Buyers asking about my assignment fee?
Cincinnati, OH · Member since 2013 · 90 posts · 89 votes
Buyers asking about my assignment fee?
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Property Manager · Allen, TX · Member since 2015 · 190 posts · 160 votes
8yIt’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.
151 Replies
- Clinton, MD · Member since 2018 · 25 posts · 17 votes8y
It's a free country to have opinions. A Broker , RE, Banker and Wholesaler all provide a service. If you prefer not to use that service, then dont, but that doesnt mean the service being provided is a scam. Yes some sellers are ill informed but a lot are educated sellers who chose to go the route with a wholesaler. They themselves might not trust an RE or have the equity, time nor the desire to do repairs etc. So it all comes down to a personal choice or preference. Again a deal is all in the mind or perception of the parties involved. That's my core value.
- Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Eric James:
Originally posted by @Jay Hinrichs:
Originally posted by @Pratik P.:
Originally posted by @David Hines:
are there bad realtors who do bad things.. of course.. there are folks doing surgery that are not licensed doctors as well. !!! :)
This is the key - there are bad brokers. But they are licensed, and they lose their license by doing bad things. If I do something against RE license law, I lose my license, and I lose my livelihood. Essentially I get fired by the state. The rouge-nation of wholesalers however don't have that worry - they get a cease and desist and simply continue on with their part time jobs.
Wholesale works, IF you are simply supplying your overflow to others. Like in the brokerage world, if I get a buyer at a certain price range or in a certain neighborhood, I might push that buyer to a buyer's agent or a referral, as it isn't "worth" it to me to work with them (I know that's a strong word but understand the concept). Just like the REAL concept of wholesale - an investor has too many deals, he knows this one is good just not good enough to make it worth his while in comparison to the REST OF HIS WORK, so he assigns the contract to someone else. But its not "well it doesn't meet my completely unobtainable requirements so I'll promise the world and try to pawn it off on a bigger fool" ala most "wholesalers".
- Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes8y
Originally posted by @Winston Cummings:
It's a free country to have opinions. A Broker , RE, Banker and Wholesaler all provide a service. If you prefer not to use that service, then dont, but that doesnt mean the service being provided is a scam. Yes some sellers are ill informed but a lot are educated sellers who chose to go the route with a wholesaler. They themselves might not trust an RE or have the equity, time nor the desire to do repairs etc. So it all comes down to a personal choice or preference. Again a deal is all in the mind or perception of the parties involved. That's my core value.
Actually license laws were enacted for this very purpose, to protect the uneducated public from folks who want to take advantage of their situation. If a seller doesn't have the time/desire to do repairs, or showings, etc, they can list the property as such, and I guarantee sell for at least as much as an unlicensed, uninsured rouge wholesaler can get them - or are you saying that the end buyers are blind to the MLS? Unless you are bringing cash with no contingencies yourself, you provide no greater value than a broker but harbor much greater risk with little-to-no recourse when you screw up.
- Property Manager · Allen, TX · Member since 2015 · 190 posts · 160 votes8y
Originally posted by @Winston Cummings:
It's a free country to have opinions. A Broker , RE, Banker and Wholesaler all provide a service. If you prefer not to use that service, then dont, but that doesnt mean the service being provided is a scam. Yes some sellers are ill informed but a lot are educated sellers who chose to go the route with a wholesaler. They themselves might not trust an RE or have the equity, time nor the desire to do repairs etc. So it all comes down to a personal choice or preference. Again a deal is all in the mind or perception of the parties involved. That's my core value.
Wholesaler's don't provide a service, they provide a disservice. The only service they provide is enriching themselves at the expense of the suckers they can sink their claws into.
Your argument that if you don't want to use a service then don't use it, is an argument commonly used by scammers when they are called out. I COMPLETELY disagree that there is some large group of fully educated sellers who receive full disclosure who still choose to work with a wholesaler.
As far as your other arguments are concerned;
1) If someone doesn't trust a specific agent, then they should search out another one. There are a multitude to choose from. I don't think there are many people who just flat don't trust ANY agent.
2) If a seller doesn't have equity then how does going to a wholesaler help? Say a seller has a property worth 100k, but they owe 120k, what bank in the world would let it be sold for lower than market value so that a wholesaler can add their fee?
3) If a property is in need of repairs that the seller doesn't want to do, then that obviously lowers the market value. Going to a wholesaler doesn't solve that problem and isn't what I'm talking about. There are plenty of investors who would be happy to buy the distressed property and fix it up. But going with a wholesaler who will add nothing of value to the transaction does nothing to help the seller.
Your core value that a deal only matters in the minds of the parties involved is naïve. Even if a seller walks away from a transaction happy, that doesn't mean that they weren't taken advantage of. They may never find out, but that doesn't mean the wholesaler acted ethically. Wholesalers are a drain on the real estate investing industry and impact all of us by making transactions more costly and contributing to the public's distrust or suspicion of real estate investors.
- Real Estate Agent · Los Angeles, CA · Member since 2016 · 54 posts · 9 votes8y
@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.
