Who do people assume wholesalers are bad or dishonest?
Contractor · Indianapolis, IN · Member since 2016 · 20 posts · 2 votes
Who do people assume wholesalers are bad or dishonest?
Most Popular Reply
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9yNo license
No education
No oversight
No insurance
Skirting laws to broker without a license
No accountability
My question is why would anyone want to deal with someone like this? Non-refundable fees are NOT the norm in the RE industry. What makes someone with these features special and entitled to one?
36 Replies
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes9y
@Darrius Singleton, ask yourself: If I get a property under contract, but don't have the means of paying for it myself, what will I do if I can't find a Buyer before closing time?
And ask yourself: What will I have told the Seller that I will do, under those same circumstances?
The MOMENT it becomes apparent that you WON'T tell the Seller the whole truth - then there's your answer!
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
No license
No education
No oversight
No insurance
Skirting laws to broker without a license
No accountabilityMy question is why would anyone want to deal with someone like this? Non-refundable fees are NOT the norm in the RE industry. What makes someone with these features special and entitled to one?
- Raleigh, NC · Member since 2011 · 721 posts · 343 votes9y
Maybe they don't completely understand what a wholesaler does.
- Real Estate Investor · Macedon, NY · Member since 2016 · 251 posts · 290 votes9y
Wholesalers are no different than any other profession. There are great attorneys, car salespeople, insurance salespeople, landlords, etc.. There are also ambulance chasers, slumlords, etc.. Wholesaling carries a stigma because of the high number of uneducated, unfunded folks seeing what they think is an easy way to make quick, easy money in real estate without any of their own money or risk. They lock up peoples properties, raise their hopes and then bail when they can't close. There are also very reputable wholesalers that put houses under contract and close regardless of whether they have it sold or not.
You just have to decide if what you are planning to do is legal, honest and ethical. If it is you'll be one of the exceptions. If not, you will perpetuate the stereotype.
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes9y
@Darrius Singleton, my previous response was aimed at those who are thinking of becoming Wholesalers.
Upon re-reading your post, it looks like you might asking about the negatives of buying FROM Wholesalers?
In which case, the answer is: For you the Buyer, it shouldn't matter whether the Wholesaler is fully honest or not, but it DOES matter whether you're good enough to do your OWN research as to the value of what you're buying.
And never give the Wholesaler any funds directly, but only into an Escrow Account of YOUR agreeance, payable to the Vendor only at closing. (Refundable if contract voided, unless agreed by both parties that it's not refundable if/when the contract expires). ie. The same way as ANY property is bought. [Not Legal advice]...
- Real Estate Consultant · Texas Hill Country · Member since 2017 · 56 posts · 58 votes9y
In regards to "why people assume wholesalers are bad", this is just speculation, but I think that way too many people are lured into thinking that anyone can start up a wholesaling business. The truth is, you need some basic understanding of how real estate works along with skills in marketing, negotiation, valuation and some pretty good people skills. After you acquire these skills and a have a little bit of money for marketing, you have a better chance of becoming a wholesaler people will respect.
I don't think most wholesalers are bad or dishonest. I think most are uneducated and naive. The main problem is that there is virtually no barrier to enter the wholesale market. The professions mentioned by Paul above all have some level of education, training, accountability, etc. For wholesaling it's just a matter of attending a guru seminar. Then you're in business!
This isn't going to change because the turnover rate in the wholesale industry is enormous. But the gurus always have fresh victims, I mean students, filling up the seminars.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
my Experience with Texas wholesalers has been horrendous personally... values grossly overstated.. repairs grossly understated.. no morals no ethics at least the ones I ran into..
From a Sellers point of view
wholesalers are taught their pitch to sellers which is mainly just flat out lies..
1. I am a cash buyer ( when they are not)
2. I can close on a day of your choosing ( when they only can if they can sell it to someone else)
3. subject to my partners approval ( when they have no partner its really random investors on their buy list)
4. doing a home inspection ( really random investors doing a walk through)
5. Seller makes plans to move and or other financial moves and wholesaler cant perform thereby really fouling up seller.
So really if you want to do real estate this way and your OK with flat out white lies to sellers and buyers ( although there are new disclosure rules in Texas) then that's your moral compass to follow...
