this is why you do NOT just put houses under contract

Investor · Roanoke, VA · Member since 2012 · 1k+ posts · 374 votes

I met a wholesaler in my area last week,he had what I thought was a good deal on a house until I had a preliminary title search done and found out the house had lots of liens and back taxes on it.

Would any member of bp work with him

Why and why not

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Brent Hill

Investor · Charlotte, NC · Member since 2015 · 192 posts · 126 votes

10y

Do RE agents do title searches before they allow their buyer to put a home under contract? Do RE agents have inspections, surveys, etc done before they agree to list a house?

How about every brokerage do a title search, home inspection, termite inspection, survey, etc, etc before they can list a house?

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
what does being a member of BP have to do with the scenario.. the vast majority of BP members are just starting out and don't know what they don't know.
my folks buy from wholesalers I personally don't.. at least more than once a year or so. I only work with Real Estate brokers who specialize in distressed assets.
however I did just close one in Charelston last week that went exactly the way your describing.
wholesaler gets my ear ( rare)... I really like that particular market so I listen.
offers house at certain price... then opens escrow... only to find out that their deal is all mucked up.
they had recorded a POA that gave them the right to purchase the home for 100k... he was trying to flip to me for 195k. I said to him don't you think 95k is a little much on a flip fee....
well of course turns out the lady owed 200k on it and it was going to court house steps shortly.
they list it with a broker for 265k and can't move it then call me in a panic as the house was going to be sold and they would make nothing.
Long story short I agreed to 210k and after some sellers cost they would net maybe 8k.. well then our boys did not realize tax's had to be paid and they were not swift enough to know that me a cash buyer could have taken title sub too tax's.... but they thought if tax's were not paid they could not sell. ( although maybe SC is a state were tax's must be paid before the deeds can record will have to check that out).. but I told them I would slip it.. I paid 212k.. they made 6k or so.. lady kept foreclosure off her name . etc. but they must have worked on that deal for better part of 90 days.. instead of knowing what was up up front and being realistic on a flip fee.. there is no way I personally would have done it knowing the lady would only get 100k and they make 95k I would still bought it but insisted the seller get more money other wise its simply NEXT for me.
And of course NO follow up with me.. to see if I need anything else blah blah blah.
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Jason Rivera
Spanish Fork, UT · Member since 2015 · 27 posts · 12 votes
10y
If the math adds up then yes, he can find an end buyer wherever (BP, local REIA, etc.). Typically the wholesaler will have to account for and arrange the contract so the liens and back taxes will be paid off in the end sale. The home would likely have to be discounted at least the amount of the liens/taxes on top of whatever else they're looking at (or other concessions will have to be made by the seller) or else the additional lien/taxes might make the numbers not work for a good deal. If they reach the point where the number cannot work, hopefully the wholesaler has an escape clause in the contract.
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Don Colagrossi
Real Estate Agent · Elmhurst, IL · Member since 2016 · 153 posts · 36 votes
10y
All the posts are just further evidence that a buyer ALWAYS needs to do their due diligence before buying a property. Taxes and liens aren't always disclosed.
Don Colagrossi
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Mark Brogan
OP
Investor · Roanoke, VA · Member since 2012 · 1k+ posts · 374 votes
10y
the purpose of this post is for wholesalers to not waste buyers and sellers time by just going around putting houses under contract.
When I did this in the beginning it frustrated my buyers because they did not want to buy a property that had lots of liens because they will kill the deal
Just trying to inform other people getting into this business
Other wholesalers in my area do this and when buyers find out that the property for sale has all these issues with title they will post buyer beware ads calling the wholesaler a scammer
If you are trying to run a business do NOT do this
In my opinion this is what is giving wholesaling a bad name
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William MorganPro Member
Fix & Flip or Hold · San Luis Obispo, CA · Member since 2012 · 136 posts · 63 votes
10y
@Mark Brogan I'm not sure what you're point is Mark, did the wholesaler claim the Title was clear?