My team is commercial and we sell apartment buildings and our business is 80% off market. We direct call and build relationships with Sellers across all California markets. We run the numbers and pitch it to Buyers, typically just because it is off market does not mean sellers don't want market prices but they are willing to be more flex for us as our commission is normally what gets negotiated to help secure the deal. We offer a better more beneficial approach then what you describe as wholesalers, who tie up deals for sellers, add a large fee to the deal and pitch to unknown sources to find buyers they have never worked with before.
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes8y
If you want to have a successful business then just tell them the truth. I've done hundreds of transactions and always disclose my fee. It's on the HUD anyway. The way to market this is to explain the value add you provide. I would say for example this is a 100K property, you are buying it for 60K and paying me 10K. So I have just made you 30 grand. I have NEVER lost a sale through being the wholesaler. Tell no lies, build your brand on whatever your point of difference is.
In fact one of my previous strategies was to charge the buyer half of what I saved them. They found a house they wanted and would happily pay 110K for. I get them a contract at 70K. I get 20K, they get a big smile on their face through the 20K equity!
- Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes8y
Originally posted by @David Hines:
3) If a property is in need of repairs that the seller doesn't want to do, then that obviously lowers the market value. Going to a wholesaler doesn't solve that problem and isn't what I'm talking about. There are plenty of investors who would be happy to buy the distressed property and fix it up. But going with a wholesaler who will add nothing of value to the transaction does nothing to help the seller.
You've inadvertently outlined the value that wholesalers bring to some people. You're not spending thousands or tens of thousands of dollars and hundreds of hours a month looking for your 1-2 flips a year. The wholesaler is doing that work for you, and instead of paying the marketing fees and a wage to someone on your "team" to do that, you're paying the wholesaler's fee for the house you actually bought from them.
I get why some people don't like wholesalers - there's plenty of people with no real estate experience or education doing it and some are pretty unethical. Arguing, however, that a wholesaler buying a property for less than market value makes them a snake is disingenuous because there's not an investor on BP that doesn't try to buy a house as cheaply as possible, market value be damned.
If you step out of real estate for a second, the term "wholesale" is actually a pretty accurate term - and it's not one with a negative connotation except in real estate. What value does a wholesaler or distributor add in a retail sales chain? Not much - they didn't manufacture the product, they didn't transport the product necessarily, etc. They're taking large lots that are too large for what the retail customer actually can use, and breaking them down into usable lots. An active/full-time real estate wholesaler is doing the same thing. He/she is finding 30, or 70 or 100 or whatever deals a year and selling you the 1 or 2 a year that you can actually do.
For OP, there's enough investors in the world that you don't need to have people on your buyer's list who despise who you are and what you do. To answer the original question, if you're doing an Assignment, the buyer has to know your fee by definition because they have to sign off on the original contract. If you're double-closing, they'll figure it out eventually when it all becomes public record. If someone gets hung up on your fee, don't sell to them. They aren't the right customer.
- Wholesaler And Coach · Springfield, VA · Member since 2011 · 169 posts · 75 votes8y
Chris:
We don't tell our buyers the contract price or the assignment fee until closing. The reason is, too many rehabbers get bent out of shape on what our wholesale fee is. When I was rehabbing houses I didn't care if the wholesaler made a dollar or $100,000 as long as the numbers worked for me. Why does a buyer need to know how much you are making before he/she agrees to buy to home?
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Siouxzie Hanes:
@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.
My team is commercial and we sell apartment buildings and our business is 80% off market. We direct call and build relationships with Sellers across all California markets. We run the numbers and pitch it to Buyers, typically just because it is off market does not mean sellers don't want market prices but they are willing to be more flex for us as our commission is normally what gets negotiated to help secure the deal. We offer a better more beneficial approach then what you describe as wholesalers, who tie up deals for sellers, add a large fee to the deal and pitch to unknown sources to find buyers they have never worked with before.
Ms. Hanes if your doing mainly off market why are you licensed ??? could it be because its the law and you need to be licensed to make middle man fees and bring two parties together.. or do you think in your world the buyers and sellers are more sophisticated and want to work with real estate professionals ???
are there unlicensed wholesalers who specialize in selling what you sell ?? just curious.. I would find it hard for many of them to do what you do.
there are a lot of realtors that run radio Ads if they cant sell the house in 2 weeks at the price the agent and seller agree to they will buy it ?? this happens all the time.. I ONLY buy at least for myself ( not my clients I fund) but I pretty much only buy off of MLS and have no interest in dealing with wholesalers personally.. and I do a fair amount of volume
but the reality in in the under 150k transactions in the mid west and from investor to investors there is a lot of this activity that goes on.
and especially in low value assets that is not really served by the real estate community.. One of the main issues for me is they are such a waste of time.. they don't know values Many to most are just beginners and don't even know how to do a transaction.. and they just throw stuff up.. I don't see this as a service to sellers.. there are top ones in each market but there are also legions of those just starting and to wade through the beginners that took a course or read on BP how to wholesale its just not worth the time or effort..
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Brad Chandler:
Chris:
We don't tell our buyers the contract price or the assignment fee until closing. The reason is, too many rehabbers get bent out of shape on what our wholesale fee is. When I was rehabbing houses I didn't care if the wholesaler made a dollar or $100,000 as long as the numbers worked for me. Why does a buyer need to know how much you are making before he/she agrees to buy to home?
