Wholesaling for deal flow

10 Replies

Hello, BP collective!

I'd love to hear your thoughts on my moral quandary here:

After researching quite a bit on wholesaling, I am really on the fence about going forward with it. It is fraught with ethical grey areas and something about it doesn't jive with my moral code. However, I would love to set up a system for finding off market deals which my husband and I could purchase for investments. Some of the deals that arise will work for us, many will not. What do I do with those other deals? I am not really interested in becoming a "wholesaler" per se, I simply want to find off market deals for personal investment. I feel however that if an individual reaches out to me with a property they need to sell quickly that I am obligated to help in some way. Could I simply refer them to other wholesalers in the area whom I know are more interested in the game than I? Has anybody else in a similar situation found a win-win solution?

Thanks in advance for your thoughts; any and all advice is always very appreciated!

@Jocelyn Borg I am not a wholesaler but I have incidentally wholesaled a couple of properties that I wasn't interested in.  One was by partnering with a wholesaler like you mentioned and another was directly--with full disclosure to the seller.

There are some here on BP who loathe wholesalers.  And while some or even many can be bad, there are some great ones out there, too, just like in any business.  In fact, I've heard many more stories about bad realtors and than bad wholesalers.

If you have buyers that you think will take the property and you tell the seller, "Look, I really do buy properties but this one doesn't fit my criteria.  However, I know some buyers whose criteria I think it will fit.  They will pay me a fee for bringing the deal to them.  There is no fee to you.  I'd like to write up our purchase and sale with that understanding.  That way I can bring it to them not as a definite deal--I don't want to waste their time with maybe deals.  So you said X is the best price that will work for you?"  and it is fine with them, then write it up.

@Jocelyn Borg , I understand where you're coming from. I had to think about wholesaling for a few years before I jumped in because I had the same concerns. After I learned more about it, most of those concerns went away because you can put your own spin on it to avoid any ethical breaches. 

That being said, if you're set on avoiding it due to moral concerns - don't feel obligated to refer them to other wholesalers, especially if you think they would be taken advantage of. On the other hand if you get to know some wholesalers and find a few that are more ethical then maybe you could refer people to them. At the end of the day, my belief is that wholesalers do fulfill a need, and it can be done ethically for a win-win as long as they aren't greedy.

@Jocelyn Borg I enjoyed reading your post!

I must ask what exactly about wholesaling do you find to be:

"It is fraught with ethical grey areas and something about it doesn't jive with my moral code". 

In my experience, wholesaling seems to be a pretty cut and dry business where you market to a seller, meet a seller, put a house under contract, transfer that contract to an investor who wants to either flip or rent the property and collect an acquisition fee for your hard work marketing and acquiring the property.

There's some wholesalers out there that do some practices unethically but dont let that wear on your ability to act with integrity and do whats right by your seller even if your not the best solution for them at the end of the day.  

@Larry T. , @Neil Goradia

Guys, thank you for your words of encouragement and for putting it in perspective! I agree that there are good and bad ways to go about doing this. 

@Jack Douglas  my primary concerns are 

a) I am operating in the state of MD, 

b) My husband has his real estate license, 

c) I/we are not trying to start a wholesaling business for the sake of wholesaling, we are trying to unearth otherwise unavailable opportunities 

I guess the no brainer thing to do would be to get on a few wholesalers lists, but that would be the easy way and I typically prefer to reinvent the wheel.

I would love to hear the thoughts of two voices I have come across time and again on this topic in the forums: @Russell Brazil and @John Thedford 

Thanks again!

Both @Ned Carey and myself have talked about the ethics and legality of wholesaling quite a bit.  Ned once said something that kind of blew my mind on the subject. Something along the lines of...it can be done legally in all states, it is just a matter of figuring out how to do so.  Now as @John Thedford has said many times....in Florida, you absolutely must have a real estate license. Now in Maryland....I take the opposite view in that at least in the traditional sense of assigning a contract, that a licensed agent should never do this. Not so much for any ethical reason, but rather I view this activity as being a de facto net listing which is illegal in Maryland. (By the way, DC essentially copies all MD laws).

But before you ever even get that far....you said your husband is an agent. So he needs to get permission from his broker for any and all real estate related activities. If the broker doesnt allow it, it is a moot point. And that doesnt absolve the agent of any wrongdoing if the broker allows something if the commission deema it illegal, it merely draws him into the mess as well.

Originally posted by @Jocelyn Borg :

@Larry T. , @Neil Goradia

Guys, thank you for your words of encouragement and for putting it in perspective! I agree that there are good and bad ways to go about doing this. 

@Jack Douglas  my primary concerns are 

a) I am operating in the state of MD, 

b) My husband has his real estate license, 

c) I/we are not trying to start a wholesaling business for the sake of wholesaling, we are trying to unearth otherwise unavailable opportunities 

I guess the no brainer thing to do would be to get on a few wholesalers lists, but that would be the easy way and I typically prefer to reinvent the wheel.

I would love to hear the thoughts of two voices I have come across time and again on this topic in the forum.

