Why do seasoned real estate investors and seasoned real estate brokers/associate brokers hate wholesalers?

71 Replies

Not trying to be provocative here, but many seasoned real estate investors and seasoned real estate brokers/associate brokers hate wholesalers.

Not just for breaking the law, acting as an agent for a fee, without being on title, but unprofessionalism, outright lying, misrepresenting, etc.

And there is no recourse for the poor home seller; if you were treated poorly, unethically, with a listing agent or a buyers agent, you have recourse.

There is a live thread:

Well-executed wholesale deals feel like well planned checkmate.

I would like anyone with 10 years experience in real estate to list of 3 to 10 reasons due to ACTUAL experience with terrible wholesaler behavior why he or she truly dislikes the average wholesaler.

Ex) wholesaler said he would definitely close with CASH PARTNER, there was no CASH PARTNER, wasted 3 months of prime summer home marketing.

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@K. marie P.
@Bill Gulley

@Mike LaCava

@Brian Burke

@John Thedford

@Bryan Hancock

@Ann Bellamy

@Paul Timmins

@Rob Gillespie

@Steve Vaughan

@Brian Gibbons - I really must say that I feel like some of the tactics that wholesalers use are borderline unethical. They spending a majority of their time/effort demonstrating that what they do is legal. My feelings extend to the "creative financing" crowd. I really believe that it's nothing more than taking advantage of people who do not fully understand what they are getting themselves into. 

@Brian Gibbons

Here's my two cents Brian.

1.  Said they either owned or controlled the property when in fact they didn't, hence the reason for requesting an NDA. 

2.  Said they were finding their deals through serious SEO marketing when in fact they were farming other investor's web sites and trying to sell those deals and they had little to knowledge of the property details.

3.  Said they were experienced in assignments when in fact they didn't understand the basics on how to properly assign a contract or what investors are seeking in a contract that is being assigned. 

4.  Not recognizing they don't know what they don't know.

the biggest problem with wholesalers in my area is they never tell the sellers what they are actually doing and then if they cant find a buyer they just bail out leaving the seller very upset 
@Brian Gibbons

Most do not have the level of experience or underwriting a property that I do. So I prefer to work directly with sellers on commercial property or a professional broker than getting an unknown with a wholesaler that 99% of the time doesn't pan out.

It's a lot of time wasted for a low return.

I will give you another example. I used to work with foreign buyers. I do not anymore for commercial properties unless they meet certain criteria. Experience has taught me the odds of them closing on something is low. The reason is by nature commercial requires millions to put down versus some dumpy house that costs 50k to buy sight unseen.

So they have the currency exchange rate to get over, entity set up, tax withholding, they know nothing of the area here, a long lead time to take any action, some countries they are not required to report income or pay taxes etc. so hard to get a loan.

I could go on and on. I have too many people here in state or out of state that do not have those issues.

So unless a foreign buyer has say 50,100 million and they are realistic with price and tell me they already have all the things I listed above figured out then it's a no go. Any business operator learns over time what are the long shots and what is the most effective deals and clients to work on.

I can't take 90% of my time to educate a foreign buyer who is overseas on the market here. A business owner never puts all eggs in one basket. A deal is hard enough to do when a client is local or out of state.

@Joel Owens

  what you do and the clients you deal with are very much apples and Oranges to the average BP investor reader.

First off you know as a commercial broker proforma's are all blue sky..

were as preformas from turnkey companies the buyers are shocked that they may not be completely accurate   LOL

Not sure how many wholesalers that have 2k in the bank end up controlling a 5 to 10 million dollar deal your doing   again apples and Oranges

@Brian Gibbons I don't hate wholesalers. Perhaps many seasoned investors and brokers do.  But I suspect many also do not.

You asked for reasons based on actual experience. The only negative experience I actually have is where I make an offer on a listed property, only to have my offer rejected because I was outbid, then the next day I have a wholesaler trying to sell me the same deal a price that makes no sense. This has happened several times. I'm perfectly capable of making offers on properties that are listed on the market, I don't need wholesalers getting into the mix and taking profit out of the deal, or killing the deal entirely.

I can understand why brokers may dislike wholesalers but I don't have any actual experience in that regard so I'll refrain from commenting.

