I'm currently working with a real estate agent to bid on MLS properties in order to fix and flip.
I'm very new to REI, but I would not be opposed to wholesaling.Right now, I'm only focusing on one fix and flip deal at a time.
I do have substantial cash reserves, but I'm looking to successfully complete my first flip before I make concurrent capital outlays on several fix and flip properties.
Wholesaling, it seems, doesn't require such large capital expenditures.
My concern, however, is my agent's commission. If I successfully find a seller and get a property under contract, could my agent's commission potentially wipe out my profit from the assignment?
As of right now I haven't mentioned the possibility of wholesaling to my agent. Truth be told, my mentor (not a fan of wholesaling) keeps telling me to avoid it because "I'm leaving money on the table". I see wholesaling as a hedge (kind of like how mutual funds invest in a variety of asset classes)- a way to mitigate some of the risk associated with the holding/rehab costs of fix and flip properties.
What are your thoughts about the agent's commission? When I assign the contract, would the new buyer be responsible for the commission?
@Patrick M. , the simple answer is that commissions are paid out of the seller's proceeds. One thing I'm not sure about, though, is if you were to assign a contract that was initiated with an agent, does that agent have to represent the new buyer? If not, then your agent would get cut out of the deal completely. I would presume the answer is yes, but would have to defer to others with more knowledge about that.
That being said, wholesaling MLS deals is a pretty poor way to go about that business and most experienced buyers will not take you seriously if you are presenting them with MLS deals. They could easily find that same deal and negotiate it, so why pay you an assignment fee?
Think of it this way: imagine I knew you were looking for a nice oriental rug. How would you, as the potential buyer, feel if I sent you an email about a rug you can buy from me for $2500, but then found out I just ordered it from a well known website for $2000? Why wouldn't you just shop at that same website, right? But, what if I told you I just got back from Vietnam and had come across a small little rug maker and was importing them directly? I would be entitled to be compensated for that, right?
Same goes for wholesaling houses. You need to find deals that the end buyer can't (easily) find on their own.
That's just my $0.02 (and, no, I don't have any rugs to sell).
I think in some sense you are leaving money on the table, but that's not always bad. Sometimes a fast nickel beats a slow dime.
Let's say you get 4 low-ball offers accepted the same day and only have the capital for 2. Also let's say you are only comfortable with the 2 contractors and don't want to bring in more, and your time is limited. This would be a perfect time to wholesale 2 of the properties.
We have a guy here in Columbus who bids on HUD's and just regular MLS deals and then wholesales them for less then they were originally listed for. He does pretty well also!
Assuming you find something to wholesale off the MLS, and assuming you don't use an agent to find the end buyer, your agent gets paid on the initial sale, as Your buyer's agent. With an assignment, I don't know that the agent would be representing the end buyer.
@Patrick M. - There's two easy ways to fix your problem.
1. Become a Realtor yourself.
2. Instead of doing a wholesale "assignment", just go ahead and buy the darn thing (you have the cash, right?).
3. Do both of the above.
Just to clarify, I wouldn't wholesale properties listed on the MLS.
My agent is currently helping me find deals on the MLS, but I could look through other channels.
My question is basically, if I find a seller through the probate list, for example, would my agent still get a cut of that if I wholesale the property? Based on the replies, it looks like maybe not.
@ Bryan L. At some point I think I'll probably have to do this. Thanks!
Before I got my RE license I was using an agent friend of mine trying to locate fix/flip properties and on my own sent out postcards to generate wholesale opportunities. Being that it was a friend, I wanted to be sure any deals I made he got his cut whether or not he was the procurring cause. Once I had bought a property and selected a closing attorney, he told me that he would not put any RE agent into his closing documents to be paid commission. His stance was that wholesalers are essentially performing the function of a RE agent w/o a license--connecting buyers and sellers. If the contract is assigned, any commissions paid to the agent must be handled between assignor and agent but he would not make any mention of an agent in his closing documents b/w seller and assignee. This attorney wasn't just a stick in the mud, he is a long time family friend and this is a personal policy of his. I believe it will always depend on the attorney/title company you select and of course must be approved on the front end by the assignee before the property goes to closing.
@Patrick M. I hear you saying two different things... are we talking Probate or MLS deals?
If an agent finds you a property on the MLS... the agent is going to get paid (you will have an agency relationship with the agent to pay them).
As mentioned it is VERY difficult to assign a MLS deal. The sellers hate it, the sellers agent hates it, in Utah the state contracts have a "no Assignment clause" and its been mentioned that your end buyer is not likely to buy a MLS deal they could have found themselves.
Now Probate... why do you need an agent, why would you pay an agent... are they doing the Probate marketing for you (not likely)... NO.
The best deals are the ones you find, create, and sell yourself!!
@Justin Morgan Yes, I am talking about two different things.
I'm using an agent to procure fix and flip deals, but I'm also looking at probate lists myself.
It is my understanding that if I've signed a buyer agreement with an agent, even if I'm the one who found the property, I'm still on the hook to pay the agent's commission.
That is the root of my confusion. Does the buyer agreement with my agent apply to wholesaling?
@Patrick M. Got ya!
This is a question about agency agreements. Simple answer: Read the contract you signed with your agent and talk with them.
Just a thought: You will need someone to list your flips. Let the agent know your business plan and how you want to include them in it.
BUT... if they are not bringing you deals, FIRE THEM! If you are spending the bucks and time to find Probate you should NOT pay them. If they are not mentioned in the contract you are using to wholesale probate, you don't need to pay them unless you have some other arrangement.
Communication is best... go talk with your agent and make sure you are both on the same page!
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