Wholesaling and Realtors?

Question

What should a wholeseller do when contacted by an owner whose house is represented by a realtor? Is this even worth pursuing?

What if the person who contacts you -is- the Realtor?

Joe Cleaver · Answer

It all depends on what I determine as the ARV. Currently in Dallas, it is near impossible to find a deal yielding more than 20-25% gross return. So as long as I can get it to an investor below 80%, I know I have a good chance of getting it moved.

Like I hinted at before, I don't really worry about if they are going to accept or not, I'm off to the next one. If they do come back and accept, awesome, if not, no sweat.

The key is making sure that your contract is structured in a way that gives you the time you need, but also makes the seller feel like a winner. Typically dropping a few hundred dollars for a 3-5 day option so that you can verify the repairs before putting EM down allows you to get out with minimal loss if it turns out a dud.

PM me and we can talk some more!

Joe Cleaver · Answer

Hey Scott,

Our company wholesales anywhere from 10-15 listed properties each month from the MLS, about 40% of our business. The biggest thing with these properties is figuring out what number works for you and making an offer. If you're worried about offending the agent, then you are going to miss out on potential deals. Structured the correct way, many cash offers with quick closes are much more enticing than people think. Depending on the amount of transactional funding (or buyers network) you have available, you'll have to limit yourself to a few offers at a time until you are able to put out 10+ offers a week without fretting about all of them getting accepted. Once you have calculated your numbers and made an offer, start searching for the next. If another deal comes up while you're waiting, make another offer! A bird in the hand... No need to keep chasing the same deal for months at a time! (especially as a wholesaler)

Scott Nolan · Answer

Oops. Still learning the quote feature.

Joe: Are you making these offers to the MLS-listed property at 50-70% of FMV? And people actually accept?

Elio L. · Answer

It doesn't matter. Just make sure to get the agent his/her commission as per the listing agreement.

Ryan Igbanol · Answer

Scott, the rampant desperation and foreclosure backlog upon which many wholesalers built their business is largely gone from most markets.  If you're like me, you'll continue to speak with a lot of owners who aren't in any type of distress, but don't mind seeing if they can an offer from you ABOVE FMV.

Scott Nolan · Answer

Thanks, Chad!

For a part-timer like myself, I'm hearing that negotiating with these sellers may not be the highest and best use of my time. If I had spare time laying around, sure, but not if time is tight.

Thanks again!

Chad Benedict · Answer

It depends. This happens to me occasionally with my direct mail. I will mail to someone whose house is listed with a realtor (unbeknownst to me), and the owner will call me. But because I'm a licensed realtor myself, I'm actually not supposed to negotiate with the owner directly. I'll have an initial conversation with them and explain that because they're represented, I would need to talk with their realtor if they were serious, but most of the time they want far more money than I can pay -- which is why they listed with a realtor in the first place. I end up dropping most of those leads after the initial phone call.

Because you're not a realtor, there's no reason why you can't negotiate with the owner directly if s/he calls you. (Obvious disclaimer: this is not legal or financial advice, and I don't know the real estate laws of your state.) But you need to make sure the seller understands that if they have signed an exclusive agreement with their realtor, they'll still have to pay them commission, and it's likely that they'll have them review the contract as well.

Most realtors would probably advise against a homeowner selling to a wholesaler as most realtors don't even understand what wholesaling is, and they think they can get more money continuing to market it to retail buyers. But if you can get it for a good deal and can explain to them how you can help them, it could work. You might have to pay more earnest money and have a shorter option period, but there are people who have successfully wholesaled properties on the MLS.

The biggest challenge will be actually getting the property at a good deal. If it's listed on the MLS at $100K, you can't shop it around to investors at $90K; they'll just ignore you. The numbers all still have to work just like they would with a normal wholesale.

A word of caution: only market the property after you have it under contract, and make sure the buyers you're contacting know that you have it under contract. There are a lot of sketchy wholesalers out there who try to wholesale MLS properties that they don't even have under contract, which is ridiculous (and illegal). Just explain to your buyers, "This property is listed on the MLS for $100K, but I have a signed contract to purchase it for less than that, and I'm wholesaling it to you for only $70K." If it's a good deal and the numbers work, then you can proceed similar to any other wholesale transaction where realtors aren't involved.

In general it can be done, but it's rare and there are more hoops to jump through working with realtors. In my experience in our hot market here in Dallas, it's possible to still occasionally find deals on the MLS if you're buying it as an investment for yourself, but it's very difficult to find MLS deals with enough room to wholesale and make any money.

Good luck!

Chad

Scott Nolan · Answer

I'm asking what I should -do-.

Wholesaling and Realtors?

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