Buyers asking about my assignment fee?

151 Replies

Do you tell your buyers your assignment fee before closing?  I have friends who have been asked by potential buyers what their assignment fee will be even before they sign any contract.  I really do not feel you should have to up front.  Yes they will find out in closing or if you do a double then about a month or so later on.  Thoughts?

it's going to come down to how you want to play the game.  Personally I believe in as much disclosure as possible.   If I feel like I need to hide information from someone to earn my living I'd rather find another way to pay the bills, but that's just me.  

People will not trust you if they think you're hiding something from them and their minds will jump to much worse reasons than your assignment fee. Your assignment fee shouldn't be a problem as long as the numbers still work for the buyer, especially in this market. 

Edit:  I should add I'd only disclose if asked.   I certainly wouldn't volunteer it. 

Of course, the buyer needs to know what the assignment fee is, so he/she can include that in their numbers.  Assignment or a wholesale fee usually vary depending on how good the deal is.  

It’s questions like this that make me doubt the wholesale profession as a whole. The only way wholesalers make money is by convincing a seller to sell for less than their property is worth or convincing a buyer to pay more than a property is worth. If you can’t conduct your business and be completely honest with the people you are dealing with, then you shouldn’t be in this business at all.

Thank you @Brad Schultheiss for your input I definitely do not want to have a reputation of not being able to be trusted.  I also will only disclose if I am asked.  

Thank you @Paul Rogert for your input as well.  The end amount I would tell the buyer would include my assignment fee of course.

Thank you @David Hines for sharing your opinion.  Although I do not agree with your statement entirely or your assumptions I do appreciate you sharing your thoughts.

Well, this question makes me shake my head for a different reason.

If you are doing an assignment, of course the buyer knows your assignment fee, since he has to sign an assignment of contract agreement where he Agrees to your assignment fee!

If you're doing a double close, it's Not an assignment fee, it's the spread between your purchase contract and your selling contract.

Kudos though, for not calling yourself a "wholeseller".

@Chris Turner so what is your fee and the sales price?

:D

If I were buying from a wholesaler I wouldn't care one bit what their fee was. I would offer what I can pay for the house and that is that. If someone asks you, tell them and let it be. If they want to offer less, knowing you are making more than you "should", then move to the next buyer on your list. The person who should care the most is the seller. If they realize you are getting $20k assignment fee on a $60k property, they most likely would be upset (all theoretical).

@Chris Turner I'm not sure what assumptions I'm making that you may disagree with. I've had this discussion with other wholesalers before and they say things like A) "I'm connecting buyers and sellers" or B) "I'm planning to make improvements or repairs that the seller may not be able to afford."

In situation A, I believe that the open market of the MLS is the best way to connect buyers and sellers. Investors don't need to be connected to sellers, they'll find properties a multitude of ways. So, what this situation really boils down to is a wholesaler was able to convince a seller to sell for less than market value and then is planning to reach out to their buyer list in hopes of getting an assignment fee from the buyer. This seems highly unethical to me.

In situation B, I believe that the wholesaler is really a flipper and not using the correct terminology when they talk about what they do.

I will not buy from a wholesaler in a double closing situation. I will happily pay a wholesaler an assignment fee up to 10% (just like I would pay a business broker or an auction house fee) IF THE NUMBERS WORK. I feel the lack of transparency in a double closing deal promotes an opportunity for the unethical treatment of poorly informed sellers-- I don't want to be involved in that.

@Chris Turner

They should see it from the beginning. What investor is signing an ASSIGNMENT OF CONTRACT without seeing which contract is being assigned?

To answer your question, I always tell them. I send them the full P&S Contract. If your property is truly a deal then one person giving you a fuss should not be an issue. Move on to the other buyers you have. I had a buyer get upset over a 20k assignment that he went to go knock on the sellers door. Seller gave me their business card and I made sure to never send them my deals. When you are 100% transparent with everyone, you have nothing to worry about. Also make sure never to tie anything up that’s not deal because when you only have one buyer to rely on you will be at his mercy.

@David Hines how do investors make a profit if they purchase on the MLS at market value? That’s a business model that will put you out of business lol

@Jill F. Hello! Up to 10% hugh?  Why that it mighty generous of you.  I'll tell you what, I will wholesale a property to you at a 10% markup and I will put as a contingency in the contract that you can only sell it for 10% more then what you got assigned from me.  Makes total sense right?  It is only fair that since you are limiting my profit that I should be able to limit yours right?

