. If another cooperating agent is involved, the commission is typically split between the agents. In most markets, a 90 or 120-day exclusive right to sell gives the experienced agent time to effectively market the home. If the listing expires and the agent is doing a poor job, the seller isn't stuck with a bad agent. However, if the agent is doing a good job when the listing expires, the listing can be renewed. An alternative is a 180-day listing with an unconditional cancellation clause after 90 or 120 days.

4. MULTIPLE LISTING
An important marketing tool for listing agents is the multiple listing service (MLS). The MLS distributes listing information and photos via the computer to members who are working with appropriate buyers. Most MLS listings are also available on the Internet at sites such as www.realtor.com, thus allowing home buyers to research what's for sale on their own. MLS members can submit exclusive agency and exclusive right to sell listings to the local MLS. Without the benefit of the MLS, "for sale by owners" are at a big disadvantage, because MLS members have hundreds of homes to show, but FSBO's have only one.

5. NET LISTING
The net listing can be a dangerous and is illegal in some states. Under this agreement, the seller tells their agent the net price they want for their home. The listing agent can then add the desired commission onto this net price when presenting it to buyers. If the agent obtains a purchase offer far above the seller's net listing price, the seller may feel cheated and accuse the listing agent of not disclosing the home's true market value. Or, if the agent receives a low purchase offer close to the net price, yielding the listing agent little or no commission, the agent might be tempted to not present the offer to the seller. A better alternative to a net listing is an exclusive right to sell with a listing price at the amount the seller wants to net, plus the listing agent's sales commission.

Brian Gibbons

Brian, net listings, it's illegal in all states as far as I know, it's an issue with the code of ethics nationally.

Who wrote that Brian? :)

Turns out he actually owes $187k and was mistaken about the payoff. I have talked him into listing with me. He originally wanted to unload it because he just didn't want to have buyers nickel and dime him after an inspection. He basically didn't want to do any prep work to list the house. We are going to list aggressively so he doesn't have to and can still have a quick sale.

In the event that this worked out, I still do not see an issue with full disclosure stating that I will make a profit. Buying sub-to and having full control was my intent. Even when utilizing a lease option, I intended to find a cash retail buyer with the MLS.

Thanks for all of the great advice.

Originally posted by @Bill Gulley :
Brian, net listings, it's illegal in all states as far as I know, it's an issue with the code of ethics nationally.

Who wrote that Brian? :)

I forgot, it was in my typed notes under listings.

I did a net search on net listings, do you have any source saying its illegal?

I have the Cal agents' general practice book from Kaplan, it says

Net listing. A net listing is not A type of listing. The listings could be open, exclusive right to sell, or exclusive agency listings. Net refers to commission. A clause in the agreement states that the owner is asking a certain sum of money from the sale of property. All expenses, including a broker's commission, are to be covered by any sum the broker is able to obtain in excess of the selling price net specified by the seller.

That listings are seldom used. They make agents vulnerable to charges of fraud, misrepresentation, and other abuses against which real estate law offers sellers protection. For example, a broker may be tempted to persuade the seller to ask for the lowest possible amount so that the brokers can sell the property at a much higher price to collect a large commission. This type of action goes against the brokers duties as an agent. In fact net listings are legal and number states because of the inherent conflicts of interest. Even though they're illegal in California, they should be avoided. Nevertheless, if an broker takes in that listing, California law requires the broker disclose in writing the selling price and the brokers compensation prior to the exceptions of any offer.

Note: an agents failure to disclose the selling price under net listing is cause for revocation or suspension of his or her license.

Brian Gibbons

Originally posted by @Mike Cartmell :
Turns out he actually owes $187k and was mistaken about the payoff. I have talked him into listing with me. He originally wanted to unload it because he just didn't want to have buyers nickel and dime him after an inspection. He basically didn't want to do any prep work to list the house. We are going to list aggressively so he doesn't have to and can still have a quick sale.

In the event that this worked out, I still do not see an issue with full disclosure stating that I will make a profit. Buying sub-to and having full control was my intent. Even when utilizing a lease option, I intended to find a cash retail buyer with the MLS.

Thanks for all of the great advice.

I suggest you talk to your broker and not act on advice given by folks in the Republic of Cali.

I've been told by unreliable sources here on BP that Cali makes up ten per cent of the RE deals, they seem to make any deviation from standard and acceptable practice simply to be different I guess. It's like following the kid to into the prom that carries a slide ruler, you may not get to dance for most of the songs. :)

@Brian Gibbons that was a great response. Realtors need to always remember their role, which is to work hard to effect the sale and purchase of real property. We act as our client's fiduciary and personally I think every Realtor needs to have that definition memorized and able to recite it in their sleep. Too often we think of our own interests, commissions or lack of desire to actually work! I could not agree more that not thinking creatively is like not using every tool in your toolkit or as I like to think of it being a few cans short of a six-pack.

Subject to existing mortgage just makes the most sense. A double close would cost you $6k in closing fees. Lease Option and assigning the contract might make sense if you have a buyer already RWA.

Originally posted by @Ben Hughes :

Why wouldn't they just sell it instead of having someone wholesale it for them if the comps are 215K? I get very confused when people do stuff like this.

 I'm getting into wholesailing/wholetailing and this is what doesn't make any sense to me. Don't people always freak out when they see how much they could make if they just marketed and sold the property themselves? Is it that they are just to lazy and unknowledgeable to market the property and keep extra profit themselves? 

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