Do you expect a wholesaler to conduct a Prelim before presenting it to an end buyer? I don't. Why would they? The wholesaler isn't planning on closing, therefore a title company isn't going to run a Prelim in the wholesaler's behalf just for the fun of it. Even if a wholesaler did get a prelim, wouldn't you insist on your own prelim anyway? I'd highly recommend it.
Secondly, why would the potential of a property having undisclosed liens prevent you (or a wholesaler) from putting future properties under contract?? Undisclosed liens are common, part of the business and you should expect them, no?
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Mark Brogan
OP
Investor · Roanoke, VA · Member since 2012 · 1k+ posts · 374 votes
10y
why as a wholesaler would you want to put homes under contract with all those liens on them especially if that kills the deal
You wasting the time of buyers and sellers
The liens are very common in this business
Jyst trying to help other people to not just waste time saying we going to buy with cash if you don't know the house will close or not
This is what causes wholesaling to get a bad name in my area
If you are going to do this as a business it would be nice to know if it will close before lots of time is wasted on a deal that will not close
I look at wholesaling different because I don't want to show my buyers a house that might not close
I want to know it will close
The wholesaler told me he did not know
Lots of buyers I talked to in my area since have complained about wasting their time looking
I am just posting this because it makes cash buyers irritated if they waste their time looking
I like being able to tell my buyers title search done and they can close
It cost 130 to do a title search
This way part of the work is done when we go to closing at my title company
I'm not being critical, just trying to give insights to other investors in my area and what happens when you just put houses under contract
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Mark Brogan issue you have in many markets is you have to hire abstractors to do title reports and the closing attorneys don't want to get stuck with the bill.. when the wholesaler realizes the property can't close and flakes out on the Attorney and won't pay.
but yes I think its a good value add if that is your SOP's I certainly would if I was relying on these transactions for my lively hood ...
but wholesaler is just the wild west.. no license required full of wanna bee's and newbies that come and go in a few months time.. wasting their time and others.. we all know this.. its not a business.
its a stepping stone for most..
@William Morgan most parts of the country are not blessed with our state of the art title plants . they have no clue what the customer service part of a title co is or even exists.. j
For me I can call any of my title companies on the west coast and in 90 seconds get a verbal date down.. capturing all but the most obscure liens .. but enough to know if I want to persue it or not.
and its FREE.
those that have to work in like IL which is totally *** backwards or states with closings attorneys this information is much tougher to get and NOT timely.. can take 3 to 5 days to get title back.
We get a full prelim or title commitment same day.. but then again most of our title plants are in the Philippines we do not send in live person to pull records..
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
10y
Problem is you have to find a wholesaler that knows what they are doing.
Experienced investors do not want to wade through hundreds of junk deals and wholesalers to find one that actually isn't trying to sell overpriced garbage.
Every time someone tells me they have a deal on the commercial side and I look at it the property isn't even close to being a deal.
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
10y
Agreed, if a wholesaler doesn't search the liens/mortgages owed at least enough to know if the deal can close, in line with seller expectations, they are indeed slackers, ignorant, clueless, all the above. Total waste of time and evidence of the wholesaler's knowledge/attitutude.
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William MorganPro Member
Fix & Flip or Hold · San Luis Obispo, CA · Member since 2012 · 136 posts · 63 votes
10y
@Mark Brogan why as a wholesaler would you want to put homes under contract with all those liens on them especially if that kills the deal
Not to be argumentative, but I can think of many reasons. I understand that you don't want to cycle your team only to have the deal fall through. Maybe I'm different but I'm going to ask that wholesaler to call me anyway every time - I'll verify the title during DD.
As a wholesaler (I am not one) I think it's "cart before the horse" to do a title search before I even have a property under contract. Get the contract first then start your DD. If there's a Lien it will get taken care of during escrow and deducted from seller proceeds - why the fuss? Sure if undisclosed it could be large enough to kill the deal but so will foundation issues, oil tanks, sink holes, unpermitted additions, easements, zoning or a host of other DD issues common with distressed properties. Par for the course.
