Unscrupulous Wholesalers

16 Replies

I have some investors that I'm good friends with that asked me to find deals for their rehabbing. I know them well and they have just been approved for an unlimited total line of credit for rehabs, but a per deal purchase limit of $150,000.

Regardless, I had a wholesaler send me a deal that I had never worked with before. They said that the property is available (including their fee) for $66K and it needs $20K of rehab (HA!). ARV is going to be $119,000 minimum so it looked pretty attractive for my investors. Carpet has been ripped out and the place was cleaned out from a hoarder that rented there previously.

We take a look at the property and the first thing we see is a condemned sign on the front. Cracks in Stucco all over the house. It's a 3/2 1250sqft that still has the carpet in it. All that being said, it needs close to $50K-$60K for the rehab which puts us in the neighborhood of $30,000. We call the city inspector up for the condemnation (truly a nice guy) and we mention the property to him. He said that he talked to a man not that long ago claiming to have a contract and earnest money for the property. He was very rude to the inspector and he told the guy that the owner would need to show up to the property with ID in hand in order for him to lift the condemnation.

I contacted the wholesaler and relayed my findings and he began to get snappy with me. He tried to tell me that homes were going for $139K-$149K, to which I said, "I'm a Realtor as well, and I obviously was not looking at the same comps that you are," (I looked at all the comps for the neighborhood, that price wasn't there). He then began to tell me that we were just a backup anyways and that they were already working a contract for the property (Ok, now I'm pissed). I gave him the offer and said that's where we're at, call me if you want to do a deal.

We understand that wholesalers need to make money, but I have a feeling that he is trying to rip the homeowner off. What are your thoughts on bypassing the wholesaler and going straight to the owner? BTW, he's not on BP, so he must be unscrupulous!

I am sad to hear of your experience. As a wholesaler myself I feel this relates close to me. I do agree there are some wholesalers that are trying to squeeze the blood from a stone but I hope this is more of an exception than a norm. I don't want your experience to be 1 ruins it for the others on the playground.
From a wholesaler side, I would find it about as shady for a potential buyer to go around straight to the owner. I get this guy was being a jerk but from a good wholesaler's side, a buyer would look the same.
Hope you have better experiences in the future!

What you describe is what I expect from wholesalers in my area. Basically nothing accurate, usually a misrepresentation of anything numeric. Sometimes even the street number.

I think they are just looking for fools. There are some fools... with money. What's the old saying? A fool and his money are soon parted? something like that.

BTW, a few weeks ago I did what you just suggested. I talked to the owner of a house 'shopped' locally. Quite interesting indeed.

Account Closed 

 - I'm not going to comment on the wholesaler, but 50-60K on a rehab for a 1250 sq-ft house in TN is a hell of a lot of money!  My most expensive rehab ever ran me about 25K.  The roof had already been replaced, but still maybe 30 if the roof had of needing replacing.  Are you getting GC quotes on a rehab like this?  Is that why the costs are so high (the GC will add on quite a bit to the price)?  Man, you could probably start from the block foundation and build that size house from scratch for that kind of money in TN unless you are doing some really high end kitchens and baths.  I'm confident that I could do a gut rehab on that size house for that much.  Is this a really old house or something?

What makes you think he's ripping the homeowner off?? If the homeowner agreed to a sale price then that's a price they're willing to accept. If they have it under contract how are you going to go around them. Sounds like the guy is rude and may not have his rehab/ARV numbers right.

I don't necessarily want to bypass him. I want wholesalers to get paid, but what I don't want is for an elderly black woman to be ripped off especially when this guy is a licensed agent. I'll pay him for bringing the deal, I just don't want to deal with his BS anymore and want the owner to understand what we are going through.

Lately my experience is that kind of thing comes from new wholesalers that just don't know what they are doing. The generally won't last long.  When the market was super hot years ago those kinds of guys could make a living off dumb money. 

If the wholesaler has the deal under contract, trying to go around the wholesaler is known as "interference with contract" and is a tort that they could sue you over. On the other hand if he doesn't have a contract, then legally you could go make your own deal.  I have never done that because feel like the person who brings you the deal deserves to be compensated. That is the kind of reputation I have and want to continue to build. 