On the flip side, one of my largest profits on an SFR flip came from a wholesaler that I met right here on BP. In the context of off-market properties, I love wholesalers as long as they are direct to the seller and not just handing me a useless daisy chain list. I've bought several great deals from wholesalers.

There is a tendency for wholesalers to have a bad rap, and I think that in many cases (but not all) the person is just new to REI and lost in a world they haven't yet become familiar with. We were all there one day.

Wholesalers in general don't give a rip about the homeowner.  That's my beef.  They just see their little $ signs and don't want to put anything into substantiating their performance for the seller.  Right up there with used car dealers.  Just my opinion.

@Account Closed - not everyone in the 'creative financing' crowd is new, clueless, too broke to get a loan or taking advantage of people.  You are posting on a seasoned, creative pro's thread (@Brian Gibbons ) who has specifically asked seasoned pros to comment.  Save your little rant for the newbs.  I don't normally justify myself to the unproven, but... my last 3 deals these past couple months were 'creative'. Headache-free cashflow was what the sellers wanted.  I've never taken a seller.  That's why I get referrals and don't need to send the NOTICE junk mail advertising the wholesalers do.  Only to turn around and offer empty promises all in the name of padding their little pockets.

thanks @Brian Burke

You asked why someone hates wholesalers. I am not sure I qualify because I do not hate them. However I can tell you  at least 3 things they do that I find bothersome .

#1) They do not perform reliable due diligence on the properties

# 2) They quote unsubstantiated ARV and repair figures

#3) They do not adjust their fees according to the price the sellers will receive

Example: They charge $6,000.00 on a house a seller will receive only $24K that is the same as charging a 20% commission on $30K when that should not be more then 3% at most

#4) They claim to have the right to sell the house when in fact they do not have the right to sell the house but only have the right to assign their contract which equates to selling their contract

#5) They convince the seller they have a buyer when in fact many do not even know what to do after they get the house under contract. A wholesaler should make sure they have a buyer in line before they get the house under contract. This requirement would limit wholesalers to those that actually have relationships with buyers and can deliver on their promise to a seller. So before a wholesaler could and would be out at large contacting sellers their first contacts should be buyers and create agreements with buyers to search deals for them and then be honest with sellers telling them that their services are or would only be to make an effort to get their house sold and not include or suggest any promise to buy their property. 

#6) Every wholesaler does not but should include in their contract that the seller retains the right to hire a real estate agent and that the contract they wish to sign with an agent would supersede the contract with the wholesaler making it void and canceled. 

#7) They advertise, " they buy houses cash" when in fact they do not ever buy houses at all what they do is help sellers find a cash buyer and that is exactly what they should advertise. 

#8) They never pay the seller a high enough earnest money deposit. I would like to see they pay at least from $1,500.00 to $2,000.00 that way if they have no contacts with buyers they will lose money for leading the sellers on that they would get their house sold. One thing I might suggest is for wholesalers to work with buyers and have the buyers put up the earnest money. How they would work that out I do not know but definitely no wholesaler should be allowed free and at large that cannot substantiate their existence and service

Anyway that's my .02C. 

Suggestion: Buyers could sponsor a wholesaler school for entry level wholesalers and provide earnest money which could be qualified for same as one qualifies for loan. Then if the deals make sense the wholesaler gets paid for their contact assignment and it be left up to the buyers to bid on the contract. This way buyers could assure themselves of the service. wholesalers would be paid and trained and seller would get the properties sold. Just more thoughts. Something along these lines..........................................................

Brian:
you pretty much covered it in your post. It is not "wholesalers" that I dislike. It is their tactics. I just posted in another thread about a local "wholesaler" that lied to homeowners. They tied up at least 2 properties locally, and when they could not find a buyer, simply walked. This is outright dishonest and this guy should be held accountable.
You want specific examples of tactics that are wrong?
Misleading homeowner they would purchase a property without any intention of doing so.
Causing homeowners delays due to their lies.
Causing homeowners loss of money.
Lack of ethics or training.
This has been hashed out so many times on BP. Unfortunately, some of these dishonest dealers actually post on BP what they have done, their lack of honesty, how to lie and get out of contracts, etc. It is not the "wholesalers" it is the method of operation. As I have said: put it under contract, close on it (keep your word) and then do with the property as you wish. Any tactic that leaves a string of victims is indeed a poor way to do business.
Have a good one Brian I always enjoy your insight (unlike Bill Gulley---I enjoy his incite:)))

I don't hate the good wholesalers.   In June, I bought one last month from one the best wholesalers in Southern California.  

