Wholesaling, or Assigning Contracts?

10 Replies

A Friday Night rant.

When did wholesaling and assigning contracts become one and the same?

For those of you who sign a contract with no intent of closing if you can't assign it, STOP IT!  It's morally and ethically wrong. When you sign a contract you are as obligated to fulfill your commitment as the seller is (specific performance). Only if a serious flaw is discovered that was unknown at the time you signed the contract should you be cancelling a contract.

Yes, I know legally you can get out of it through any of a myriad of weasel clauses. Don't be a weasel. Far too many "gurus" emphasize weasel clauses and fast cash for no money. However, you are often hurting the sellers, and yourself in the process. 

I'm tired of cleaning up messes from "contract assigners" who promised a seller they would help them, only to disappear and never be heard from again.

Inevitably the "contract assigners" agreed to pay too much, raised the seller hopes, only to see them dashed at the end. People have sometimes moved out, signed their own contract to purchase a new home, and you are screwing them over. STOP IT!

If you have no intent to close without assigning, you ARE acting as an agent (net listing). It's all about INTENT and ABILITY TO CLOSE PEOPLE. Yes, this applies even if you disclose to the seller that you won't close yourself.

And guess what, having a real estate license doesn't change it one bit, or make it any more legal. If you have a license, just list it if you're not willing or able to close on it.

Real Estate Rule #1, Never, ever sign a contract that you are not willing and able to fulfill.

Personally, I don't care if you do assign the contract along the way to closing. (Your State Division of Real Estate may disagree.) If you don't assign it, Honor your word and signature and close on it. Sell it later as is, or trash it out first. make it a rental, and sell it turn key if you don't want to keep it. Rehab it yourself, then sell it retail.

Integrity. It's all about Integrity.


END OF RANT

@Darrin Carey  

I agree with everything you "ranted"!  LOL

We do assignments when we know who we are assigning to.  Otherwise, we do an Option Contract with the seller.  We tell the seller that we are NOT buying the house and that we are working to find a buyer for them.  The argument then becomes, why not just list it with a broker?  Ahhhh!  Good question!  We list it too using an "Exclusive Agency" broker agreement AND we market it the property at the same time through our syndications as well as everything other medium available to us.  There is no other process available to a seller to sell a property more effectively than what we do.  Hands down.  But we do not B.S. the seller so that someone like Darrin has to come along and clean up our mess!

@Darrin Carey  

They (wholesaling & assigning) became one in the same when seminar attendee's are given a "free" 4 hour sales pitch on investing, then get taken for $500 to $20K by the seminar Guru who promptly tells the "high on hope" newbie's...NOW, GO FIND A DEAL!. 

I've seen hundreds of posts here on BP where someone who just attended a weekend seminar posts that they don't feel they know enough to get started in investing and other "seasoned investors" tell the poster, "just go do it."  

Perhaps they should read a medical book and perform surgery on themselves too.  

Shameful, but i guess hope sells much better than truth.

Guy Gimenez

@Darrin Carey
I like the way you think. Assigning contracts with all intentions of following through is honest business. Doing business with integrity is king for all players involved. Great forum.

@Darrin Carey Is it possible for a wholesale deal to not be a net listing? If so, how? I'm not trying to get around a net listing. I want to know how to do this correctly. I actually have a recent post gaining some pretty good responses (titled "Net Listing vs Wholesaling" - I don't know how to link other forum posts), but still no answer. 

Also, I would never write a contract I couldn't/wouldn't close, ESPECIALLY if there was a family in the home. 

I am very up front and honest about my intentions, how I can help, and this results in getting to an Option Contract. 

However, if we agreed to x sales, price, but I find a buyer at y, isn't that still technically a net listing?

@Rob Caldwell How do you list the property, and market through your other syndicates, without it being a net listing? To be more specific, as an example, you list a property "as-is" in the MLS at 25k, and for the sake of this example, let's just say the commission is 6%. But what if you found a cash buyer, not through an agent / the MLS, and they were willing to pay you 27k?

@Guy Gimenez - this advice is rampant in the community. I have been licensed since 2009, but solely for managing properties. I did not sales, traditional, or wholesaling. Now, I'd like to try wholesaling, and when I've asked local "experts" on advice, it's like I frustrate them, and I'm told to "just go do a deal". I get it, I believe in failing forward, but not at the expense of a home owner/seller, or to walk in a grey area, just to make a buck. No thank you.

@Steve Christensen

I can truly understand your frustration. Most seasoned investors understand the value they bring to the table. As such, they won't spend time to teach you what has taken them years and tons of money to learn. They're not being arrogant or uncaring, they simply understand that they can't give away their most value commodity...their knowledge, skills and contacts.  

Attend as many REI MeetUp groups as possible and build relationships with anyone and everyone related to investing...lenders, wholesalers, rehabbers, contractors, title companies, etc. Offer to handle some of their more mundane but important duties in exchange for the opportunity to learn from the seasoned investors. Perhaps you can walk neighborhoods and put out postcards or door hangers for the investor with no charge for your time. Or consider shooting a video of a subdivision or a specific property for an investor who is considering a purchase, again at no cost to the investor. These two activities, as well as many others, will give you a better idea of marketing and may just give you a chance to meet with neighbors and potential sellers.

The bottom line is you either have to invest money or you have to invest time to get an education. Free education is often delivered by those who have the least to offer.

Guy Gimenez

@Steve Christensen , here is your other thread that you mentioned (19 responses so far):- 

https://www.biggerpockets.com/forums/93/topics/243...

