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

71 Replies

So why not educate us newbies on the correct and ethical way to wholesale?  I, for one,  want to be ethical and above board in my dealings with sellers (good Karma).  I believe in disclosure and have no issue letting sellers know that I plan to assign contracts and take a fee for doing so.   Sellers then have the option to  agree or continue trying to sell their property whatever way they choose. 

I can always opt to do a double close to avoid such issues.  

Originally posted by @Andrew Syrios :

It's not a matter of hate I don't think. There are some very good wholesalers who I do enjoy working with from time to time. But you do have to sift through a lot of garbage in the process. It seems there are a handful of wholesalers who just spam you with overpriced, warzone properties in need of a gut job. It gets rather tiring...''

There are some things that just aren't worth it. Thats for sure lol. If you have been in this business for any length of time all that takes is a quick look. I see no need for oversight of wholesaling lol. Why not just include FSBO's while your at it. Really good wholesalers Andrew some that have been in the business for decades too. That value repeat business and know what they are doing. I don't think some of the new people do things on purpose necessarily it just takes experience like anything else. Anyone that buys something that's basically from the ground up needs some more experience too.

Any sale of real estate is a shot in the dark. It's sales and as far as sales goes anyone can imply anything. That goes for stocks and bonds getting someone excited by not disclosing certain things. A real estate agent that only gives the upside and not the downside. It doesn't sell after 6 months then what? You want guaranteed sales. The deal falls out a buyer finds something else they like better. Deals fall through all the time. I think that listing with a discount broker is valid. Hey I'm getting gouged for 3.5% on a deal that gets listed on the MLS on a 400k deal when I can pay only 500 bucks to get it done. I just saved 13,500 dollars. Just for listing on the MLS with some local marketing when I can get nationwide exposure with the internet now. Realtor fans may not like that. But hey you want to be a consumer advocate I like consumerism to. Discount brokers who were shunned yesteryear broke up the monopoly that was only available to agents. The point is why meddle its a very small part of the market. I know a lot about real estate. I don't go running my mouth about other peoples business. Some things aren't worth it don't buy it. Do your own work.

@Sherri Southwell

  this issue and apparently FLA is taking this tac as well. is its a very fine line and or narrow scope of what you can do to be legal... instead of getting your legal knowledge of whats right and wrong in your state from BP  ( consider the source ) which is basically unreliable when it comes to specific state laws.. Simply contact your department of Real Estate describe how your going to work and ask them if you need a license or not.. or pop on the State website and read the statues  ... it pretty clear that the way 99% of wholesalers approach wholesaling is selling with out a license.. IE advertising an address for resale on craigs list. .putting pictures up.. Transactional funding is the answer in states that are going to really come down on what THEY precieve unlicensed activity to be.. NOT what BP posters think it is or is not... this is not the place to get legal education its all a bunch of well meaning folks personal opinons when your sitting in front of a regulator.. and your defense was.. Well hey I listed to a pod cast on BP and they said it was a good method to use.. that won't get you very far... LOL... so check with the state they are the one's who make and enforce your laws.

You might as well talk about gouging too.  I mean is it ok to make 50% profit on what you do?   I mean is that an unfair profit.  I live in an area where the houses go for 3 million plus. So someone making 1.5 million on a deal.  I mean maybe the neighbors wouldn't like that and would like to get an idea of just how much is made. How much does it cost to build a car its a mystery some things aren't.  Hey maybe I should be a consumer activist.  Nothing better to do.  Your not going to pay a lot for this deal!  We could be talking sea-change.

Originally posted by @Sherri Southwell :

So why not educate us newbies on the correct and ethical way to wholesale?  I, for one,  want to be ethical and above board in my dealings with sellers (good Karma).  I believe in disclosure and have no issue letting sellers know that I plan to assign contracts and take a fee for doing so.   Sellers then have the option to  agree or continue trying to sell their property whatever way they choose. 

I can always opt to do a double close to avoid such issues.  

Hi Sherri, glad to hear that!

I think most new wholesalers are trying to be ethical and deal legally, the issue is that it's the bad "education" the hype by gurus and coaches with bad ideas that take the newbies down the wrong path. What's the right path? In a nut shell, learn real estate, not real estate tactics or strategies. Learn the basics of how and why things are done, then apply those principles to your strategy. 