@Gabe Amedee

I agree that in the current market, buying from the MLS isn't profitable. Its been several years since I've purchased a property because the return just isn't there. So I've stockpiled cash to put to use when the market drops and focused on commercial transactions.

Another solution is investing in properties that need repairs, maintenance, etc and doing something to create value. The solution shouldn't be convincing less knowledgeable sellers to sell for less than their property is really worth. In my opinion a large proportion of wholesalers rely on predatory behavior at a minimum if not out right deception.

@Chris Turner As a buy n hold investor, I really don't care what the Wholesalers fee is. But, eventually I do get to see it at closing. Although, if you want to build relationships, full disclosure is always the way to go. @David Hines I don't think you understand the value a Wholesaler brings to both the seller and the buyer. How do you find your clients? Do you knock on doors? Do you market to property owners who are hard to find? Probably not. IMO, Wholesalers dig out individuals who don't have the time or the drive to reach out and find a real estate agent. And when a Wholesaler finds a willing seller, they pretty much guarantee a very quick sale. Do you guarantee your clients a quick sale? I'm not here to knock Real Estste Agents, but you offer a different service than Wholesalers. RE agents connect sellers who are willing to wait months to get the max sales price to owner occupant buyers who are willing to pay market prices.
Originally posted by @Chris Turner :

@Jill F. Hello! Up to 10% hugh?  Why that it mighty generous of you.  I'll tell you what, I will wholesale a property to you at a 10% markup and I will put as a contingency in the contract that you can only sell it for 10% more then what you got assigned from me.  Makes total sense right?  It is only fair that since you are limiting my profit that I should be able to limit yours right?

Wow. My position as a buyer in dealing with a wholesalers is neither "generous" nor profit limiting. I am simply declining to do business in situations that I believe promote unethical actions.  

And no, your analogy makes NO sense at all-- you are, in the described situation, attempting to dictate the terms of a future contract to which you are not a party. Where I, as a buyer am simply rejecting a deal where I don't like the terms... just like I reject loans from payday lenders and loan sharks. 

@Jill F. "I will happily pay a wholesaler an assignment fee up to 10%..."  That IS a limitation.  I am glad however that you are standing by your ethics.  If you ever change your mind let me know and I will put you on my buyers list.

@Joseph ODonovan

Your use of the term "willing seller" sounds suspiciously like "uninformed seller" IMO. If an investor is willing to pay X for a property and the property goes on the market for X, then the investor buys it for X. The only way a wholesaler makes any money is by getting a property under contract for X minus assignment fee (say $10,000) and then marketing the property to their buyer list for X. Does everyone agree that this is the typical wholesale process or am I missing something?

The idea that wholesalers make the process easier or smoother is wrong IMO. I think it is much more common for a wholesaler to find some uninformed property owner and convince them that they are getting a great price for their property, when the wholesaler knows the entire time that they will be able to sell it for more.

The only reason the OP asked his question is because he knew that fully informing the seller BEFORE the property is under contract conflicts with the only way wholesalers can make money. 

Originally posted by @David Hines :

It’s questions like this that make me doubt the wholesale profession as a whole. The only way wholesalers make money is by convincing a seller to sell for less than their property is worth or convincing a buyer to pay more than a property is worth. If you can’t conduct your business and be completely honest with the people you are dealing with, then you shouldn’t be in this business at all.

its not a profession.. its simply everyone for themselves  and buyer and seller beware basically.. but I see these fees on many of the deals I fund.. wholesale fee marketing fee.. multiple co wholesalers .. I have seen it all..

whats hard to determine is what is the cost of a transaction IE how much time and overhead went into putting one of these deals together. from what I have seen the ones that do any volume have substantial marketing budgets..

and frankly in many markets if you got licensed and went for listing spending what these folks do on their marketing.. I think you would make as much if not more and be building a lifelong clientele base..  I can see where buyers could stick with you some.. but sellers kind of one and done.. when in fact most good realtors create long term clients from both sides.   I know my wife does 90% of her work by referral at his stage of her career. I see this assignment fee as a short lived thing to do.. but I am sure some have long runs with it.  PS my wife spends ZERO on marketing and will do 10 to 15 million a year in sales. 

Originally posted by @Chris Turner :

@Jill F. "I will happily pay a wholesaler an assignment fee up to 10%..."  That IS a limitation.  I am glad however that you are standing by your ethics.  If you ever change your mind let me know and I will put you on my buyers list.