However you can argue that a jerk offering a bad deal with no contract doesn't deserve to be compensated.

Originally posted by @Ned Carey :
Lately my experience is that kind of thing comes from new wholesalers that just don't know what they are doing. The generally won't last long. When the market was super hot years ago those kinds of guys could make a living off dumb money.

If the wholesaler has the deal under contract, trying to go around the wholesaler is known as "interference with contract" and is a tort that they could sue you over. On the other hand if he doesn't have a contract, then legally you could go make your own deal. I have never done that because feel like the person who brings you the deal deserves to be compensated. That is the kind of reputation I have and want to continue to build.

However you can argue that a jerk offering a bad deal with no contract doesn't deserve to be compensated.

I agree Ned, even Jerks that do the work deserve to be paid. Just thought that the homeowner should know what's going on.

Originally posted by Account Closed:
I don't necessarily want to bypass him. I want wholesalers to get paid, but what I don't want is for an elderly black woman to be ripped off especially when this guy is a licensed agent. I'll pay him for bringing the deal, I just don't want to deal with his BS anymore and want the owner to understand what we are going through.

How is she being ripped off? Why does the owner need to know what you are going thru? I agree that the guy sounds like an ahole to deal with but you somewhat sound like you want to sabatoge his deal because you don't like dealing with him. I'm not taking up for him but I just don't see how you're saying that she is being ripped off.

Originally posted by @Chris K. :
Originally posted by @Jared DeValk :
I don't necessarily want to bypass him. I want wholesalers to get paid, but what I don't want is for an elderly black woman to be ripped off especially when this guy is a licensed agent. I'll pay him for bringing the deal, I just don't want to deal with his BS anymore and want the owner to understand what we are going through.

How is she being ripped off? Why does the owner need to know what you are going thru? I agree that the guy sounds like an ahole to deal with but you somewhat sound like you want to sabatoge his deal because you don't like dealing with him. I'm not taking up for him but I just don't see how you're saying that she is being ripped off.

Unfortunately, sometimes people see money and get what I generally call 'commission breath'. They realize they have an elderly person as seller, they realize they can manipulate, and they start talking. The licensed realtor may have dropped that word, Realtor, and the seller may not even know this is "self dealing". Fast talking, maybe a better term. The get to person to sign a contract. Let's say for $15,000. Then the realtor shops it at $30,000. (Edit: these are not contrived... they are actual numbers for a property in my area...)

The argument is... 'is this just capitalism?' What are the rules for licensed people regarding 'protecting the public?' Brokers, IMO, shouldn't self deal. If they get the license, then act like a broker. Don't broker here... and self deal there... whichever gets the most return for you based on someone's ignorance.

Originally posted by @Chris K. :
Originally posted by @Jared DeValk:
I don't necessarily want to bypass him. I want wholesalers to get paid, but what I don't want is for an elderly black woman to be ripped off especially when this guy is a licensed agent. I'll pay him for bringing the deal, I just don't want to deal with his BS anymore and want the owner to understand what we are going through.

How is she being ripped off? Why does the owner need to know what you are going thru? I agree that the guy sounds like an ahole to deal with but you somewhat sound like you want to sabatoge his deal because you don't like dealing with him. I'm not taking up for him but I just don't see how you're saying that she is being ripped off.

I understand and believe in the value of wholesalers and the quick sale. However, if you agree to wholesale a property and then you do not secure a buyer because you're trying to sell a property way over priced (100% over in this situation), the property will take too long to sell which will eliminate the value of the quick sale (because it won't be one at that point) which means she would've been better off listing with an agent at that point. No value is given if the property sits, hence the "getting ripped off". The sad thing is that this guy is an agent and "has been doing this since 1986".

Originally posted by @Chris Martin :
Originally posted by @Chris K. :
Originally posted by @Jared DeValk:
I don't necessarily want to bypass him. I want wholesalers to get paid, but what I don't want is for an elderly black woman to be ripped off especially when this guy is a licensed agent. I'll pay him for bringing the deal, I just don't want to deal with his BS anymore and want the owner to understand what we are going through.

How is she being ripped off? Why does the owner need to know what you are going thru? I agree that the guy sounds like an ahole to deal with but you somewhat sound like you want to sabatoge his deal because you don't like dealing with him. I'm not taking up for him but I just don't see how you're saying that she is being ripped off.