I can and I suppose I will teach wholesaling, I can cover the ethical side very well. I can cover the marketing side, financing if necessary, the rehab, the partnership approach with an owner or a group/team approach to get deals closed. Some of these areas have no legal consequences as to facilitating a transaction without a license. Dealing individually with a homeowner, as is usually done, does have legal implications and you can easily get into brokering without a license. 

Frankly, I can not nor will I teach things designed to circumvent laws, that in itself is unethical. Wholesaling as a business, meaning that's all you do primarily  is to assign contracts to real buyers, that certainly puts you in harms way of regulators and the law. 

An example: I get 4 houses under contract for rehabs, I find a 5th property and think, gee, my crew really can't crank out 5 in the time period need to make all of these profitable. I see the 5th deal as being much better than the 3rd contract I did a couple days a couple days ago. I have other investor friends in town too, so then I decide at that point to pick up the 5th property and allow one of my investor friends to take the 3rd contract. 

I have the ability to buy the 3rd deal, my intention was to buy the 3rd property, I entered into that contract legally, ethically and in good faith. But, now, it just doesn't fit after closer analysis and under changing circumstances. So, I call Bob and tell him, hey, I'm over my head here, got a good deal but I would rather skip this one and move on, you need to take a look at it. I can assign you my contract for 3% of the deal......fair enough? Bob looks, knowing I get good deals and calls back, he says "Done, I'll take it". I also know Bob can close the deal, under the same terms I agreed to. 

I don't mind calling the seller and telling them, I have our deal set up to close a week from Monday at XYZ title just as we agreed. A cash sale! I also do not mind telling them I assigned my contract to someone I know who is in a better position to rehab the property.   There is no problem telling the seller he's closing as agreed and getting his price, and, I don't mind telling the seller Bob is going to pay me less than what a agent's commission might be. Trust me, the seller doesn't care!

This is totally different than going to the seller, implying that I will buy, when I know I can't, and then beating the bushes for a real buyer, acting as an agent for the owner under deceptive practices. 

If you go to a seller and explain that you can get his property sold quicker than being on the MLS and for less money, even agreeing to do a double closing (in most places you can't now due to ALTA rulings) while it may be agreeable, it doesn't take you out of the fact that you are now acting in an agency relationship, saying you'll move the property for the owner even if he does agree. It is not the type of paperwork you use, calling yourself a principal in a sales contract, it's your intention and what you are doing that makes you an agent of the owner of the property.

Substitute a house for a truck, use the same purchase agreement arrangement, the same intention of assigning the contract, in the eyes of the state motor vehicle folks, you're a car dealer! You are acting as an agent for the owner of their property. 

Will the motor vehicle division hammer you for doing one transaction? Probably not, they certainly will if you are in the business of dealing in vehicles and they see that you've done 12 such transaction. 

When it comes to licensing and doing something that requires a license, regulators will look at the severity of the matter, once is a slap on the hand saying don't do that, holding yourself out as being in the business and having multiple violations is an entirely different matter. 

Did you notice up there in a wholesaler's rant that he took title to the property? That's not what is generally taught or implied to new wholesalers. He closes his deals!  

Some in the RE world really don't care that they may put others in harm's way, that even by disclosing all that is going on with all the parties involved is still doesn't make the dealing ethical or legal or aboveboard, all the parties may be involved in slippery transactions, they may not care, they also may not know! But, you can bet, that those preaching wholesaling probably know and they cover their tails, probably not the other guy.    

Okay, I gotta go. best of luck to all of you. :)

Nevermind lol. Discretion is the better part of valor.  

Don't sell junk stuff that has to be totally rebuilt its not worth it.  Price dosen't make it a good deal see what your getting with your eyes. 

(Long time lurker, first time poster)

I, Like Shari, am getting my start in REI and wanting to learn about all aspects as to increase wealth through RE. Wholesaling is one of the avenues I see to make money... But I wouldn't be able to sleep at night if I thought I was trying to sneak something by a seller, no matter their level of motivation. Recently I've been going to FSBO homes listed on craigslist just to get practice estimating repairs and to get the overall "newb" nerves out of my system.

Yesterday, i talked to a not-so-motivated seller (knowing I most likely won't have my offer accepted, even though it's reasonable by RE standards) and the main details of the conversation went like this:

-Here is what I can offer...$###

-What I would likely do is assign this contract to another investor for a profit.  (which my contract says as well) and the agreement would be contingent on that. 

-You have options beyond FSBO if you want to go with an agent.  The MLS is probably the place that will get you the most money for the house, because it's really not in bad condition. (just trying to give full disclosure of options)

-I even said "I hope you find a buyer who gives you your full asking price!"