My experience with the NEW/ROOKIE wholesalers:

1. Call me and explain how big and important they are (even though it is obvious they are brand new).  

2. Request my "criteria" when they don't have anything.   My buying net is very wide and mostly based on a math equation.

3. Overstate ARV and understate repairs.

4. Get in the way to protect their position.  EG: not allow me to contact title/escrow/seller to resolve issues.  Every email must go through them and they don't understand it and just make the situation more complex.

5. Fail to follow up when they actually have a decent deal. 

6. Tell me the discount I am looking for is impossible.  I buy every week.

7. Feel entitled to all the profit.   

Why everyone thinks being a wholesaler is the easiest place to start is beyond me.  It is one of the hardest.  You need to know marketing, valuation, rehab, title and how to sell it.  Plus you have to compete with guys like me, and companies much bigger than me that will pay more and have more money, more infrastructure, lower costs.    Doing a fix-and-flip is much easier spot to start if you can put together some money.

On the other-hand, i have helped a couple beginners who were honest about their experience and hard working.  After earning a wholesale fee on a great deal he helped me get (he found the lead, I priced it, closed it, etc) he told me he had the biggest check in his life in his hands.  

I have experience as an investor and started wholesaling a few months ago. I can understand the complaint of wholesalers getting a property under contract and then leaving the seller hanging. That really stinks. At most, the deal should be called off during an inspection period. 

Personally, as soon as I have a contract out, I start making calls to tell potential buyers about the deal and see if there's interest. (I don't give a specific address at this point.) I've found a couple of real estate agents that have clients waiting to buy. I split the assignment fee with these agents. I don't mind sharing the wealth, especially as I am building my buyer's list. 

Once I have the contract back, I have a 10-day inspection period where I can back out should the property not check out. I haven't done this yet but I'm upfront that I need to do due diligence. 

If I could not find a seller, which I haven't had a problem yet, I'd either get short-term money or buy it through my self-directed IRA. I should also mention that I work with non-owner occupied properties which in most cases are investors. So I don't feel like I'm taking advantage of anyone. An investor knows what's happening and they have reasons to use me versus a real estate agent.

I would think a new wholesaler would be best served by either working with another wholesaler as a trainee or bird dog  or doing some buy and hold deals of their own first.  

@Brian Gibbons I agree with Brian Burke, if wholesalers have something of value then it doesn't matter who it's coming from, most investors or brokers are happy to look at it. However; when someone is pulling stuff off MLS and sending it to other brokers, or investors that are already working with a broker, then they've probably already seen it.

Personally, I'd be more than happy to buy from a wholesaler if they send me a good deal that isn't listed on our MLS. Unfortunately in our market there's very few properties that have the profit potential to make them worthwhile.

Originally posted by @Steve Vaughan :

Wholesalers in general don't give a rip about the homeowner.  That's my beef.  They just see their little $ signs and don't want to put anything into substantiating their performance for the seller.  Right up there with used car dealers.  Just my opinion.

Justin Tahilramani - not everyone in the 'creative financing' crowd is new, clueless, too broke to get a loan or taking advantage of people.  You are posting on a seasoned, creative pro's thread (@Brian Gibbons ) who has specifically asked seasoned pros to comment.  Save your little rant for the newbs.  I don't normally justify myself to the unproven, but... my last 3 deals these past couple months were 'creative'. Headache-free cashflow was what the sellers wanted.  I've never taken a seller.  That's why I get referrals and don't need to send the NOTICE junk mail advertising the wholesalers do.  Only to turn around and offer empty promises all in the name of padding their little pockets.

 Steve - you come off as pretty defensive. Am I not entitled to my opinion? Just because "not everyone in creative financing is taking advantage of people" does not mean that some are not taking advantage of people (even if it's unintentional). I am happy that you consider yourself a "seasoned pro" and therefore qualified to post on a thread. 