- Real Estate Broker · Chicago, IL · Member since 2015 · 122 posts · 103 votes9y
Great question!
My definition of a "bad" wholesaler is a wholesaler who provides deals or services to real estate investors that are on a below-average level. I believe that the reason a lot of people assume that wholesalers are bad is because a lot of the wholesalers out there are. You cannot really say that wholesalers are dishonest because that's not fair. There are honest and dishonest people in all professions. I would say, that most wholesalers that I've come into contact with are "bad" because they are not educated. The good news is, if you're looking to become a wholesaler yourself, with some self-educating, guidance, and your natural good-natured spirit, you can set yourself apart from the majority of the wholesalers in your given market, IF you can prove your value to an investor.
What makes a good wholesaler?
1. A GOOD wholesaler brings off-market deals with plenty of upside to the table. There's enough for the wholesaler to make money, and there's enough for the investor to make money.
2. A good wholesaler is trained in real estate. They know the difference between a comp from a non-comp. Their resale values are accurate, and their rehab estimates are accurate (this one is HUGE!!!). A wholesaler should be educated in real estate, real estate appraisals, BPO's, etc. He or she will have to get a value to base the rest of their numbers off of.
3. Conversely, the wholesaler NEEDS to be educated in repair costs. I can't tell you how many times a wholesaler has told me that the house needs $15,000 in work. NO WAY!!! How can you accurately depict a good deal from a bad one if you think new cabinets cost $500?
4. A good wholesaler is also ethical. A good wholesaler does not hide any material defects or information known that could potentially dissuade someone from making a purchase. Your reputation is on the line here, why would you lie for a small profit that would risk much more down the road?
To restate, a GOOD wholesaler is an educated individual, who legitimately has the investors' back, because at the end of the day, the investor is taking all the risk, so the deal HAS to make sense for him/her first and foremost. Most people think wholesalers are bad because the truth is, most of them are not educated enough in real estate and/or repair estimates to offer TRUE value to an investor. Neither of those matter if your dishonest, however, so make sure that is priority #1 if you're thinking about becoming one!
Hope this helps. Contact me anytime if you have other questions, I'd be happy to assist!
Thanks,
Van
- Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes9y
Good wholesalers help people market their homes to investors in order to get themselves out of a jam or unwanted situation.
Bad wholesalers say they are buying the property and don't worry about what that 'and/or assigns' means on your contract.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
Originally posted by @Nick C.:
I don't think most wholesalers are bad or dishonest. I think most are uneducated and naive. The main problem is that there is virtually no barrier to enter the wholesale market. The professions mentioned by Paul above all have some level of education, training, accountability, etc. For wholesaling it's just a matter of attending a guru seminar. Then you're in business!
This isn't going to change because the turnover rate in the wholesale industry is enormous. But the gurus always have fresh victims, I mean students, filling up the seminars.
The "barrier" is legality which many choose to ignore....
We have a BP poster that recently promoted BS escape clauses. They "teach" unlicensed brokering. Call it what it is! I pointed out her bad teaching which she ignored. I guess the money is more important than legality and ethics. When one of her students gets in trouble for illegal/unethical acts I am sure she will be nowhere to be found. When the state comes knocking on the uneducated unlicensed brokers door, there will be nobody to defend them. I have posted a hundred times the statute in FL which makes it illegal to advertise properties unless owned or represented by a licensee, and the uneducated HATE this message. They have drank the koolaid. - Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
Originally posted by @Van Blackman:
Great question!
My definition of a "bad" wholesaler is a wholesaler who provides deals or services to real estate investors that are on a below-average level. I believe that the reason a lot of people assume that wholesalers are bad is because a lot of the wholesalers out there are. You cannot really say that wholesalers are dishonest because that's not fair. There are honest and dishonest people in all professions. I would say, that most wholesalers that I've come into contact with are "bad" because they are not educated. The good news is, if you're looking to become a wholesaler yourself, with some self-educating, guidance, and your natural good-natured spirit, you can set yourself apart from the majority of the wholesalers in your given market, IF you can prove your value to an investor.