Brad just curious your a wholesaler and a realtor.. is it because by law you need to be licensed to make these fees.. ?
and if you are licensed how do you explain your compensation to your sellers ??? I have been licensed in multiple states for 4 decADES and all I do is buy distressed assets many times direct . the difference from what I see here .. Is I pay cash and actually close before I even start to work on or market the property.. so do you close on these deals.. or how do you handle your fee that many times might be or probably is far greater than a traditional listing amount.. or many times is your fee less than a traditional listing amount.
and do you even sign listing agreements to resell property you don't own ???
again just curious how an agent in your market handles this. ?
- Property Manager · Allen, TX · Member since 2015 · 190 posts · 160 votes8y
Originally posted by @Dean Letfus:
If you want to have a successful business then just tell them the truth. I've done hundreds of transactions and always disclose my fee. It's on the HUD anyway. The way to market this is to explain the value add you provide. I would say for example this is a 100K property, you are buying it for 60K and paying me 10K. So I have just made you 30 grand. I have NEVER lost a sale through being the wholesaler. Tell no lies, build your brand on whatever your point of difference is.
In fact one of my previous strategies was to charge the buyer half of what I saved them. They found a house they wanted and would happily pay 110K for. I get them a contract at 70K. I get 20K, they get a big smile on their face through the 20K equity!
I agree that being honest and ethical is key to having a successful business. I am curious how you are able to get a contract with a seller for 70k on a property that is worth 110k if you are being open and honest with the seller?? I think it is much more likely that a wholesaler in that situation has taken advantage of an uneducated seller if not been outright deceptive in convincing them that the property is actually worth 70k.
To head off one potential argument, if the property is distressed and in need of repair and you are really talking about an ARV of 110k, then I would say that at the time you buy it the property is not worth 110k. But it doesn't seem like that is what you are referencing when you celebrate the 40k profit...
- Flipper/Rehabber · Salt Lake City, UT · Member since 2016 · 211 posts · 174 votes8y
As a flipper personally I don't care where my deals come from. I like paying wholesalers or agents their money whether it be a fee or a commission; because if I've done my due dilligence I know I'm going to make money!
Going back to the original question please disclose upfront. I have no problem if you're making money if I know I'm making acceptable money to me (meets with my minimum requirements).
Quick side note as the guy with the second place in line the picking get slim. Just as an investor may find a deal that isn't as profitable as what they are currently doing and wholesaling it off; an agent investor may get a pocketlisting and quickly scoop it up before it hits the MLS.
- Wholesaler · Waldorf, MD · Member since 2015 · 459 posts · 245 votes8y
@Chris Turner, I don't discuss my fee up front. I strictly deal with the offer price of the contract. If they like the price as stated or as negotiated, then my fee is irrelevant. They aren't discussing there rehab property with me. If I get a "buyer" like that, I wouldn't ever deal with them again!!! They either like the offer or not. When you go to the grocery store, do you inquire how much the store is making off your purchase of groceries?
- Wholesaler · Raleigh, NC · Member since 2017 · 54 posts · 36 votes8y
So first of all, the wholesaler "earns" his fee by finding the deal. This is often done by driving for dollars, bandit signs, sending out mailers, posting online ads, driving traffic to a website, etc (needless to say, these things have a cost, whether it is time or money or whatever. Then the wholesaler has to negotiate a deal that the seller agrees with. I have never wholesaled a home that the seller didn't thank me, often with immense appreciation.
The fee that is assigned has nothing to do with the buyer, yes they will have to separate that part of their purchase price, but it is included in their purchase price. Buyers who cut a wholesaler fee because they "think they are making to much" or they "don't pay more than a 10%" are ridiculous. Why should it matter.
I had a friend who inherited a pickup truck with an 18k value. He ended up selling to another friend, giving him a great deal at 12k. When the purchaser found out the seller had gotten the truck basically free, he went from over the top happy to mad his friend "made so much" on him. Why cant we look at the deal for what it is and not worry about who else is making how much. The deal either makes sense or it doesn't.
If I contracted a house for $25k that the ARV was $100k, I might have a $10-$20k fee on it. If your an investor and could buy at 50% ARV (assuming no major repairs) why would you pass that up? Or worse yet, try to cut the wholesalers fee after he brought you such a great deal.
I have had buyers offer less then my fee when I revealed it and then get mad when I placed the house with another buyer who was glad for the deal.
I have had buyers agree to the numbers, then just before closing say they needed to cut the fee because the numbers were too tight for them, yet afterward made almost a 6 figure profit themselves.
I have had buyers tell me they wont pay more than X amount or % in a fee before they even see the deal.
Bottom line, in today's market, there are more buyers then properties. Find the ones who understand the business and want everyone to be profitable, if they need to steal your profit rather then make their own, they are just not worth going back to.
- Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes8y
While we're discussing ethics on any topic, I figure a good place to start is with the Golden Rule: treat others as you would like them to treat you. Or, since many here are so "sophisticated" (what a fun term!) in real estate, how about we put a small angle on it and say, "Treat others as you'd like them to treat your beloved grandmother who doesn't know anything about real estate."
I think wholesaling can be done ethically, but as has been noted on here in most markets it is pretty saturated with the proliferation of gurus. I doubt there are many ethical wholesalers who are eating well today solely off of wholesaling.