 No, it is not a limitation, it is a condition for making a deal WITH ME. I cannot possibly impose a limitation on your profits, I can only decline deals with you that I don't find acceptable.

Originally posted by @David Hines :

@Gabe Amedee

I agree that in the current market, buying from the MLS isn't profitable. Its been several years since I've purchased a property because the return just isn't there. So I've stockpiled cash to put to use when the market drops and focused on commercial transactions.

Another solution is investing in properties that need repairs, maintenance, etc and doing something to create value. The solution shouldn't be convincing less knowledgeable sellers to sell for less than their property is really worth. In my opinion a large proportion of wholesalers rely on predatory behavior at a minimum if not out right deception.

there is absolutely no arguing those points.. If a seller was informed in an honest way of what their home was worth like an agent does you would have no real need for these middle men who are just skimming equity.. however on the flip side .. if someone goes to the trouble to find a seller and offers cash NOT BS cash but real cash and closes then holds it for a period of time then they can sell for whatever they want.. just cant tell someone that there house is only worth 50k because they are clueless or old or foreigners etc.. close on it never touch it and sell it next day for 150k.. that is unconscionable profit taking.  And frankly could be unwound by a court.

but what I find in the wholesaling and the reason I don't work with them personally.. is 99% are time sucks.. don't know what they are doing and you can no way trust valuations.. so to me its just a lead.

I had one in Charleston this was kind of funny / weird at the same time..  guy knows I am buyer / builder in that city.. contacts me. and we agree on a price of 190k.. basically lot value.. well I run a quick records search and the wholesaler has talked the seller into selling for 100k and actually got them to give him power of attorney etc.. total GURU doc.. I call the guy and say I get it.. I should not care.. but frankly I do. and I just cant be a party to this .. your seller obviously is uneducated and does not know what they are doing.. so I will pass.

so then they list it for 230k and of course it does not sell.. and in the mean time I see the NOD on it and the lady owes 200k so there you go wholesaler thinking he is going to retire on this one deal.. has no clue whats really owed.. and we settled at 206k and he had to pay my closing costs of 1200... I cut em a check.. lady got nothing because there was NO equity.. I ended up having to tear the house down as it was beyond salvage it was not my intention I was going to rehab it.. so that was a bummer.. but I put up a 2200 sq ft new build and sold it for 730k.. so all in all wholesaler made 4500 or so.. we made 200k.. and if this lady would have got with some one else to sell the lot early on ( she was going to get foreclosed out in a matter of 10 days or so) she probably could have gotten 230 to 250k for it from a builder.. but it was amateur hour and these guys in the middle were just trying to make too much and they backed themselves in a corner.

but there was NO WAY no how I was going to buy that and be a party to someone ripping 100% profit from this lady.. its just not the right thing to do morally in my mind.. 

But you can get on Bp and talk about case studies about how a wholesaler made 20 to 50k on a small deal and half the people are like hey that's no cool.. the others are HEY great.. your a rock star I wish I could do that. :)

Originally posted by @David Hines :

@Joseph ODonovan

Your use of the term "willing seller" sounds suspiciously like "uninformed seller" IMO. If an investor is willing to pay X for a property and the property goes on the market for X, then the investor buys it for X. The only way a wholesaler makes any money is by getting a property under contract for X minus assignment fee (say $10,000) and then marketing the property to their buyer list for X. Does everyone agree that this is the typical wholesale process or am I missing something?

The idea that wholesalers make the process easier or smoother is wrong IMO. I think it is much more common for a wholesaler to find some uninformed property owner and convince them that they are getting a great price for their property, when the wholesaler knows the entire time that they will be able to sell it for more.

The only reason the OP asked his question is because he knew that fully informing the seller BEFORE the property is under contract conflicts with the only way wholesalers can make money. 

Not to mention in many states this activity is illegal especially where the OP lives this is totally illegal in OHIO. he is selling real estate without a license..  and his contract is no good if he does not have the money personally to close.. its fraud in the inducement.. easy to go around guys like this..

Originally posted by @Chris Turner :

@Jay Hinrichs PLEASE continue to tell people that wholesaling is illegal in Ohio!!!  

no need to its been beat to death on BP wholesaling for most is just a dead end..   and no you don't need to put me on your buyers list.. I will not be missing out on anything.   being that I buy about 300 plus homes a year I suspect I will do fine without you.  

consider getting licensed and creating a lasting business in 3 years or less you wont be doing this there is not enough distressed real estate to go around.. even in OHIO. .land of distressed real estate.