I'd be more worried that a wholesaler would will simply bypass calling me (or call me last on their list) if I insisted on them providing a title search first - especially if most of their other buyers (like me) do not have that requirement.
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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
10y
@Mark Brogan
Those who deal with wholesalers have to know they are getting on the circus train full of clowns, they also add to the problem by buying from the clowns, almost like co-conspirators enabling the wholesaler to act as they do, all for the sake of trying to get a better deal.
When they walk in with some deal, the first thing to recognize is that you're talking to someone who has made a bogus business contract not having the intent to follow through to the letter of their contract nor having the ability to carry through. You should also recognize their business tactics to obtain a contract, often with deception saying such things as "we buy houses" or "I'll buy your house", they never buy as they don't close.
So, where you are as a buyer is in a position of dealing with someone who 1. isn't knowledgeable about real estate, 2. they lack business knowledge, 3. if they are aware of license laws and what a straw man deal is, they ignore the law, 4. many do pick and choose what laws they will follow, like using bandit signs to advertise. 5. from that, you never know what they may have said to a seller which can come back on you, like a seller thinking you are their "partner". 6. Understand that weasel clauses just reflect their intent and they deal from a position of no commitment with who they deal with. 7. they have no understanding of valuation of professional (I use that term very loosely) services attempting to get what ever they can that is most often unreasonable. 8. That there is always the possibility that a seller may act based on that contract and suffer financial damages bringing an attorney in who may give you grief in connection with the transaction. 9. There is another possibility that a third party known to the seller may intervene contesting the contract being predatory. And 10, you're attempting to profit based on the above mattes, do you really need a deal like that?
Not only should a buyer do their due diligence on the property but also as the circumstances as to what is presented!
The buyers are trying to say they bought the briefcase, not the drugs inside in their back alley transaction, getting a good deal. They are making it possible for these clowns to act, buying the tickets.
Since we aren't doing double closings anymore, what's the likelihood of paying a finders fee that never goes on a closing statement, now we can have new issues such as settlement violations, tax fraud and mortgage fraud. All to make a bit more of profit!
Buying from a wholesaler means you're getting on the circus train! :)
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Shawn Crawley
Wholesaler · Roanoke, VA · Member since 2015 · 277 posts · 95 votes
10y
Thanks everyone for all the "positive" info
0 Reply
William MorganPro Member
Fix & Flip or Hold · San Luis Obispo, CA · Member since 2012 · 136 posts · 63 votes
10y
@Bill Gulley If only there were a course wholesalers could buy that would teach them how not to be such "clowns" ....hmm. :) ( just ribbing you Bill. I actually think your course is just what the industry needs)
1 Reply
Anore' Allen
Flipper/Rehabber · Madison, WI · Member since 2016 · 29 posts · 27 votes
10y
I don't think we should bash wholesalers. When I go to a restaurant and get bad customer service I don't bash every server in the world, it's more based on the person.
Seems like he made a mistake, which is common when dealing people..
10 Reply
Lisa Bryant
Washington, DC · Member since 2016 · 94 posts · 43 votes
10y
I agree with Anore'.
I think that in this business that no matter what area you are practicing, our professional integrity, consideration, putting in the work to make sure as much as possible, you do your part and help make the deal good, you build a good reputation. We know that there are some people just out there to be about making money and not looking at how they are doing a deal. And some people are not skilled and prepared. And mistakes are made in real estate just like any business.
If you intentionally try to take from others, your ways are going to catch up with you. So, it is not one group of people...it could be anyone.
Learn, Apply, Produce!
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Lisa Bryant
Washington, DC · Member since 2016 · 94 posts · 43 votes
10y
One more thing:
From time to time, on BP, I've come across people who use this wonderful platform to put people down. Bigger Pockets is a wonderful resource that is used for opportunities, to teach, learn, grow in real estate and to connect with one another. So, I do not get why some use it for other reasons.
Some comments are just out-of-place.