What makes a good wholesaler?
1. A GOOD wholesaler brings off-market deals with plenty of upside to the table. There's enough for the wholesaler to make money, and there's enough for the investor to make money.
2. A good wholesaler is trained in real estate. They know the difference between a comp from a non-comp. Their resale values are accurate, and their rehab estimates are accurate (this one is HUGE!!!). A wholesaler should be educated in real estate, real estate appraisals, BPO's, etc. He or she will have to get a value to base the rest of their numbers off of.
3. Conversely, the wholesaler NEEDS to be educated in repair costs. I can't tell you how many times a wholesaler has told me that the house needs $15,000 in work. NO WAY!!! How can you accurately depict a good deal from a bad one if you think new cabinets cost $500?
4. A good wholesaler is also ethical. A good wholesaler does not hide any material defects or information known that could potentially dissuade someone from making a purchase. Your reputation is on the line here, why would you lie for a small profit that would risk much more down the road?
To restate, a GOOD wholesaler is an educated individual, who legitimately has the investors' back, because at the end of the day, the investor is taking all the risk, so the deal HAS to make sense for him/her first and foremost. Most people think wholesalers are bad because the truth is, most of them are not educated enough in real estate and/or repair estimates to offer TRUE value to an investor. Neither of those matter if your dishonest, however, so make sure that is priority #1 if you're thinking about becoming one!
Hope this helps. Contact me anytime if you have other questions, I'd be happy to assist!
Thanks,
Van
Call it what it is: unlicensed brokers (in most instances). If they are skirting or breaking laws, they are not good people to deal with.
- Real Estate Broker · Minneapolis, MN · Member since 2015 · 109 posts · 125 votes9y
I think a lot of people have addressed the general lack of ethics wholesalers commonly employ to sellers so I will pass that over and address the issues investors have with wholesalers.
Many of the wholesalers in my market aren't adding any real value by generating off market deals through some campaign, they are instead locking up deals from the MLS, or FSBOs on Craigslist and then remarketing it themselves as a middle on the deal.
I have passed countless times on properties I have been in touch with the owner about directly because they have another buyer lined up who ends up being a wholesaler who has no intention to close. They will lock it up, misrepresent to newer investors the ARV and hopefully get a deal done, but it is more about throwing deals against the wall and seeing what sticks than anything.
I believe that a well put together and ethical wholesaler business can exist and that someone in that position would only need 3 clients to be extremely successful.
If someone in my market was able to put together a plan to provide me with consistent deals that had reasonable profit margins and understood enough about the process of flipping a home to do so, I would buy every single deal they could produce.
If you are daisy chaining deals together, you're in a whole new universe of non-contribution.
- Real Estate Professional · Lexington, KY · Member since 2016 · 22 posts · 17 votes9y
I believe that with any industry there are sleazy individuals who will lie, cheat and steal to make a bigger buck but as we all know that is not a sustainable long term strategy. Just like with any business one's reputation for conducting business with fairness, honesty intellect and integrity will be the key to being successful in the ling run. However most other businesses require either licensing, schooling, equipment, key skills etc to get started and keep going.
You can make quick dirty money wholesaling properties while screwing people over in the process and its a tremendous shame when someone does this; but this is the same in all aspects of life.... A mechanic can fake having credentials and insurance then grossly overcharge you for having for crappy work which you wont know about until things start falling apart. An attorney can do the same with drafting flimsy business contracts which wont be apparent until they fail in court. A "health specialists" can claim incredible weight loss and energy if you buy and take their supplements for years but then they just turn out to be sugar pills or something else when they get exposed. There are WOLVES everywhere.
With not needing any license, not much education, limited to no oversight, insurance ,accountability or startup capital wholesalers can cause some SERIOUS damage if they don't do things ethically and responsibly. At the same time I believer is also the responsibility of the seller and investor to take everything the wholesaler says with a grain of salt and do their own research on the persons reputation, transaction history and maybe ask for references. Make it difficult for them to execute bad work.
- Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes9yDarrius Singleton Aside from outright lying about an ability to close, there is the issue of competence. As a buyer, I looked at a few lists sent by wholesalers and it was clear that 1.) they had no idea on how to differentiate a B from a C- area, 2.) had some rehab estimates with *only* materials, 3.) were insanely optimistic on ARV, 4.) the same property on different lists at different prices, 5.) I could keep going... Now maybe I did get a handful of new wholesalers who don’t understand valuation, rehab costs, comps, etc. but (looking at BP) that’s the nature of the industry. Does that make a particular wholesaler “bad”? No. Does having zero regulation, training, uniformity in an industry create a good amount of deceit and chaos? Yes. Anyway, others mileage may vary :)
- 9yLinda WeygantPro MemberInvestor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
My issue with 99% of the wholesalers that I run into is that they can't estimate ARV or repair costs.
It became a joke for me every morning to open 6-10 emails from various wholesalers who promise ARVs at 20% higher than the next highest comp and repair amounts of $20,000 for a complete gut job of a 3000 sq ft house. It became a complete waste of my time to do any diligence on them.
I'm still on some of these lists and I just trash them when they come in without even opening them. I'm on 2 lists right now where I even bother opening the emails and looking at the deals. I've chased a couple of deals through these folks, but my problem is that I'm generally too slow. These guys are so good that their properties are already under contract by the time I've run my own numbers and diligence and decided to move forward.
Most wholesalers have never bought or sold their own house, much less an investment property and don't even own a toolbox, much less know how to fix or upgrade anything. The concept that they can even analyze a scope of work, much less price it out is laughable.
It's beyond frustrating.
The best wholesale deals I have seen come from people who are flippers or investors who come across a property that they considered for their own portfolio and have rejected for whatever reason. They'll wholesale the deal rather than let it go. In these situations, I have seen incredibly accurate ARVs as well as repair estimates.
This whole stereotype is compounded by the number of folks who come on Bigger Pockets and post some variant of "I have bad credit and just lost my job. I have $3500 so I'm gonna wholesale my way to financial freedom!!!" Never owned a house, never repaired a thing. Figuring out scope of work and estimates takes experience and time.
I believe a good wholesaler is worth their weight in gold. The rest aren't worth opening the email.
- Wholesaler · Redding, CA · Member since 2015 · 218 posts · 27 votes9yEducate yourself as much as you can, build your buyers list, market yourself, find leads, get it under contract, assign the contract, close, and collect your pay check. Just through it all be honest with what you're doing. Remember you're trying to help someone who's in a difficult situation. You wouldn't want someone screwing you over if you needed help. Be honest, and understand everything a wholesaler does. Good luck!
- Santa Rosa, CA · Member since 2017 · 325 posts · 701 votes9y
For me, it starts with the fact that wholesaling only "works" if you have distressed sellers. No matter what guru or technique you use, it always starts with "find a distressed seller. So then once you find that person, you immediately use that emotion, desperation, and lack of education to cut a deal that enriches the wholesaler at the expense of the person who is selling. If a wholesaler is adding so much value, why would these techniques not work on non-distressed sellers.
Most, but not all have no intention or ability to execute on the contract. And most, not all are circumventing the laws with regard to brokers. But if there is a wholesaler that buys each house, free and clear, and then sells each house, they are will within my understanding of the law and obviously are executing on their contractual obligations.
Which brings me back to the first point, even those wholesalers that do execute contracts and stay within the law, they still start and end the exercise with distressed sellers. Finding people at their most vulnerable and cutting yourself a deal. You can say you are "solving their problems" for a fee, but that is not the truth. You are taking advantage of people making illogical and emotional decisions. In every case I have heard of, the seller would be better off in a transaction without the wholesaler.
That is why I have a hard time having any respect for those in this area of real estate
- Investor · Middle River, MD · Member since 2017 · 191 posts · 127 votes9y
I kind of thought they were taking advantage of people too, until I, as a sophisticated investor and agent, actually sold through one myself, just last year.