I don't mind when wholesalers bring me deals, but I usually want the ones that are about 2-3 days away from failing to close with their Sellers then drive them down to the thinnest margin I can and still get the deal. I save their name in the process and they get about what I'd pay a bird dog to bring me a deal anyway.
One major ethical problem I've found most common in my area is many wholesalers lock up a property for 30 days with a pittance of an earnest money deposit ($25 was what the last guy wanted to give me), then they fail to sell it and walk away almost completely unscathed. No seller is going to sue someone to force them to purchase a house when the "buyer/wholesaler" has no money to begin with. So I agree with those who say that ethical wholesalers MUST have the funds to close the purchase themselves if they fail to find a buyer to assign it to within the time the contract give them. That requirement right there eliminates the vast majority of wholesalers I've met.
To be an ethical wholesaler requires knowledge, funds, marketing, hustle and an unwavering commitment to keeping one's promises. If that describes you, we can do business. If not, we can't.
- Flipper/Rehabber · Bakersfield, CA · Member since 2008 · 3k+ posts · 3k+ votes8y
Originally posted by @David Hines:
Originally posted by @Dean Letfus:
If you want to have a successful business then just tell them the truth. I've done hundreds of transactions and always disclose my fee. It's on the HUD anyway. The way to market this is to explain the value add you provide. I would say for example this is a 100K property, you are buying it for 60K and paying me 10K. So I have just made you 30 grand. I have NEVER lost a sale through being the wholesaler. Tell no lies, build your brand on whatever your point of difference is.
In fact one of my previous strategies was to charge the buyer half of what I saved them. They found a house they wanted and would happily pay 110K for. I get them a contract at 70K. I get 20K, they get a big smile on their face through the 20K equity!
I agree that being honest and ethical is key to having a successful business. I am curious how you are able to get a contract with a seller for 70k on a property that is worth 110k if you are being open and honest with the seller?? I think it is much more likely that a wholesaler in that situation has taken advantage of an uneducated seller if not been outright deceptive in convincing them that the property is actually worth 70k.
To head off one potential argument, if the property is distressed and in need of repair and you are really talking about an ARV of 110k, then I would say that at the time you buy it the property is not worth 110k. But it doesn't seem like that is what you are referencing when you celebrate the 40k profit...
Good to meet you David...
As I read this thread I am counting numerous topics.... As is typical with most threads.
Your comments/concerns brought my fingers to my keyboard. So I am jumping in. To begin , if I may, let's define terms.
- Assignor - A person who is selling the rights to an agreement/contact. Some states have limitation on the number of contacts a person may sell without the attachment of a real estate Brokers License involved. Some state that number is Zero in California it is 8.
- Wholesaler - A person who buys low and sells low, both with constructive notice. Typically zero or little work performed to the property between the buy and resell.
- Wholetailer - A person who buys low sells at 100% "As Is" value, both with constructive notice. Typically zero or little work performed to the property between the buy and resell.
- Fix and Flip - Typically buys at wholesale, however in some cases at a 100% a of "As Is" value and improves property to an ARV then resells at 100% ARV. Some states have a Contractors License requirement. In California that requirement is two properties in one year or three properties in two years may be improved without a contractors B1 (Generals Builders License).
- Buy and Hold - May or may-not buy at discount, holds property for tax and/or appreciation gains.
If we can agree on those terms then it makes it a whole lot easier to discuss real estate.
Here is the agreement I use when buying property. It should help clarify both the ethical issues you are describing and may help you understand that sellers do in fact sell knowing the full value of their property.
PURCHASE AND SALES AGREEMENT
DATED: ________________
PARTIES: _____________________________________, as Seller, and _____________,as Buyer, whose mailing address is _______________ and telephone number is ________________. Buyer and Seller which terms may be singular or plural and will include the heirs, successors, personal representatives and assigns, hereby agree that the Seller shall sell and Buyer shall buy the following legally described Property.
I.THE PROPERTY DESCRIBED AS: _________________________________________________________ (Street address)
City of ______________________ State of _____ County of ___________ Assessor’sParcel Number ____________________:
II.FINANCING/TERMS/PURCHASE PRICE:
The Purchase Price Offered is: $_______________.00.
Deposit(s) to be held in escrow byCompany of Buyer’s choice. Deposit to be placed into escrow prior to the closing of escrow in the amount of: $ _______________. 00. Balance to close, (U.S. Cash, certified or cashier's check) not including Buyer’s closing costs and subject to adjustments and prorations Approximate Exact: $_______________.00.
- If checked All Cash Purchase.
- If checked Subject to Existing Mortgages/Loans: See Addendum #_____
- If checked Seller Financing and Terms: See Addendum #_____
III.CONSIDERATION RECEIPT AND SUFFICIENCY: Seller hereby acknowledges and accepts the amount of consideration as the total consideration for the sale of the property to Buyer. Seller is satisfied as to the amount of consideration and acknowledges the consideration to be a sufficient amount to purchase the aforementioned Property.