Brian, thanks for tagging me.  I don't hate all wholesalers, but I stay far away from a few of them.  Overall, I would say we need more good wholesalers, not hundreds of wannabees.  

But the majority of my transactions are on the lending side.  Since we then need to get into the meat of the mechanics of the transaction, a poorly executed wholesale contract doesn't hold up to much scrutiny.  When I get a call on a deal, I won't go very far on it if I don't fully understand the details or can't see the documents in question.  I have found from experience that if the details are murky, or the wholesaler isn't forthcoming with the contracts, then it is probably a huge time waster.  The rehabber will tend to be more trusting than I, especially if he is a newer rehabber.  (Skepticism is an occupational hazard in my lending business.)  So in one  instance I was unfortunately a deal killer because of the title issues involved, and in some others I have simply wasted some time.  It is part of the deal, just like in real estate investing, that all deals don't close.  Sometimes the  fault is with the wholesaler, sometimes with the rehabber.  

We have a few who try to wholesale deals they don't have under contract, and if I know those people are involved, I won't touch the deal.  Too much time for too little likelihood of a closing.  

Here is a different twist on the topic, I posted this some time ago on my blog.  It is a story of a new wholesaler who was guided by a seasoned rehabber, where it appears that the fault was with the seasoned rehabber, and it is tragic from my animal lover point of view:

The investor who called me (we’ll call him Newton Newbie) had asked for advice from another very experienced investor (we’ll call her Selena Seasoned). Newton Newbie was negotiating to purchase a property from Lady Elderly, who was selling her home of 40 years where she had raised her family, nursed her husband through illness, and was now living alone but with 6 pets. She was moving to an elder care facility once the house was sold. She didn’t want to list with a realtor and have people traipsing through her house for showings since she had all she could do to care for herself and her pets.

Newton discussed the negotiations with Selena Seasoned, and Selena assured Newton Newbie that if he was able to negotiate a purchase at X price, then it would fit Selena’s criteria for purchase, and Selena would be able to purchase the property on an assigned contract, with an assignment fee built in that Newton Newbie would realize at closing. Selena was a well-known experienced investor who did many creative deals and was considered by most to be very knowledgeable.

Newton Newbie was able to negotiate this purchase at the price discussed. He signed a purchase and sale agreement with Lady Elderly. Lady Elderly then began the process of getting ready to move to her new facility. To do this, she had to relinquish her pets, as she could not take them with her, and she had no family members to take them. This was very painful for her, as they were like family to her and she loved each one of them.

Newton Newbie took the contract to Selena Seasoned, who then said that the market had changed, and that the price was now too high, and she couldn’t buy the house. Unwilling to give up, and since he had made a commitment to Lady Elderly, he tried to sell the contract to other investors, but was unsuccessful. He had no cash to buy the house, and couldn’t secure financing. He was unable to meet his commitment to purchase the house, and therefore could not close on the deal.

He notified Lady Elderly that he could not buy the house, only to find that she had euthanized her older pets and given up the healthy dogs and cats to the local shelter. Lady Elderly was now still in her house which she had not sold, and was now completely alone, and her beloved pets were now gone or in cages in a shelter, bewildered and separated from Lady Elderly and each other. Once you surrender an animal to a shelter, you can’t retrieve it.

I’m a big animal lover, and this brought me to tears. For both the lady and her pets.  Newton Newbie tried his best, but it sounds to me as if the adult in this relationship was Selena Seasoned, and so was largely responsible. Although to be fair, I heard only Newton’s side of the story and not Selena’s.  <Names changed to protect the guilty>


@Ann Bellamy

YUK!

So sorry to hear that your elderly seller put down her pets!  I have 3 and my extended family has many.

There is simply no recourse for the home seller other than the BBB if a REI, rehabber or Wholesaler, does not fund the deal.

When home sellers hear "My Money Partners" or "My Investors" from wholesalers, and the wholesalers have NONE, that is fraudulent misrepresentation of fact, a felony in some jurisdictions. And it PISSES ME OFF.

Originally posted by Account Closed:
Originally posted by @Steve Vaughan:

Wholesalers in general don't give a rip about the homeowner.  That's my beef.  They just see their little $ signs and don't want to put anything into substantiating their performance for the seller.  Right up there with used car dealers.  Just my opinion.