Thanks again!

 I have no clue of your state laws. I have been called "the wholesaler hunter" LOL as well as the "wholesaler hater" LOL. My biggest issue with many of these operators is signing contracts with no intention of closing, or not finding a REAL buyer and then using BS escape clauses to get out of the contract. In reality, I believe few make any real money assigning contracts. Although I now have a brokers license, my main focus is investing. I have found that to be profitable and has given me a LOT of freedom. 

p.s.--your statement about it being fraught with ethical issues is right on target!

FYI..i have gotten several good deals off of CL, have purchased homes right before foreclosure, and have purchased homes right before a tax deed sale. 

timely post.. for me as someone who has been buying distressed assets for 4 decades now.

its simple.. If I want it I buy it and resell it..  if I don't want it I just move on.. I make no referral.

just tell the seller does not work for me.. same thing a wholesaler does when he or she can't close.

only difference is I did not tie it up and give false expectations that they had a deal..

@Russell Brazil the reverse of what Ned said can be said about how most go about wholesaling it is illegal in all states the way most go about it. IE describing the home on craigslist sending out direct e mail advertising the home.. taking fee' s on the HUD to and couching them as marketing fee or assignment fee.. fact is one person brought two people together to buy a home that is a licensed activity.

If they sell a contract  that's another thing all together but I have yet to get an email from a wholesaler that said I have a contract for sale...

So bottom line if I want the property I close .. if I don't its like anything else on MLS you look at it you don't like it you don't offer on it.. same thing with off market.. you look at it you like it you buy it.

you don't like it U tell seller I don't like it for these reasons.. IE over priced to much work etc.. and you pass and move on .. you don't then try to sell it to someone else and make a middle man fee.. that is a licensed activity in all states.. LOL.

@Jay Hinrichs wrote

@Russell Brazil the reverse of what Ned said can be said about how most go about wholesaling it is illegal in all states the way most go about it.

The Law

I would certainly agree that is unethical but not necessarily illegal. Maryland law says; Doing the following "for another".   .   . (I believe but do not KNOW  that other states include those words).  When you assigning a contract it is for your own benefit, not for the seller or buyers benefit.  

Anyone who says "I will try to find a buyer for you" or other similar language is clearly breaking the law.  Anyone who accepts finders fees or bird dog fees etc. is breaking the law. Anyone who Co-wholesales without getting the property under a legitimate contract with the original wholesaler is breaking the law. 

However If I am negotiating for my own benefit with the seller, and I make no pretense of "helping" the seller, and it is clear that it is an adversarial negotiation, then it is my belief that based on MD law and any state with similarly written laws that assigning the contract is legal. In fact our local MLS system allows you to list a property you have under contract.

The very  important distinction is my opinion is whether someone implies they are on the same side in the negotiation vs opposite sides of the negotiation. 

That said we can all read the statutes a hundred times over, until we are in front of a judge who decides how to interpret that law, we really don't know exactly what is legal or not. 

Ethics

Now when we turn to ethics we are in total agreement. Well mostly, the motivated sellers I deal with are generally not only willing to sell for a below market price, they are basically willing to give it away. They don't want the liability of a property they have abandoned. They are not Counting on me selling the property. They are not really harmed by me tying up the property because they had no intention of doing anything with the property anyway. For the record I almost never assign contracts. Literally 99% of the time I settle on the property before selling it. 

Back to what I quoted above, I agree 100% the market is full of so called wholesalers that learned Guru crap to mislead sellers. Most of these people never sell a property because their "Deals" are so bad. They not only mislead sellers they mislead buyers with false claims of ARV and repair numbers. Sadly many of them have spent a lot of money only to be misled themselves by REI Gurus.

There are also the ethical and legal issues beyond Real Estate brokerage laws. A @John Thedford says 

p.s.--your statement about it being fraught with ethical issues is right on target!

Issues like not bargaining in good faith and fraud are an example often brought up by others.

These wholesalers give a bad name to real estate investors in general. While I slightly disagree with Jay, John, and others on the subject I do think it is good you bring up these issues to make new investors think. It is also important for investors to self police so the bad apples don't ruin the reputations of decent honest investors.

@Russell Brazil , @John Thedford , @Jay Hinrichs , @Ned Carey WOW what awesome input! I can't tell you how much I appreciate hearing your direct thoughts on this issue. Your responses were very thorough and I feel like I have a much more realistic idea of how to go about this in a way I feel good about AND is legal in my state. Thank you so much for simplifying; I respect all of your opinions very highly. 

Hello BP,

I'm new to BP forums and posting. So excuse me in advance if this is out of order or even in the wrong forum. I'm a realtor in Northern Virginia and Washington DC. I've a small amount of investors but they have access to a lot of money. I closed some pretty good deals this year mostly through the MLS. The issue I'm running into is the wholesalers in my network numbers are usually to high, purchase and ARV. I want to start wholesaling to generate deals for my investors and myself but I don't know where to start. I was thinking mailers and wanted to know some good companies to use, frequency, radius etc. Any help would be much appreciated.

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