IV.APPRAISAL CONTINGENCY: This Agreement is contingent upon a written appraisal of the Property by a licensed or certified appraiser.The Buyer will order and pay for an appraisal on the property. If the appraised value is less than $__________ which is the amount quoted by The Seller as to what the house is Worth in its As Is Condition in Today’s Market, After Repair Value, the Buyer may, within three (3) calendar days of Buyer's receipt of the appraisal, at Buyer's sole option, declare this agreement null and void. Buyer is entitled to a return of all deposits, if any, less the appraisal fee and any other escrow expenses or fees chargeable to the Buyer. Thereafter,neither the Buyer, the Seller nor any brokers shall have any further rights, obligations, or liabilities under this contract.
V.CLOSING DATE: This transaction shall be closed and the Deed and other Closing Papers delivered in __________ days following the date of final acceptance or on _______________,20_____, or sooner, unless extended by other provisions of this Purchase and Sales Agreement, or by written agreement of the Parties and also at the sole option of the buyer.
VI.OCCUPANCY: Exclusive irrevocable possession and occupancy shall be delivered to Buyer, Buyer’s Assignees, or Buyer’s Agents at 5:00 PM on the date this agreement is signed by Seller, on the date of Close of Escrow, on ________________, 20______ or no later than ___________ days after Close of Escrow.
If checked Property shall be vacant at least __________ days prior to Close of Escrow.
If checked Property is intended to be rented or occupied beyond closing, the fact and terms thereof shall be stated herein.
VII.CONDITION OF PROPERTY: Buyer is buying property in an “As Is” condition.
VIII.INSPECTION OF PROPERTY: Buyer shall have until the close of escrow to complete all Buyer investigations of the Property and approve all matters affecting the Property. Buyer may in Buyer’s sole and absolute discretion, give notice of termination of this Agreement at any time prior to the expiration of the inspection period, and upon such termination, all deposits held in escrow shall be returned to Buyer.
IX.COSTS: Buyer shall pay for all normal closing costs. Costs shall not include voluntary or involuntary liens against the property.
X.NON-AGENCY RELATIONSHIP: A principal with Buyer is a Department of Real Estate Licensee. An Agency relationship between Buyer and Seller does not exist. Seller should seek advice from their legal counsel prior to agreeing to the terms of this Agreement.
XI.TIME FOR ACCEPTANCE AND EFFECTIVE DATE: This Offer shall be deemed revoked unless the Offer is signed by Seller indicating an Acceptance and a copy of the Signed Offer is received by the Buyer on or before _____:01 PM, on __________, 20_____. If a copy of the Signed Offer is not received by Buyer on or before the Date and Time stated above, the aforesaid Deposit(s) shall be, at the option of the Buyer, returned to Buyer and this offer shall thereafter be null and void.
XII.ASSIGNABILITY: Buyer may assign this Agreement.
XIII.RESELL: Seller is aware that Buyer intends on reselling the property for a HUGE PROFIT. All profits made by Buyer during this transaction relating to the reselling of the property are the sole interest of and solely owned by the Buyer.
XIV.TYPEWRITTEN OR HANDWRITTEN PROVISIONS: Typewritten or handwritten provisions inserted herein or attached hereto as Addenda shall control all printed provisions in conflict therewith.
XV.NOT A LOAN TO SELLER TRANSACTION: Seller acknowledges that the buyer is not lending to the seller any monies and this Purchase and Sales Agreement is an agreement to purchase the aforementioned Property only. All monies shall be given to the seller on the day escrow closes as defined in section II.
XVI.SECURITY DEPOSITS: Security deposits, if any, shall be paid to the Buyer. All Rents collected shall be prorated and said prorations paid to Buyer.
XVII.LIENS: Seller shall, both as to the Property and Personally being sold hereunder, furnish to Buyer at time of closing an affidavit attesting to the absence, unless otherwise provided for herein, of any financing statements, claims of lien or potential lienors known or reasonably expected to be known to Seller and further attesting that there have been no improvements to the Property for ninety days immediately preceding date of closing.
XVIII.PLACE OF CLOSING: Closing shall be held in the county wherein the Property is located, at the office of the attorney or other closing agent designated by Buyer.
XIX.TIME: Time is of the essence of this Agreement. Any reference herein to time periods of less than six days shall in the computation thereof, exclude Saturdays, Sundays and legal holidays, and any time period provided for herein which shall end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next business day.
XX.ATTORNEY FEES AND COSTS: In connection with any litigation including appellate proceedings arising out of this Agreement, the prevailing party shall be entitled to recover reasonable attorney's fees and costs.
XXI.DEFAULT BY SELLER: In the event that Seller should fail to consummate the transaction contemplated herein for any reason, except Buyer's default; (i) Buyer may enforce specific performance of this Agreement in a court of competent jurisdiction and in such action shall have the right to recover damages suffered by Buyer by reason of the delay in the acquisition of the Property, or (ii) may bring suit for damages for breach of this Agreement, in which event, the deposit made hereunder shall be forthwith returned to Buyer, or (iii) declare a default, demand and receive the return of the deposit. All rights, powers, options or remedies afforded to Buyer either hereunder or by law shall be cumulative and not alternative and the exercise of one right, power, option or remedy shall not bar other rights, powers, options or remedies allowed herein or by law.