I feel like that is about as honest as I can be... Did I break the law?   I'm just trying to figure out if this discussion is more about being angry at crook wholesalers or is a legal indictment on the concept of honest wholesaling.

@Sherri Southwell

Buying the legal education books of florida is a start.

http://www.realestate-school.com/books/

Florida is not California is not New York.

What is considered brokering activity I think is pretty clear...Are you doing a service and getting paid?  Or are you an owner and selling what you own?

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Florida Real Estate Statutes

http://archive.flsenate.gov/Statutes/index.cfm

The law puts the presumption on you to prove that you are not acting in violation by using creative techinques. This statute removes the cloud of a question mark and makes it pretty clear about creatively skirting around the license laws. 

http://archive.flsenate.gov/Statutes/index.cfm?App...

Take a read of FS 475.43 which was intentionally created in 2003 to thwart unlicensed activity:

http://archive.flsenate.gov/Statutes/index.cfm?App...

In all criminal cases, contempt cases, and other cases filed pursuant to this chapter, if a party has sold, leased, or let real estate, the title to which was not in the party when it was offered for sale, lease, or letting, or such party has maintained an office bearing signs that real estate is for sale, lease, or rental thereat, or has advertised real estate for sale, lease, or rental, generally, or describing property, the title to which was not in such party at the time, it shall be a presumption that such party was acting or attempting to act as a real estate broker, and the burden of proof shall be upon him or her to show that he or she was not acting or attempting to act as a broker or sales associate. All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved."

Bet the gurus didn't tell you about this law, did they? If the "title" to the real estate isn't in your name (title doesn't mean you have an option or a contract assignment - it means a deed), then you are presumed to be acting as a broker. Then it goes on to specifically say "contracts" and "options" and "beneficial title" (like a trust) not based on substantial consideration are declared void and ineffective. I'm not sure what "substantial consideration" means, but somehow I doubt $100 for a $100,000 house would be considered substantial.

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Florida Statutes and Rules
http://www.myfloridalicense.com/dbpr/re/statutes.html

In a lot of places "builders" aren't licenced either.  Used to be in California that was about the only place they had to be. 

@George Allen

  you get wrung up in Oregon if you are caught without a licnese.. they drive subdivisions and check on subs and GC's  no fooling around here.

but in the rehab business its standard procedure for the paint and carpet guys.

Originally posted by @Jay Hinrichs :

@George Allen

  you get wrung up in Oregon if you are caught without a licnese.. they drive subdivisions and check on subs and GC's  no fooling around here.

but in the rehab business its standard procedure for the paint and carpet guys.

Plenty of states like that. 

The problem I have with all of this is older neighborhoods that Brokers won't touch because of the low dollar amount.  Where rehabs can take place.  I don't know that there is any such place as a "war zone".  Just some bad apples.  Which gives a neighborhood a bad name it just might not deserve.  Its like putting up with the bad kids in your neighborhood.  So realtors for the most part want a bigger score based on the commision structure.  I don't mind the "war zones" lol because I get along just fine.  

So houses just sit and sit.  It's a waste.  Not everybody in America wants to live in a house the size of the Guggenheim museum they want to be near kin and the people they grew up with.   So most realtors don't know squat about investment property to begin with. Truthfully for a lot of them there is nothing in it.  It's a small part of the market compared to retail residential for them.  Why a realtor would even fool with investment property is beyond me if they aren't connected.  

They really don't know anything about rehab.  That in my opinion is a big mistake on the part of government not recognizing that.  They don't want to fool with it. Takes to long for them to close on deals and once again the commissions aren't there.  Revitalization of neighborhoods is important in my opinion.  Most realtors are chasing the "hot areas" with the high commission payouts.  They don't want to bother with this stuff and lack the expertise.  There are other issues here I agree.  My opinion a seller should be able to cut the kind of deal he wants without interference.   

I want to personally thank all of the seasons professionals for weighing in on this side of REI. I'm a total newbie (first post!) and was drawn to the idea of Wholesaling as it offered a barrier of entry that seems to be significantly lower than any other facet of REI. The information in this thread is priceless to someone who is still at the researching phase of their journey, as it gives you an idea of what NOT to do that many of these "gurus" will purport as best practice. Wholesaling, for me, will act a vehicle for my long-term REI vision, which is buying and holding property to rent. Some rehabs may happen along the way as well :) Again, thank you all for taking the time to share your expertise, as it has provided many of us in-the-dark folks just getting started some sort of clarity in an otherwise seemingly convoluted process.

