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
- Property Manager · Allen, TX · Member since 2015 · 190 posts · 160 votes8y
Originally posted by @Dean Letfus:
"Do I think it is unethical for a wholesaler or anyone else involved in a real estate transaction to use an informational advantage to deceive a party to the transaction in order to personally gain?"
So becoming an expert in an area and learning how to buy homes through institutional channels etc is deceptive??? That doesn't even make sense. So becoming the best baker in town so you can charge a premium for your bread and cakes is dishonest? Learning to negotiate so you can give someone benefits other than top dollar is deceptive?? Never heard anything so silly, and you don't appear to be silly. So why do you have this view of a very simple buy and sell strategy? There has to be more to the story for your view to be so distorted?
"I've said it before and I'll say it again, if you cannot be 100% completely honest, open, forthright and truthful when conducting a real estate transaction, then you are being unethical! Ask yourself if you ever have to be concerned about whether the party you are dealing with is gonna go through with the transaction after they know how much you make on the deal or what the assignment fee is or what the property is worth. If any of that raises a concern, then you are not acting ethically."
This is also patent rubbish. You would be stupid to not be concerned about such things, so many buyers are dishonest, fail to complete and looking to take advantage. I can only assume either
A: Wholesalers are your competition and they out perform you or
B: You have been very badly burned personally.
Either way you attacking a whole industry is without foundation.
First of all, I have been very careful in my posts to use terms like "most" and "it seems to me" and "given my experience" and "based on my experiences". I never intended to attack a whole industry, just look through my posts praising wholesalers who can do it honestly. But how can you protect an entire industry just because you're in it? To use your terminology, that is just silly...
You also make assumptions about me and my experience, based on precisely nothing. Full disclosure, I'm a real estate broker, but I don't do many transactions, I mostly have the license to deal with my own properties as an investor. I am a stay at home father and own a retail business with my wife as well. I post on BP because I enjoy it. Through my experiences and interactions with investors and wholesalers and seeing the way wholesalers present themselves to the public (me included), I have formed the opinions that I've outlined in this thread. I haven't been burned by anyone and I don't compete with wholesalers. It seems that everything you think you know about me from some online comments is wrong. You are the one making assumptions and trying to stand up for an entire industry, I am only attacking (what seems to me to be) the very high percentage of wholesalers who are unethical. If that doesn't apply to you, congratulations, you officially have a pat on the back from me for meeting the minimum standards of real estate investment...
- Flipper/Rehabber · Bakersfield, CA · Member since 2008 · 3k+ posts · 3k+ votes8y
To each of you who disagree with and who I may disagree with you may count on a couple things from me.
1- if You are in physical danger and I can cause that to stop I would do so. I will run towards your bullet. We can banter about real estate however I’m very blind and believe you as a person matter, as an American matter more.
2- if you need help with seeing a deal from an alternative perspective I’ll invite that conversation. I won’t get butt hurt nor will I ridicule you. Your success is more important, done ethically, than my opinion. You live yours and I live mine.
Here is what we both are UNITED. We are Americans first.
I hope we don’t forget the value of helping a stranger and offering an alternative opinion.
Life is way too short to get so frustrated.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @David Hines:
Originally posted by @Dean Letfus:
"Do I think it is unethical for a wholesaler or anyone else involved in a real estate transaction to use an informational advantage to deceive a party to the transaction in order to personally gain?"
So becoming an expert in an area and learning how to buy homes through institutional channels etc is deceptive??? That doesn't even make sense. So becoming the best baker in town so you can charge a premium for your bread and cakes is dishonest? Learning to negotiate so you can give someone benefits other than top dollar is deceptive?? Never heard anything so silly, and you don't appear to be silly. So why do you have this view of a very simple buy and sell strategy? There has to be more to the story for your view to be so distorted?
"I've said it before and I'll say it again, if you cannot be 100% completely honest, open, forthright and truthful when conducting a real estate transaction, then you are being unethical! Ask yourself if you ever have to be concerned about whether the party you are dealing with is gonna go through with the transaction after they know how much you make on the deal or what the assignment fee is or what the property is worth. If any of that raises a concern, then you are not acting ethically."
This is also patent rubbish. You would be stupid to not be concerned about such things, so many buyers are dishonest, fail to complete and looking to take advantage. I can only assume either
A: Wholesalers are your competition and they out perform you or
B: You have been very badly burned personally.
Either way you attacking a whole industry is without foundation.
First of all, I have been very careful in my posts to use terms like "most" and "it seems to me" and "given my experience" and "based on my experiences". I never intended to attack a whole industry, just look through my posts praising wholesalers who can do it honestly. But how can you protect an entire industry just because you're in it? To use your terminology, that is just silly...
You also make assumptions about me and my experience, based on precisely nothing. Full disclosure, I'm a real estate broker, but I don't do many transactions, I mostly have the license to deal with my own properties as an investor. I am a stay at home father and own a retail business with my wife as well. I post on BP because I enjoy it. Through my experiences and interactions with investors and wholesalers and seeing the way wholesalers present themselves to the public (me included), I have formed the opinions that I've outlined in this thread. I haven't been burned by anyone and I don't compete with wholesalers. It seems that everything you think you know about me from some online comments is wrong. You are the one making assumptions and trying to stand up for an entire industry, I am only attacking (what seems to me to be) the very high percentage of wholesalers who are unethical. If that doesn't apply to you, congratulations, you officially have a pat on the back from me for meeting the minimum standards of real estate investment...
keep in mind in your state there are companies that are licensed real estate brokers who wholesale like mad.. networth and some other one.. but boy you have to be careful of them.. what i have seen its really buyer beware. Its quite acute where you live.. not sure why that is I get it in Houston with all the flooded homes that had no insurance .. etc.