XXII.DEFAULT BY BUYER: In the event Buyer should fail to consummate the transaction contemplated herein for any reason, except default by Seller or the failure of Seller to satisfy any of the conditions to Buyer's obligations, as set forth herein, Seller shall be entitled to retain the earnest money deposit, such sum being agreed upon as liquidated damages for the failure of Buyer to perform the duties and obligations imposed upon it by the terms and provisions of this Agreement and because of the difficulty, inconvenience and uncertainty of ascertaining actual damages, and no other damages, rights or remedies shall in any case be collectible, enforceable or available to Seller other than as provided in this Section, and Seller agrees to accept and take said deposit as Seller's total damages and relief hereunder in such event.
XXIII.MEMORANDUM OF CONTRACT RECORDABLE, PERSONS BOUND AND NOTICE: Buyer may cause to be recorded, at Buyer's option and expense, in the public records of the county in which the property is located, an executed Memorandum of Contract. This Agreement shall bind and inure to the benefit of the Parties hereto and their successors in interest. Whenever the context permits, singular shall include plural and one gender shall include all. Notice given by or to the attorney for either party shall be as effective as if given by or to said party.
XXIV.PRORATIONS AND INSURANCE: Taxes, assessments, rent, interest, insurance and other expenses and revenue of the Property shall be prorated as of date of closing. Buyer shall have the option of taking over any existing policies of insurance on the Property, if assumable, in which event premiums shall be prorated. The cash at closing shall be increased or decreased as may be required by said prorations. All references in the Agreement to prorations as of date of closing will be deemed date of occupancy if occupancy occurs prior to closing, unless otherwise provided for herein.
XXV.OTHER AGREEMENTS: No prior or present agreements or representations shall be binding upon any of the Parties hereto unless incorporated in this Agreement. No modification or change in this Agreement shall be valid or binding upon the Parties unless in writing, executed by the Parties to be bound thereby.
XXVI. CLERICAL ERROR WAIVER:In the event the Buyer at any time discovers that any of the documents executed in connection with this transaction contain an error caused by clerical mistake, calculation error, computer malfunction, printing error or similar error, all parties agree, upon notice from the Buyer, to re-execute any documents that are necessary to correct such error(s). Seller agrees that no party to this transaction will be liable to the Seller for any damages incurred by the Buyer that are directly or indirectly caused by any such error(s).
XXVII.MARKETING: Seller authorizes Buyer to market property during escrow for Buyers benefit. Marketing is defined as, but not limited to, placing the property for sale in the Real Estate Multiple Listing Service (MLS), advertising in the Newspaper or other periodical, and placing a for sale sign on the property.
XXVIII.MEETING OF THE MINDS ACKNOWLEDGEMENT:Seller has thoroughly and completely reviewed the Purchase and Sales Agreement and understands completely all terms and conditions contained therein. Seller further acknowledges having no confusion, uncertainty about any aspect of the Purchase and Sales Agreement and has sufficient experience in real estate transacting to be able to sign the Agreement with absolute confidence in Seller’s ability to comprehend all matters related to it and to the sale of the property. Seller further understands and agrees to have been given sufficient time to read through this Agreement and has also been given the opportunity to seek advice from Seller’s legal council prior to agreeing to the terms of this Purchase and Sales Agreement. The Buyer, their representatives, or Seller’s current situation has not forced Seller into signing this Agreement.
XXIX. ADDITIONAL TERMS:
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
_____________________________ _______________<strong></strong>_____________________________<strong> _______________</strong><strong></strong>Buyer Date BuyerDate
_____________________________ _______________<strong></strong>_____________________________<strong></strong>_______________Seller Date Seller Date
You will notice i inform to the seller that I in intend on making a HUGE profit, I am going to begin marketing the property immediately, the property must appraise for a dollar amount greater then the agreement value (typically my contracts are written for 65% of that appraised value) and many more items which I believe every buyer and every seller should include in the agreement.
If someone feels that it may cause a seller to disagree in selling them their home if they give full disclosure and because of their fear they dont give full disclosure then to that I am sorry they are in our profession.
If someone believes that buying low and selling higher without performing improvements is unethical and that the buyer is harming the sellers then that person doesn't understand the value of liquidity and convenience.
People often ask why a seller would sell me their home for 260,000 when I tell them and prove it to them with both a BPO and Appraisal its is worth 400,000 . The answer is simple. Because the need or solution my cash offers has a greater value than the solution of traditional Brokerage.
PS sorry for the symbols, that's BP and word not liking each other.
- Wholesaler · Raleigh, NC · Member since 2017 · 54 posts · 36 votes8y
@Erik W., I actually was shocked you wrote this, imagine my naivete.
"I don't mind when wholesalers bring me deals, but I usually want the ones that are about 2-3 days away from failing to close with their Sellers then drive them down to the thinnest margin I can and still get the deal. I save their name in the process and they get about what I'd pay a bird dog to bring me a deal anyway.
One major ethical problem..." Seems like this last bit should be to describe the paragraph above it.
The problem is your ethics. One major ETHICAL problem is how you are dealing with wholesalers. I am surprised any bother to bring you a deal.
I cant believe you cited the golden rule before telling how you take advantage of people. Are you really deluding yourself that much? If I understand you right, someone should warn your grandmother away from you.
- Investor · Seminole, FL · Member since 2015 · 54 posts · 18 votes8y
As a former flipper (back in the day there were flippers who flipped/assigned contracts, rehabbers who bought fixed and resold and rentals who kept for cashflow, which is now wholesalers, flippers and end users I guess?)