@Account Closed - not everyone in the 'creative financing' crowd is new, clueless, too broke to get a loan or taking advantage of people.  You are posting on a seasoned, creative pro's thread (@Brian Gibbons) who has specifically asked seasoned pros to comment.  Save your little rant for the newbs.  I don't normally justify myself to the unproven, but... my last 3 deals these past couple months were 'creative'. Headache-free cashflow was what the sellers wanted.  I've never taken a seller.  That's why I get referrals and don't need to send the NOTICE junk mail advertising the wholesalers do.  Only to turn around and offer empty promises all in the name of padding their little pockets.

 Steve - you come off as pretty defensive. Am I not entitled to my opinion? Just because "not everyone in creative financing is taking advantage of people" does not mean that some are not taking advantage of people (even if it's unintentional). I am happy that you consider yourself a "seasoned pro" and therefore qualified to post on a thread. 

 I can vouch for Steve Vaughn as a pro in real estate, as the reason I @ mentionned him, but do not know you Justin.

so Justin, assuming you have 10 years experience or more, what has been your dissatisfaction with wholesalers?

@Brian Gibbons - First off, thank you for presenting your question in a manner that stimulates conversation. 

My dissatisfaction with Wholesalers is that there are basically no barriers to entry. Additionally, there are little, if any, regulations in place to protect homeowners. 

If this is such a great opportunity for everyone (buyers/sellers) - why aren't wholesalers doing something to legitimize their trade? Maybe an industry recognized certification? 

I understand that there are scenarios where it makes sense and everyone is well informed. My concern is with the inexperienced or unethical wholesalers that tie up properties and leave sellers hanging after months of waiting. 

@Account Closed

Thanks for that.  Fraudulent misrepresentation is a heavy bust when proven.  Don't lie to home sellers, wholesalers!

And to be complete, many rehabbers - funders say they will buy 70% of ARV less costs, then change their mind with the wind, and make the wholesaler go to the home seller and "negotiate down" the price more. That is reprehensible.

I think wholesalers SHOULD get transactional funding and buy the deal IF their funder - rehabber flakes on the deal to stay in business and have a good reputation.

Originally posted by @Brian Gibbons :

@Account Closed

Thanks for that.  Fraudulent misrepresentation is a heavy bust when proven.  Don't lie to home sellers, wholesalers!

And to be complete, many rehabbers - funders say they will buy 70% of ARV less costs, then change their mind with the wind, and make the wholesaler go to the home seller and "negotiate down" the price more. That is reprehensible.

I think wholesalers SHOULD get transactional funding and buy the deal IF their funder - rehabber flakes on the deal to stay in business and have a good reputation.

 Brian:

I do like the idea of providing transactional funding and have done it one occasion - the recipient was not a wholesaler, but a rehabber who got over ambitious on his commitments and could not swing everything in his pipeline ... but keeping his reputation untarnished was worth the cost of bridge funding.

The issue I see is that I would not extend funds to most of the wholesalers with whom I have had contact for many of the reasons illustrated above: they simply do not have their act together sufficiently to give confidence the monies would be repaid.   Lending to a wholesaler or rehabber is no different than lending to any small business owner or entrepreneur - you need to prove to me you are a relatively safe place to put my money.

Contrary to popular belief, I don't hate the sinner, I hate the sin. The ones who need to go to jail are the "wholesaling gurus" that spin a perfectly legal aspect of contracting into a course of how to lie, cheat, steal and teach unethical and even illegal tactics. It's not the poor "green" newbie's fault for taking the bait hook, line and sinker. 

I don't hate the wholesaler, I may grow to dislike them after they have been informed of some aspect that isn't ethical or legal and they continue doing it. That becomes a character issue. 

I think the issue with wholesalers is pretty well outlined above.

It boils down to the right education needed to be in real estate, dealing in any strategy. 

Ann's story is the end result when operators don't have a clue as to what goes on with sellers. 

I've seen more legitimate deals blow up and buyers sued that include damages for the costs of what sellers customarily do after they are under contract and the buyers lose. Things like packing, shipping, storage fees, earnest money lost on another purchase contract, loan fees on a new home, even meals and lodging after cleaning out their home. Most wholesalers I read about here don't have a clue as to their liability in tortuous acts of contracting without the real intent to purchase........no clue at all!