As I see it, the main difference between net listing and wholesaling is in context of WHO is doing it ie. Net Listing = usually forbidden because of conflict of interest when being attempted by the Licensed. Wholesaling = usually forbidden because it's seen as RE brokering being attempted by the Unlicensed. I agree with you, semantics really. Cheers...

(To link other threads, highlight the whole https://..., then copy and paste).

@Steve Christensen A "net listing" is strictly a licensed agent activity. I am not an agent. I've been told that net listings are not permitted in most states, and discouraged in the rest. An agent has a duty to represent the seller in a transaction; a net listing does not keep the agents motives aligned with the seller's best interest.

Numerically, a net listing has the same result as wholesaling. However, the wholesaler does NOT have a duty to represent the seller.

Interestingly enough, in Ohio, assigning a contract is permitted, but not an Option.

We're in the real estate business.  Our product is most people's largest purchase in their lifetime, and highly regulated and scrutinized. You must ensure you do it right.

"Just do it" is a great slogan for Nike, but it's terrible for anyone in real estate. You've been doing property management long enough, How many set of laws do you have to comply with for yourself, your owners, and your tenants?

@Guy Gimenez I understand and appreciate your response. Unfortunately, the offer of hard work, doing mundane tasks, etc. does not necessarily lead you down the right path. I've offered this to investors. I've woken up at 3am to put out signs, put out signs for open houses, mail letters, and door knock on pre-foreclosures...all to learn that properties were acquired by shortsales purchased by a 3rd party, to either wholesale or rehab by the agent doing the shortsale or the broker. Right, wrong, or indifferent, I wasn't comfortable with this and parted ways. While this was only one example, and I cannot throw the baby out with the bathwater, I've found that the pool of investors with a true knowledge and background in real estate is limited vs those that learned from purchasing something from a late-night infomercial or attending a guru seminar.

And I completely understand obtaining knowledge by money or time. I'm ok with both, as long as I am getting the correct knowledge. Last night I attended a meetup. Two people who sent me a deal (I could tell they were brand spanking new to the industry; I think they paid to go to seminar that charges 25k, they were not licensed, and did not get the deal under contract for the right price) heard my name announced at the meetup, and came up to me right after and asked if I would mentor them in marketing. While I was honored, they proceeded with telling me they had no idea what they were doing. I didn't feel like they'd even tried to obtain knowledge of information on their own, and just wanted me to tell them everything. I referenced them to here, and said I would meet with them if they emailed me...we'll see if that happens! I only bring this up, because I really do get people who want to take take take, and don't offer anything. For me, I feel like something like marketing is one of the 'easier' things to learn about. Contracts, comps, negotiating, those, to me, are the harder things that I rarely see/hear about on podcasts/ebooks/programs/etc.

@Brent Coombs Thanks!

@Darrin Carey Seems like a catch-22, net listing = forbidden (in most states) by a licensed agent, wholesaling = no issue with net listing, but brokering of a property without a license.

Yes, I was held to many standards, regulations, laws, etc. And I want to comply with them as a licensed agent with the ability to wholesale. 

Thank you all for the responses!

Darrin - you and I go back a few years now and have done some business together.  As you know, I have wholesaled my fair share of properties over the years.  

Real Estate Investing today is a team sport, and you have to pick what position you want to play.  I hear (and read) far too often today about new investors,  ones just starting, who want to "get into wholesaling."  Ask them why, and you'll hear vague reasons that are obviously something they picked up from the latest "seminar" that just blew through town or "training" they bought on the internet or hanging around the water cooler.  The "seminar" guys who promote it are actually promoting their "secret systems" for you to buy from them to find sellers that cost $5,000 but if you buy now, you can get for $2,997 payable in 3 monthly installments.  When that happens, hang onto your wallet!

Any of those sources make it sound so easy...like there are hungry buyers out there just waiting around for someone to come into their lives and offer them a property, and those people will magically buy it as though they are under a spell.  (After 10+ years wholesaling, I am still looking for those people :-))

You wouldn't go to your eye doctor to have your gall bladder removed.  Nor would you have your gall bladder removed by a doctor who said, "you know, I've been a general practitioner, but I think I want to get into surgery.  Mind if I remove your gall bladder for you?"

I gravitated to wholesaling because I became so good at acquiring property, I had more than I could handle and starting sharing my deals with associate investors who were glad to get them.  

The point I am making is that I don't think wholesaling is a place you start.  I think it is a place you end up.  

The place to start is decide on your financial goals and pick the best way for you to get there:
Decide if the best place to get there is to buy distressed property, fix and hold for a rental or fix and retail. 
Decide which neighborhoods. They all have their trade-offs. Lower income neighborhoods cash flow the best but have a higher maintenance tenant base. If you have the discipline to manage tenants in those areas it is a good living. If you don't think you do, either hire a good property manager or move up a tier or two, but realize when you do, your NOI drops the higher you go in demographic.

However, you aren't in this business to trade dollars and appreciation isn't so hot these days.  You have to create value, and that may take a little experience doing the lower tier properties first to realize how to create it in the higher tiers.  (Successful builders of tract homes didn't start there - they gained experience and ended up there.)

If you have skills and a few good trades people, you can do well buying distressed, fixing, and retailing homes.  Do it well, and you can turn 4 to 5 a year just on your own with a few strong backs and weak minds to help you.  There's good money in that, too.

If the reason a person says they want to get into wholesaling is to "learn the business" or "learn the market", they were given bad advice.  The best way to do either is to bird-dog for someone who is experienced, learn from them, and then acquire strategically to achieve your goals capitalizing on your bird-dogging experience.  Bird-dogging requires little out-of-pocket.  The only risk in bird-dogging is your wait time and a little gas money.

Real estate investing is a marathon not a sprint.

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