I had flipped probably a thousand contracts (assigned) but back in the late 1980s and up until mid 1990s you could assign HUD and even Fannie and Freddie contracts. You used to be able to get the actual asset manager on the phone as well!
My issue was that even though I only charged maybe $3k, if the end buyer was a rehabber they wanted to know how much I was making. Many times that killed the deal. So I started buying and selling the properties, sometimes a double close. Came out the same in the end, which seems silly but is human nature.
The next reason I stopped doing flips (wholesaling, assigning) is the nature of stupid people trying to scam stupider (sp?) people. Even today I get emails about "deals" and a simple calculation shows there is no deal there! Except for the wholesaler of course.
I called it "puffing" the numbers. Using comps that really dont relate to the subject property or neighborhood. Ive seen many guys sell properties this way, which I find sad. Yes the comps are real, but youll never get it for that particular property. A house in Dunedin just sold like that. The wholesaler wanted $199k for it, a tiny crackerbox that needed $50k in work. It realistically was worth maybe $150k fixed. Was unlike any other house in the area which had character. He actually sold it to a sucker for $189k. They will lose their a** on it.
This to me is the real issue at play. By convincing (misleading) the buyer, they got them to buy something that they shouldnt have. That may have been the kids education he just wasted, or his retirement or... Yes they should do their own DD, but if the wholesaler was honest, truly honest, then it would not have put the end buyer in this position.
I prefer to sleep at night and believe in karma.
I see this now allot in the note field. NO understanding of notes AT ALL, but making false claims to get the deal sold. If I have to correct another note "flipper" about equity.... Im glad the note space is much smaller and can weed out the stupid, but there are always those who dont learn before they buy. And note buyers are probably the most frugal buyers (or should be) and even $5k can kill a deal. But someone took a course.... If someone does the actual DD or numbers and brings me a deal, and it works, great, but Id bet 99% of those I deal with have no idea what they are doing, notes or rehabs. Some are still stuck in 2006 though.
- Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes8y
No
- Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes8y
@Bryan Chuchta, I will try this again...perhaps a concrete example will help.
Wholesaler Ben puts a property under contract for $100,000 and says "I will close in 30 days or less." His goal is to sell for $120,000, netting him a profit of $20,000.
27 days goes by....Wholesaler Ben misjudged the profit margin. He's lowered his price a few times, but it's now a "stale" listing and for whatever reason no one on his buyer's list is interested or able to close in 3 days. There are two possible outcomes.
Outcome 1: The closing falls thru because Ben doesn't have $100,000. Therefore, Ben gets $0, the Seller is disappointed and tells everyone Ben is a jerk and a fraud. Word circulates in the local REIA that Ben is not a man of his word....his reputation suffers.
Outcome 2: I ask Ben if he'd consider a last ditch sale price of of $102,000. He accepts. My title agency treats me well due to our ongoing relationship and WILL make this happen on time, and I have the cash to make it happen. Ben gets $2,000, his Seller is delighted, the folks in the local REIA know that Ben keeps his promises, and I get a deal on a decent house.
Your thoughts?
- Property Manager · Allen, TX · Member since 2015 · 190 posts · 160 votes8y
Originally posted by @Bryan Chuchta:
If I contracted a house for $25k that the ARV was $100k, I might have a $10-$20k fee on it. If your an investor and could buy at 50% ARV (assuming no major repairs) why would you pass that up? Or worse yet, try to cut the wholesalers fee after he brought you such a great deal.
No investor would pass up that deal. However, that isn't what I was talking about. The point I've been making is that you or any other wholesaler is acting unethically when they get a property under contract for 25k that they know they can turn around and sell to their buyer list for 35k or 45k. It is completely irrelevant what the ARV is. The value of the property at the time of purchase is much lower. I think wholesalers tend to rip off sellers, I don't have as much an issue when it comes to getting a fee from an investor later.
- Property Manager · Allen, TX · Member since 2015 · 190 posts · 160 votes8yOriginally posted by @Michael Quarles:
Your comments/concerns brought my fingers to my keyboard. So I am jumping in. To begin , if I may, let's define terms.
- Assignor - A person who is selling the rights to an agreement/contact. Some states have limitation on the number of contacts a person may sell without the attachment of a real estate Brokers License involved. Some state that number is Zero in California it is 8.
- Wholesaler - A person who buys low and sells low, both with constructive notice. Typically zero or little work performed to the property between the buy and resell.
- Wholetailer - A person who buys low sells at 100% "As Is" value, both with constructive notice. Typically zero or little work performed to the property between the buy and resell.
I think most people just lump all these under the term wholesaler. Most of my ethical issue is with assigning contracts, but in my experience that is what a very large percentage of those who call themselves wholesalers do. I don't have as much a problem with it when they are actually closing the sale and putting it in their own name. However, I still believe that if someone is knowingly convincing a seller that their property is worth less than it really is, while planning to turn around and profit off of that deception, then that is unethical. Wholesalers can try to justify it however they want in their own minds (or on this thread) but that isn't the same as acting with full honesty, openness and integrity.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
Originally posted by @David Hines:
Originally posted by @Pratik P.:
Originally posted by @David Hines:
Also, just because something is legal doesn't necessarily mean it is ethical. If there is an ethical wholesaler who is upfront with a seller and tells them before signing a contract that they won't be actually closing on the property and that even though they are only offering X, they really believe the property is worth Y, then I wouldn't have a problem with it.