Learn, Apply, Produce!
10 Reply
Shawn Crawley
Wholesaler · Roanoke, VA · Member since 2015 · 277 posts · 95 votes
10y
Lisa Bryant I wish I could vote for your post more than once
2 Reply
Bhekizwe M.
Bulawayo, Zimbabwe · Member since 2015 · 1k+ posts · 253 votes
10y
what a challenge for wholesalers.title search before putting house under contract or not?
0 Reply
Sean Annan
NA, NA · Member since 2016 · 2 posts · 0 votes
10y
Reading all these posts is like being on a roller coaster. It begs the question: Do we really need wholesalers? Or is it case where the cash buyers are better off without them.
0 Reply
Brent Hill
Investor · Charlotte, NC · Member since 2015 · 192 posts · 126 votes
10y
Do RE agents do title searches before they allow their buyer to put a home under contract? Do RE agents have inspections, surveys, etc done before they agree to list a house?
How about every brokerage do a title search, home inspection, termite inspection, survey, etc, etc before they can list a house?
11 Reply
Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
10y
I don't remember the last house I saw wholesaled that didn't have liens on it. Always make sure you get title insurance. If the liens can be cleared or dismissed then there is no issue.
5 Reply
Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
10y
“People don't care how much you know until they know how much you care”
― Theodore Roosevelt
For those with thin skin who take generalizations personally, it's not about you!
I was speaking from a macro view of a niche operation in the real estate industry, mostly residential investing or operations. Wholesaling is not an industry, it's a strategy. It's the guru strategy that needs to be corrected and that will be done by education, hopefully.
People don't learn what they don't want to know. (lyrics in a song, I forget what song), but that is so true.
More so with younger people than older people, but we are a lot like water or electricity, seeking the path of least resistance. Older, more mature people don't throw caution to the wind as we once did when we were younger and enter into something we know little about. In real estate, the path of least resistance is not the correct path to take, it is very structured by laws, regulations and accepted practices. We have to work through the circuitry that is laid out.
Once you understand the circuitry required, you can begin engineering other paths to achieve your goals. If you don't understand the circuitry and you attempt to take a different path, you can smoke yourself, you'll short out and fail. The circuitry is not difficult to understand or follow.
For any action you take in real estate thee will be a reaction, that's part of the circuitry. You need to know what switch to throw to avoid unwanted occurrences and that guides you down the path required. You might consider the buyers I spoke about as the power source for the wholesaler's activities.
Gurus sell a product about real estate, they aren't buying or selling real estate, they devise systems that pull the fuses out of the circuitry and replace them with a penny. They don't care if you smoke yourself, they care about the money you'll pay them. While they are experts at marketing their products with cheap psychology, I have not seen or heard of one that is actually an expert in real estate. They market themselves as experts but they simply aren't and aren't teaching what contradicts their scheme if they are aware.
The goals sought by a wholesaler can be accomplished by throwing the right switches, being in a true partnership with real buyers or by taking title and then reselling, but if you're not doing either one of these things you're going to smoke yourself along the way. When you address those 10 points I mentioned above, you'll do fine, you can succeed.
There's no such thing as easy money in real estate, you'll get out of it what you put into it, a real education, a real effort and real work pays off. :)
1 Reply
Mark Brogan
OP
Investor · Roanoke, VA · Member since 2012 · 1k+ posts · 374 votes
10y
well said as always @Bill Gulley
1 Reply
Jason Bible
Rental Property Investor · Houston, TX · Member since 2015 · 75 posts · 66 votes
10y
I am a little confused, all of those liabilities come out of the seller's proceeds. We've bought some really nasty houses with title issues and wholesaled them, so not sure I understand the issue.
1 Reply
Orlando Rodriguez
San Francisco, CA · Member since 2015 · 10 posts · 0 votes
9y
Mr. Jay Hinrichs:
I like to ask you a question in regards to putting a Property Under Contract!!
If the Seller and Myself agree to the Purchase Price and I put the Property Under Contract. In the section where it states..........Name of Title Company what can I put in that section if I can't find a Title Escrow Company that can close these Purchase Contracts, what do I put in that area?
I've contacted over 25 different Title/Escrow Companies and neither one does these deals!!
What should I write in that section??
Please get back to me soon
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