Originally posted by @Matt Conley :

I want to personally thank all of the seasons professionals for weighing in on this side of REI. I'm a total newbie (first post!) and was drawn to the idea of Wholesaling as it offered a barrier of entry that seems to be significantly lower than any other facet of REI. The information in this thread is priceless to someone who is still at the researching phase of their journey, as it gives you an idea of what NOT to do that many of these "gurus" will purport as best practice. Wholesaling, for me, will act a vehicle for my long-term REI vision, which is buying and holding property to rent. Some rehabs may happen along the way as well :) Again, thank you all for taking the time to share your expertise, as it has provided many of us in-the-dark folks just getting started some sort of clarity in an otherwise seemingly convoluted process.

My advice, learn real estate as the industry exits in customary and accepted practice in your area. Do not rely on internet forums for an education! It's not that hard to learn the basics with average intelligence, maybe 2 to 3 weeks, it will put you years ahead of 75% of those in forums! A bunch of kids looking for an easy buck. 

Before you can think out of the box, you need to understand what's in the box. You can't just go out and make up your own rules or dream up anything that you might think will work for you. And you sure don't learn real estate from some low life marketing guru feeding ideas or trying to feed your deals to them. Let's not be so naive with those spouting off hype and success to follow them, that's the bait, don't bite at it! Good luck :) 

Wow! I'm new to real estate investing and been a basic member with Biggerpockets for just around 2 weeks or so and this will be my first post.  

I've been researching REI for the purpose of a second career for my retirement and decided to begin with wholesaling, not because I'm broke, but to get the whole concept of marketing, buying, and selling for a profit.

I have no clue to which niche I will fall into just yet and have been spending so much time on Biggerpockets listening to every podcast, reading every blog post as I can that Josh and Brandon has on their fantastic website.

Taking in from what I have learned and standing outside all of you in your ring of honor, I can only add a very basic comment to wholesaling. I have been driving around my neighborhood for the last 2 weeks jotting down addresses that I thought had potential as a distressed property. I have also talked to many homeowners while they were outside and with my easy going personality, I began asking their thoughts about all the houses that are selling, sold, or being foreclosed in this area.

There were a few that asked me why I was asking but for the most part, the rest talked my ear off. For the ones who asked me why I just simply answered that I am privy to investors buying homes for cash in this area. A couple of them asked me for my phone number but embarrassing enough, I didn't have any business cards and they replied that it was OK to scribble something an a piece of paper.

Now, Before driving into that neighborhood, I did a lot of research with Zillow and Redfin and knew what was selling, being sold, and foreclosed in that specific area. I would drive into that area just a bit after dinner but before dark. I will tell you that I had a great time doing this.

Now, I must admit that I wasn't trying to get them to sign a contract, just easy conversations about what they thought their houses were worth or has anyone tried buying their houses. The funny thing is they all said they same thing about all the mail they get form people wanting to buy their houses.

I believe that eventually I will be able to assign a contract to a buyer in my area for 2 reasons.

1. All the home owners are already primed and aware of cash buyers via direct mail.

2. original concern to their needs and patience and just comforting talking.

Now, to those who doesn't like wholesalers. I can certainly understand why this has become a huge issue. I'm glad I am here reading this so I can plan my efforts accordingly with due respect from the buyer to the seller.

Thanks for reading,

Oscar

Here is a hypothetical scenario,  please give me feedback.  I want to make sure I'm understanding how the numbers work.   

After doing my own DD, I present the following:

4/3, 2 car garage, 2,060 sf, block home, 1/4 acre lot.  Good condition,  Lake access

ESTIMATED ARV $140,000

*comps done on three like properties in the area sold within 6 months

SELLING FOR $75,000 + CLOSING 

ROOF GOOD, NEED NEW HVAC, AND COSMETIC UPGRADES DUE TO AGE OF HOME

Estimated repairs $20,000

My fee $10k 

I actually like wholesalers. I've only done one deal with one, but it went smoothly. My due dilligence is the same, regardless of who I am "buying" the property from, so I don't care what a proforma says or who is providing it to me. If an individual is unethical, that's a different story, but I wouldn't lump an entire group of people into that category. Besides, finding a great deal is hard work, if a wholesaler can do that for me for a small fee, I'm in. 