I do not believe this happens very often if at all. What seller would agree with that after being told they could make more by marketing to buyers directly??
Comon David, do you really expect the buyer to say "hey I know I'm offering X, but I think market value is Y"?? Is the buyer supposed to represent the seller or something? You have this notion that the buyer has to inform the seller of market value, etc. Just make your damn offer and move on!
If I paid market value for every flip/wholesale I would have lost a ton of money by now because the numbers would never work.
It's obvious you have some very strong feelings against wholesaling. Just consider that there is a right way and wrong way to do it. Just like being a broker. For example, I think it's kind of shady/unethical for brokers to have "pocket listings". They have the fiduciary duty to market their client's property for max exposure. Instead they don't list it and take it to their buddy buyers for the full commission?? Maybe I'm missing something as I'm not involved in the broker world.
Damn we really beat the crap out of this dead horse huh? :D
Yes, that is exactly what I would expect of a wholesaler to consider them to have acted ethically. As I said before, this doesn't apply to a flipper or investor trying to get the best deal possible. A wholesaler is different because they bring nothing of value to the transaction, they are just middle men trying to make a buck. All to often, the only way to make that buck is by deception. Just look at the question from the OP for a prime example...
A wholesaler does bring value to the sale (not the property). They find sellers and connect them to buyers. They create value through marketing, relationships and negotiation. This is why wholesaling is questionable in legality, because they are brokering properties without a license. The "loophole" they claim is that the double closing. Since they take ownership, they argue they are buying and reselling, but in reality they are marketing the property before they own it. They often don't have money to close without the end buyer. It is impossible to buy a property, market it and sell it on the same day. They always find the buyer prior to closing which is marketing prior to owning the property.
As far as the argument whether it is legal. Just because you do something and don't get in trouble, doesn't make it legal. In many cases nobody is complaining, so nobody gets in trouble. Most sellers are "happy" because of their own ignorance to the true value of their property. Often the wholesaler paints a picture to the seller of the property being worth less than what it is. As some have argued, this is a buying negotiation tactic. Convince them the property is worthless, then the are thankful for your low offer. That sounds fine on the surface, but sellers are led to believe the wholesaler is a fiduciary, when they are not. Every dollar the wholesaler negotiates the price down is a dollar in their pocket. By comparison a realtor makes less money when the seller gets less money.
If a wholesaler wanted to be "fair", they would cap their percentage profit at a reasonable number. Regulated industries operate this way. A bank can't issue a loan for 90% interest, even if the loan recipient is OK with the terms. The reason industries become regulated is because people are taken advantage of.
- Flipper/Rehabber · Bakersfield, CA · Member since 2008 · 3k+ posts · 3k+ votes8y
Originally posted by @David Hines:
Originally posted by @Michael Quarles:
Your comments/concerns brought my fingers to my keyboard. So I am jumping in. To begin , if I may, let's define terms.
- Assignor - A person who is selling the rights to an agreement/contact. Some states have limitation on the number of contacts a person may sell without the attachment of a real estate Brokers License involved. Some state that number is Zero in California it is 8.
- Wholesaler - A person who buys low and sells low, both with constructive notice. Typically zero or little work performed to the property between the buy and resell.
- Wholetailer - A person who buys low sells at 100% "As Is" value, both with constructive notice. Typically zero or little work performed to the property between the buy and resell.
I think most people just lump all these under the term wholesaler. Most of my ethical issue is with assigning contracts, but in my experience that is what a very large percentage of those who call themselves wholesalers do. I don't have as much a problem with it when they are actually closing the sale and putting it in their own name. However, I still believe that if someone is knowingly convincing a seller that their property is worth less than it really is, while planning to turn around and profit off of that deception, then that is unethical. Wholesalers can try to justify it however they want in their own minds (or on this thread) but that isn't the same as acting with full honesty, openness and integrity.
I agree which is why I disclose to the seller the amount of money I expect to earn and let them know it will be a HUGE amount.
APPRAISAL CONTINGENCY: This Agreement is contingent upon a written appraisal of the Property by a licensed or certified appraiser.The Buyer will order and pay for an appraisal on the property. If the appraised value is less than $__________ which is the amount quoted by The Seller as to what the house is Worth in its As Is Condition in Today’s Market, After Repair Value, the Buyer may, within three (3) calendar days of Buyer's receipt of the appraisal, at Buyer's sole option, declare this agreement null and void. Buyer is entitled to a return of all deposits, if any, less the appraisal fee and any other escrow expenses or fees chargeable to the Buyer. Thereafter,neither the Buyer, the Seller nor any brokers shall have any further rights, obligations, or liabilities under this contract.
RESELL: Seller is aware that Buyer intends on reselling the property for a HUGE PROFIT. All profits made by Buyer during this transaction relating to the reselling of the property are the sole interest of and solely owned by the Buyer.
MARKETING: Seller authorizes Buyer to market property during escrow for Buyers benefit. Marketing is defined as, but not limited to, placing the property for sale in the Real Estate Multiple Listing Service (MLS), advertising in the Newspaper or other periodical, and placing a for sale sign on the property.
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