Unfortunately, sometimes people see money and get what I generally call 'commission breath'. They realize they have an elderly person as seller, they realize they can manipulate, and they start talking. The licensed realtor may have dropped that word, Realtor, and the seller may not even know this is "self dealing". Fast talking, maybe a better term. The get to person to sign a contract. Let's say for $15,000. Then the realtor shops it at $30,000. (Edit: these are not contrived... they are actual numbers for a property in my area...)

The argument is... 'is this just capitalism?' What are the rules for licensed people regarding 'protecting the public?' Brokers, IMO, shouldn't self deal. If they get the license, then act like a broker. Don't broker here... and self deal there... whichever gets the most return for you based on someone's ignorance.

Amen Chris! Most Realtor who wholesale do not realize the fact that they walk a fine line when they do not disclose. They could be sued and lose their license if an elderly woman discovered the spreads that the agent made on a deal like you spoke of. It's the same reason why we have the FDCPRA, Usury Laws and consumer protection laws.

Originally posted by @Chris Martin :

Unfortunately, sometimes people see money and get what I generally call 'commission breath'. They realize they have an elderly person as seller, they realize they can manipulate, and they start talking. The licensed realtor may have dropped that word, Realtor, and the seller may not even know this is "self dealing". Fast talking, maybe a better term. The get to person to sign a contract. Let's say for $15,000. Then the realtor shops it at $30,000. (Edit: these are not contrived... they are actual numbers for a property in my area...)

I agree that in your scenerio that would be 100% unethical, dishonest and taking advantage of someone but that's just speaking hypothetically. The OP is stating he feels that this guy is ripping the homeowner off so I'm wondering exactly why he's saying that. If everything had worked out in his favor and the guy wasn't a jerk, would he have been so concerned about the poor old lady being ripped off then?? He said he still made the guy an offer on the property even after all this stuff happened, if the guy calls him tonight and accepts will he back out due to his concern of this sweet old lady being ripped off. So again I'm not taking sides of the wholesaler but it's kind of hard to buy the whole "I want to protect this poor old lady from being ripped off" plea when he made an offer to buy her house.

@Chris K. I don't know all the facts, just what's presented. Generally, realtors go in with credentials that an average, unlicensed person, does not possess. This house is condemned. I'm just relaying that IMO a realtor shouldn't self deal with owners who are under duress. Condemnation == duress. This is not "speaking hypothetically."

Account Closed Regrettably, the actions of many of these unscrupulous Wholesalers are going to have a negative impact on the honest ones, the ones that know what they are doing and can and do bring value to the REI community. In many Wholesalers defense, they didn't start out "unscrupulous" - they were just promised untold riches from self-proclaimed Gurus who peddled the snake oil without providing the knowledge or tools to succeed. After a few failures, these folks will leave the field disappointed or turn to doing what many, if not most, are doing now which is ruining the reputation of the good, honest ones: they pull a property newly listed on the MLS or an evergreen property (every wholesaler in town has tried to hustle and failed) and do a mass email mailing with slick marketing containing inflated ARVs, ridiculously low rehab estimates, and a non-negotiable, inflated asking price. To add insult to injury, they sneak in language requiring the Investor to pay both sets of closing costs in a double closing, require both an EMD AND a separate non-refundable Deposit to cover their expenses in the very likely event the double close runs into a snafu. And, guess who the target audience is for these Wholesalers? Yep, it's the poor saps that were in the same self-professed REI Guru's parallel track (for just $175 more, today and today only) that outlines how anyone can get rich quick, using none of their own money, rehabbing distressed parties. What could possibly go wrong?

Prediction: if the REI community doesn't start policing the activities of these types of Wholesalers, then some Regulator will eventually step in, draconian laws/regulations will be passed and these modern day aluminum siding salesman will be shut down, but so will a lot of honest folks trying to make a living and add value the right way.

David Begley, Real Estate Agent in GA (#357208)

What does her being black have to do with anything?

Originally posted by @Steve B. :
What does her being black have to do with anything?

It's the truth. I guess it's not relevant, just like you pointing it out has nothing to do with this discussion.