Originally posted by @Sherri Southwell :

Here is a hypothetical scenario,  please give me feedback.  I want to make sure I'm understanding how the numbers work.   

After doing my own DD, I present the following:

4/3, 2 car garage, 2,060 sf, block home, 1/4 acre lot.  Good condition,  Lake access

ESTIMATED ARV $140,000

*comps done on three like properties in the area sold within 6 months

SELLING FOR $75,000 + CLOSING 

ROOF GOOD, NEED NEW HVAC, AND COSMETIC UPGRADES DUE TO AGE OF HOME

Estimated repairs $20,000

My fee $10k 

You're on the top side, but I wouldn't quibble about $1,500, and it gives you some room to negotiate with a landlord, a flipper may need more room. Find and know your buyers first, that's knowing your customers. 

Before you contract, know who will and can buy,   especially an owner occupied home. :) 

Originally posted by @Sherri Southwell :

Here is a hypothetical scenario,  please give me feedback.  I want to make sure I'm understanding how the numbers work.   

After doing my own DD, I present the following:

I4/3, 2 car garage, 2,060 sf, block home, 1/4 acre lot.  Good condition,  Lake access

ESTIMATED ARV $140,000

*comps done on three like properties in the area sold within 6 months

SELLING FOR $75,000 + CLOSING 

ROOF GOOD, NEED NEW HVAC, AND COSMETIC UPGRADES DUE TO AGE OF HOME

Estimated repairs $20,000

My fee $10k 

Sherri: how will you sell the contract? Will you market the property or the contract? If you want to market the property, be aware of Florida's stance: you must be licensed to represent another party in a RE transaction. We are now seeing some "wholesalers" advertising contracts for sale on sites such as Craigslist. That is fine except: they are advertising the house! They have pictures, square footage, and are making statements such as "owner wants it sold today" etc. I talked to the DRE yesterday and they stated these actions are clearly illegal. I suspect the "wholesaler" thinks he is getting around the statutes. Can you? Yes, if you are marketing a contract! When you cross over that line and market the house without a license you are opening yourself up to major problems from the state. Should you ever wish to enter RE as an agent I don't know if previous problems acting as an unlicensed agent will hamper your goals.  Your post states you are intend to charge a "fee". Get some good advice before you have problems!  I believe this will get you in trouble.  Talk to your attorney or call the DRE and ask them if the way you intend to operate is legal or not. Good luck.

p.s. if you purchase the house you can then market it as you wish acting as a principal to the transaction.

Carmax, I like them too, but dealing in personal property and real property are two different worlds from a legal and ethical standpoint, sales can be sales, but real estate sales are under greater scrutiny.  

If you don't understand WHY real  estate is different then you can't understand WHY things are done the way they are and that is the basis for HOW we conduct ourselves in the real  estate business and how and why we are regulated. 

I always ask myself why would I want to deal with someone who knowingly breaks law, my concern would be if they get to pick and choose which law they follow, how do I know they would act legally or ethically dealing with me, I mean they get to pick and choose, aren't I having to deal with someone who may not play the game by the rules? 

Does that wholesaler put up bandit signs? So, not only do they ignore licensing laws, they choose not to obey sign ordinances, they may (usually) break advertising laws with the FTC, seems like they just pick the rules as they go along. Their goal is to treat real property like personal property, buy as low as you can, then sell as high as they can without regard to property value or the value of the service they provide, that's not just a real  estate issue but a business issue in the valuation of products and services and that leads to predatory dealing on one side or the other. They attempt to take the equity of an owner without taking the risk of an owner in title. 

So, right out of the gate the wholesaler isn't batting too well on the integrity scale are they......I think not.   Learn real estate before attempting to deal in real estate. :)

Originally posted by @Mark Brogan :

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

 Mark, 

I agree with you. I personally do not like knowing the full extent of any transaction. I believe full disclosure aids in credibility. That way, if and when the deal falls through, the potential seller is already aware of the pitfall and will not go spreading bad news on your name/company. 

@Gilbert Dominguez thank you for spelling out clearly, as others have done too, what you may or may not see as a win win for all parties involved. I myself am looking to get my foot in the door all while maintaining my full time career. Wholesaling seems like best fit for my current lifestyle. I've pondered becoming an agent, but I quickly realized that doing so would require full time to be the best I could be for myself and potential clients. I cannot currently commit to full time agent and oil refinery operator. I've been soaking up these posts here on BP like a sponge. Thanks again. 

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