How do you deal with offers below your contracted price?

Question

I am not a wholesaler, but I am curious, especially after my thread about a wholesaler that misrepresented himself to me.  Now, there is a lot of debate about the wholesaling topic over there, but something came to my mind.  What do you do if you cannot find an investor to flip a contract to other than one that offers you at or below the price you have contracted with the homeowner?  This is in reference to a property in which you intend to use your "inspection" period to walk away if you cannot find an end buyer, not a property you intend to close on yourself.  Do you turn down the offer, or do try to renegotiate your contracted price with the buyer, or simply connect the two to negotiate a price since you cannot close yourself?

Mary B. · Answer

@Nikki Harmon  The wholesaler should've ran the numbers and saw that there was no room to wholesale it from the beginning. If you didn't reveal the asking price until they came to look at the property, maybe there was some back and forth negotiations on the spot; at most you may have been presented with an Option to Purchase Agreement in lieu of a P&SA. Once they did their due diligence with your asking price and the guestimated renovation cost  and ARV they will know from there if the MOA works or not. If it does they have room to wholesale it. If it doesn't they walk away.

Kudos,

Mary

Mary B. · Answer

I'm still going to have to go with my previous statement: If the cash-buyers are offering substantially less than the wholesaler's asking price, then the wholesaler's numbers are inaccurate due to greed / miscalculations. Its really that simply. The wholesaler, either the one that found the property or the one that they are doing a JV with who is supposed to bring a cash buyer to the closing table doesn't know what they are doing. Could be both.

Doesn't matter the niche an investor chooses, you have to watch the numbers. I've been in a few situations where I put out to other wholesalers that if they bring a cash-buyer to the closing table I'd split the wholesaler's yield 50/50 after closing. However, a couple of them (who obviously didn't know what they were doing - unbeknownst to me at the time) decided to tack on another $10K+ to the price I had given them, which didn't generate any buyers. My price was already including their pay and they should've ran the numbers and saw that increasing the price by $10K+ wasn't feasible and thru off the MOA(max offer allowed) which included rehab quote that I'd secured from a lic'd contractor. The first time it happened I didn't see it coming but once I learned that some may take that approach I made sure to forewarn the next that there is no room to increase the price. My warning went unheeded on quite a few.

I had one who actually utilized deals from another wholesaler's list and try to add $10K to $15K on that for me to pitch to my buyer, which made no sense at all and I told them that. Before I pitch anything to my buyer I will perform my own due diligence because its my rep on the line. There simply was no room for those monetary increases.  I didn't know it was a 3rd wholesaler involved until I made an appointment to see one of the properties with the one that I was supposed to be doing business with (no others were to be involved) didn't get the message to the owner. I thought she was direct to the owner and it turned out to be a daisy chain instead. I walked away and deleted them from my contacts.

Don't get me wrong. A JV wholesale opportunity can work but only if the numbers allow it. If there is only room to get a $15K wholesaler's pay out even on a JV then that needs to be made clear and understood so that neither tries to add additional monies onto that because buyers will either not want in or will substantially lower their offer, likely eliminating the additional monies and maybe more.  The problem is just because I know better doesn't mean the one that I'm JVing with knows better. Even if I warn them they might think I'm trying to limit their profit, which I wouldn't ever do because that makes no sense. If its room to secure a $25K+ wholesaler's profit and I don't want to share it then I won't bother JVing. The fact of the matter is one wholesaler can't account for another's knowledge or the lack thereof. For these reasons I rarely JV anymore unless I'm most certain the wholesaler knows their stuff.

Sorry for your ordeal. In the future if you're selling a property just mention that wholesalers are not welcomed, if you don't them to inquire. This way if investors show up even those that may rehab some of the time and wholesale others, they will not approach you from a wholesaler's angle. They still have that inspection / attorney's period or financing contingency time frame to walk away so long as its written in the contract.  Hopefully this helps.

Kudos,

Mary

Neal Collins · Answer

@Nikki Harmon

I don't know if I am following. I believe that's because I don't understand if you're asking from the prospective of a Seller, or a wholesaler. It sounds like you're still hot under the collar from going under contract with a person that hasn't fully been transparent with you. I was in a similar situation as you recently and the advise I got came back in the form of a proverb:

"In Arizona each year 10,000 people get bit by rattlesnakes. 8,000 of those people were bitten in the hand. Why is that? Because when you play with snakes chances are you're going to get bitten."

A long answer very short is that in the future you should try your best to protect yourself as a Seller by finding bona fide buyers, and then make sure you agree to a contract that protects you. This is why earnest money, contingency periods, and closing dates are very important concepts to understand (This is precisely why brokers exists!).

Best thing you can ever do is find knowledgeable people that you can call up to give you advise. Your network is going to save time and again and pretty soon you'll have some fresh new investor that comes to you for advise on their contract and you can tell them how many people get bit by rattlesnakes each year in Arizona.

Nikki Harmon · Answer

This is exactly what happened to me.  https://www.biggerpockets.com/forums/48/topics/228...

Renegotiating is reasonable in a contract during the exception period.  What I'm asking aobut it something else.  Lets say the only offer you get on a property you are wholesaling is the exact contract amount you have with the seller, cutting your profit completely.  Buyer will not renegotiate their contract with you, and you will not/can not close otherwise, without an endbuyer.  Do you deny the seller the actual cash buyer?

Nikki Harmon · Answer

I am talking about an offer that cuts your profit almost completely, or completely.  I recently started a thread about a wholesaler misrepresenting themselves to me, and getting me under contract selling my personal home (I'm new to real estate and just beginning) to him as a cash buyer.  He marked up my property and then had other wholesalers mark it up on top of that.  He had cash buyers come in to my property under the guise of being his "partners".  It is a long story, if you are interested: https://www.biggerpockets.com/forums/48/topics/228...

My thought is how many people viewed my property and may have been genuinely interested in purchasing my property, but not at the considerable double markup?  Did he get any offers at a price to close to his contract?  Would those be turned away?  This particular wholesaler never intended on closing on my property myself as he indicated.   With that in mind, a property that you cannot and will not close on, do you have the seller lose out of the buyer that CAN and WILL close on it?

Mary B. · Answer

Are you talking a few grand less, which may cut into the wholesalers fee? This depends as some deals can afford the wholesaler $20K+ in profit so a few grand(i.e.$3500 to $6,000 haggle figures) less shouldn't be an issue and the wholesaler should just eat that in their fees. I would - $14K is better than nothing. Though, imo, if cash-buyers are offering substantially less, then the wholesaler's numbers are inaccurate, be it from greed or just miscalculations.

Kudos,

Mary

Neal Collins · Answer

As I've learned, we are always buyers and sellers of real estate. No seller ever wants to tie up their property to someone that can't close. It's a good way to make a bad name for yourself and really irritate the other party.

What I do think is acceptable, though, is attempting to negotiate the deal so that is does work for everybody. This may not always be possible, especially if there are too many cooks in the kitchen.

Expect people to routinely use inspection periods to pull out as well as renegotiate. That's pretty standard across the board.