I actually bought from one in 2003 that tried to take advantage of me as an investor. I know there are shady ones out there.
But what I realized when I sold through one, is that wholesalers actually bring value to everyone involved. I sold through one because they had a buyer list I didn't. They found a buyer in DC that I couldn't find in Baltimore. Win-win. The buyer was happy and so was I.
It's their list of cash buyers which brings value. Or their ability to use their own cash. The general public doesn't understand that.
I've done much of what there is to do in real estate EXCEPT wholesaling, but I'm learning it now.
I have to rant, sorry.. I know there are good wholesalers, but it's so frustrating when you're dealing with a dud!
I am working with a wholesaler now, and let me just say--- the lack of professionalism is crazy among wholesalers. He shows us houses, but doesn't have a key.. he tells us he can get houses, but doesn't have a price. he tells us about houses on the MLS.. tells us he can get a house for X, but then reports back that the seller actually wants 2x that-- total waste of my time!! he gets offended when we throw low estimates out there.. personally, I'd pick a licensed realtor 100x over a wholesaler. Another thing... since the wholesaler is connected to the community, he thinks "everyone should win in a deal" -- whereas if I'm paying him X to find a deal, I'm his boss-- he should ONLY be looking out for me, and my bottom line. He came up with some stupid formula HE likes where it's calculated off the ASSESSMENT*** value--- how ignorant and stupid is this?! You can't make up numbers and think they work-- the market tells you what it's worth! but again..unlicensed, unregulated, it's all bad.
Also, I find it comical when new wholesalers send me "deals" or what they think "are great flips" in the WORST areas, to me-- it shows dishonesty and that they are only out to make money, whereas you want someone on your side and understand your real business and what's a good fit.. .it kinda just feels like wholesalers throw a bunch of stuff at a wall and hope 1 sticks, which IMO is a waste of time. I don't value people who waste my time.
I personally couldn't care less about the fee, if you find me a house, and get it for $5-10K less, I have no problem paying you a few grand to be the connector. You gotta realize, with investors, they see the long haul-- a house can make them a lot of money, so paying the wholesaler for a good deal is 100% worth it IMO.
- Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes9y
Oh @Linda S. I loved it (sarcasm intended) when a wholesaler would tell me about a house on the MLS. They would strip some of the information the send the same pictures used on the listing. For a home they didn't have under contract and they would have a higher price. I'm not even sure that this could be considered wholesaling but I did see it a couple of times.
Originally posted by @John Nachtigall:
For me, it starts with the fact that wholesaling only "works" if you have distressed sellers. No matter what guru or technique you use, it always starts with "find a distressed seller. So then once you find that person, you immediately use that emotion, desperation, and lack of education to cut a deal that enriches the wholesaler at the expense of the person who is selling. If a wholesaler is adding so much value, why would these techniques not work on non-distressed sellers.
Most, but not all have no intention or ability to execute on the contract. And most, not all are circumventing the laws with regard to brokers. But if there is a wholesaler that buys each house, free and clear, and then sells each house, they are will within my understanding of the law and obviously are executing on their contractual obligations.
Which brings me back to the first point, even those wholesalers that do execute contracts and stay within the law, they still start and end the exercise with distressed sellers. Finding people at their most vulnerable and cutting yourself a deal. You can say you are "solving their problems" for a fee, but that is not the truth. You are taking advantage of people making illogical and emotional decisions. In every case I have heard of, the seller would be better off in a transaction without the wholesaler.
That is why I have a hard time having any respect for those in this area of real estate
- 9yDawn AnastasiPro MemberRental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
There are very few wholesalers where I'm at that actually have done deals. The reason being is most of them don't know what they're doing.
- I get an email from someone asking me if I'm a cash buyer. I say yes and give them my criteria. I never hear from them again!
- They only offer me houses in bad neighborhoods or that don't meet my criteria. Don't waste my time!
- They actually have what seems like a good deal, and "it only needs a couple thousand to fix up!" I get to the house and it needs at least $10k but probably more.
- Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes9y
More-so...Most wholesalers don't do any deals because they aren't actually "wholesalers" as the term was meant to describe. The concept is a person needs to sell ASAP, wholesaler has contacts who can get that done, so he/she acts as a middle-man. What its turned into is a person needs to sell ASAP, wholesaler promises to get that done, then does an email blast with contorted numbers to try to make that happen. IE - they are just marketing to the general public, anyone and everyone, to try to get someone to fall for it. And marketing to the general public, as @John Thedford would say, is unlicensed brokering. Just by putting the work "Helping" in front of it doesn't make it any more legal.
Further, a true "wholesaler" needs to be able to deliver solid numbers to his contacts, lest the relationship be broken. Most use "wholesaleing" as a way to enter real estate investment, when in-fact it should be a stop-gap to maximize return on deals that don't fit within your personal goals but do fit within those goals of people you know. Not as an intro. I laugh daily at what I receive in my inbox and keep those properties on my radar as ones to target since I know they'll never sell to an investor at the "advertised" prices, so the "wholesaler" will likely have to cancel. That's when I swoop in for my clients.
Now, I know what's about to be the reply - "Matt, we'd never do that, we tell the seller up front what our plans are." OR "We have a 'buyers list' (IE list of everyone's email you've every collected) to market to'". Puh-lese. IF you were that confident that you could resell the property to a new buyer, you'd just get a contract with such new buyer that you will provide the specific details of the deal (IE address and price agreed to verbally with the owner) to them, and they'd pay you a certain amount for forwarding the lead. Honest is honest, right? You either have a buyer or you don't, and if its the later, you are brokering without a license.
- Wholesaler · Phoenixville, PA · Member since 2010 · 8 posts · 6 votes9y
@Darrius Singleton to answer your question there are a few reasons why Wholesalers can get a bad rap: 1) it attracts get rich quick and lazy people, 2) Bad Wholesalers will daisy chain deals they do not have equitable interest in, and 3) A lack of education and industry knowledge as other investors noted above. The biggest thing I could recommend is connect with one or two investors in your area (who are doing more than a handful of deals a year) and ask them how you can provide value to them. Then do exactly what they tell you to do and build a relationship. It would also be advantageous to find and pay for a real estate attorney so you can understand the legalities of "wholesaling" in your state.
I am not sure where you are in your journey. I would recommend before you start wholesaling understand what is entailed. A "good" wholesaler must be more conservative than their end buyer. Every investor has their own numbers they run, contractor estimates will vary, and you can ask 3 investors what the ARV is and get 3 different numbers. With that said, you need to be within your end buyers range and that's where being conservative comes into play because you need to come in under those end buyers numbers, the deal analysis and repair estimate comes with practice and time. (you can buy J. Scotts book on repair estimates it's a little dated so add ~15%, or pay a contractor $100+ to give you estimates and SOWs on houses you go see).Full disclosure I am a low volume "wholesaler" but I own another business, so I can't speak to what other people do. However, when we meet with a seller I believe rapport is the most important aspect of closing deals. We ask them first why they aren't listing with a realtor (some people don't want neighbors in their house or to know their situation), you should be their last option. We then follow up with "I'm sure you've gotten a lot of letters or offers, is there any reason you haven't gone with those offers?" As you build rapport and ask genuine questions you'll uncover true motivation & then earn the right to go through your closing pitch. This is ours "We are a regional wholesale home buyer what that means is we do not buy retail homes, we buy homes that need work and we can turn for a profit. We have a network of 275 investors (our list) that we work with however, a handful of our investors buy most of the homes we find. If you decided you wanted to go with me the number we agree on today is the number you will receive at closing. It is rare but if for any reason we couldn't close because of money, our investors don't back the deal, etc. you get to keep the earnest money deposit for your time. Does that make sense? When they respond we simply "so what would you like to do from here"
I went off on a tangent but I hope this gave you insight, moral of the story: be honest and upfront with people. You might not get as many deals as the "bad wholesalers" but you'll sleep at night and have a solid reputation to build a business on.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.