They also think that weasel clauses will save their azzes...... wrong! Such contracts will only make things worse in front of a judge. 

It's pretty much "monkey see, monkey do" it's always the naive and uniformed that follow wholesaling to get into real estate, it's easy, you don't need money or credit, easy step by step process, wow, what a way to make some money! Fools follow foolishness.

Then we have the posters here that are the clowns in front of the monkey cage making faces at the monkeys, prodding them on to act up, the advocates of doing the wrong thing. I see them in even a worse light than the newbie trying to make an honest buck. Much like the guy on the ground yelling jump to a disturbed jumper on a bridge over an interstate. So, yes, there are some lower life forms than a bad wholesaler.

I've had all kinds of deals with third parties involved, buying or selling and with me in the middle, this strawman stuff has been around for hundreds if not thousands of years, it's not new. It can be done ethically, honestly, legally and profitably but it takes more education in real estate and in business than what newbies have, or think they have. 

That's enough @Brian Gibbons    

As somewhat of a newb I'm a little apprehensive about asking a question on this thread but with so many respected professionals on here I would like to ask a question so I can learn more from my experience. 

I had a friend of a friend contact me to see if I could help him sell his house quick since I worked at a large buyer of homes in our area. I met him at the house, took pics, truly penciled out rehab costs(I'm in the industry so I know the costs pretty well) and we came to an agreed upon price, that if I could get more than that then I could keep the difference. I met with a couple investors/flippers(within 36 hrs of signing contract) and then one offered X amount over the negotiated price that we signed a contract for, so I accepted it and informed the seller. And we are working to close the deal within 2 weeks or so. It has $600 in taxes due but is other wise paid off.

Is there anything I should have done differently? Granted I am getting my real estate license in the next few months but is it better to just build relationships and get referral fees in the future than to try and wholesale properties? This was my very first real estate transaction besides my personal ones, so I would definitely appreciate any feedback. 

I was a sales associate for Carmax for almost 10 years so I know all about working in industries that have a bad reputation and I don't want any part of it, if that is what wholesaling means. 

I'm not a big fan of realtors few know anything but retail residential.  Their National Association is big on politics which I really don't like.  Their national representation also pumps out figures that are highly questionable.  If I want good figures they are hard to find. In the end a lot of them like screwing other people to the wall to make themselves look good.  Some may consider it competition.  They like maintaining control.  I'm not trying to be insulting I have a good friend that's a Broker.  Hes like a very old friend.  A builder with 2 degrees owned a mortgage company and he still doesn't know all that much about investment property.  

I say if you don't like investment property or what we do go start a cutthroat discount fee home listing service.  I've got plenty of them that will list you for 500 bucks. Go work on your own mess.   On the flip side Real Estate is changing.  For experienced Real estate people investing could be a good place to be.  Think about the future. 

Originally posted by @Stephen Rogers :

As somewhat of a newb I'm a little apprehensive about asking a question on this thread but with so many respected professionals on here I would like to ask a question so I can learn more from my experience. 

I had a friend of a friend contact me to see if I could help him sell his house quick since I worked at a large buyer of homes in our area. I met him at the house, took pics, truly penciled out rehab costs(I'm in the industry so I know the costs pretty well) and we came to an agreed upon price, that if I could get more than that then I could keep the difference. I met with a couple investors/flippers(within 36 hrs of signing contract) and then one offered X amount over the negotiated price that we signed a contract for, so I accepted it and informed the seller. And we are working to close the deal within 2 weeks or so. It has $600 in taxes due but is other wise paid off.

Is there anything I should have done differently? Granted I am getting my real estate license in the next few months but is it better to just build relationships and get referral fees in the future than to try and wholesale properties? This was my very first real estate transaction besides my personal ones, so I would definitely appreciate any feedback. 

I was a sales associate for Carmax for almost 10 years so I know all about working in industries that have a bad reputation and I don't want any part of it, if that is what wholesaling means. 

 You basically did all the work in real estate agents office and you made a fever brokering a deal

Have you looked at Mississippi's statute or rules for real estate agency brokering?  Google "Mississippi real estate agent unlicensed activity", and see what you get

Carmax is not the real estate industry (I love Carmax by the way)

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