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes8y
@David Hines, it's all good mate. And now that Jay has defined "wholesaler" as someone who tries to sell homes he hasn't or isn't able to buy I have to say I hardly know any of those. And I certainly am not one. Anybody buying homes who can't write the check is lacking in education to say the least.
- Specialist · Tulare, CA · Member since 2014 · 71 posts · 48 votes8y
Originally posted by @Jay Hinrichs:
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??
How do we think this presentation would go to a seller IE full disclosure.
HI mr. seller I am Jay.. I have no ability to close this deal on my own as I don't have enough money to buy it.
However I do have buyers that will buy highly distressed assets.. but there needs to be enough margin in it for them and then enough for me to make a profit..
although I might tell you I may keep it or its subject to my partner ( who does not exist) approval.. the reality is I am just trying to make a middle man fee.
So yes your house is worth 200k but for my buyer to buy it they need it for 160k and I need to make 10k profit.. so we can solve your problem for the purchase price of 150k.. or you can list it with a broker in this uber hot market for say 190k and expect multiple offers.
which would you prefer to do .
now you do have some weirdos out there that are afraid of realtors for whatever reason.. and for sure you have hoarder houses.
and so on and so forth.. but if the facts were laid out as to exactly how 99% of wholesalers work I would think most people would realize this is not in their best interest.. but some even with all the facts may do that..
for sure the rougher the house the more motivated.. and less likely to work with the RE community.
99%
1% "so you you're telling me there's a chance" lol.. sorry had to.
Read all comments up to this point, very interesting...
I think if you give all parties the option up front, with volunteered disclosure of the deal on all ends... Why can't this transaction be viewed as respectable/ethical?
- Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes8y
Originally posted by @Dean Letfus:
@David Hines, it's all good mate. And now that Jay has defined "wholesaler" as someone who tries to sell homes he hasn't or isn't able to buy I have to say I hardly know any of those. And I certainly am not one. Anybody buying homes who can't write the check is lacking in education to say the least.
A wholesaler is somebody that assigns their interest in a pending transaction before it closes. Nothing wrong with this -- as long as you CAN close, and plan to do so, barring the unexcepted. I suspect most out there cannot, and I know a few that do this. In fact, I some folks that actually teach people how to do this.
I also like the idea of doing a wholetail deal that @Michael Quarlesdescribes in one of his posts. I have heard several podcast interviews where investors use this as a primary strategy (although it is a goofy name for it). I like the thought of adding at least some value to the project, after having actually closed on it and purchased it, before offloading it. Might just be foundation work, or roof repair, or a new AC unit, or whatever. Yes you use up your reserves quick that way, but if you turn them quickly enough, that's OK. You can still generate cash flow, and you have more time to show it to partners and fellow investors.
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes8y
@Mark Sewell, that is what it has come to mean but technically a wholesaler is anybody who buys anything at the lowest possible rate and then sells it at a profit but below retail price. At some point someone decided that you were only a wholesaler if you assigned your interest without closing. I always read a hint of self justification in the wholetailing tagline. I mean of course adding value and then selling is great but if you can learn to buy homes at discounted prices and sell them as is and make a profit that is the easiest and best strategy. No contractors no hassles. Just close on it then resell it. I have done hundreds of these in 3 countries. I would rather use my skills in acquisition than have to manage contracting, which in Memphis is a complete nightmare! I can do a lot more deals as it is infinitely scaleable and can therefore be very flexible on margins.
- Real Estate Entrepreneur / Investor · Chicago, IL · Member since 2016 · 688 posts · 367 votes8y
IMO, it comes down to if the seller feels like your screwing them out of how much they can really get for their propety. Also, it depends on if the buyer is actually getting a deal on the wholesale deal. The reason why some wholesalers get in trouble is because they try to hide things and get nervous about things. Im very confident in my deals for the most part. I run the numbers for the potential buyer so I know what ROI or CoC return your getting. I also, ask them what percentage and dollar amount they are looking for. So, when they tell me that and I give them a deal based on what they told me.....It should not matter what Im making. If I make 50k, 15k or 5k or 2.5k because the buyer is still getting a helluva deal and what they wanted. I also make sure the seller can get what they want as well(if the place doesnt need a ton of rehab and the comps come back ok) as long as your numbers make sense it should not matter what your making because your serving your buyer what they want. In my experience, its been very difficult in the midwest to make anything above 10k on each deal due to a lot of the houses I come across needing so much rehab and also based on the comps. There needs to be a market correction.
In summery: Wholesalers get in trouble for not running their numbers. Run your numbers correctly and if you need to lower your profit to satisfy your buyer(customer) then you should in order to be thinking long term. This is still a business and should be operated like one. Think long term.
- Houston, TX · Member since 2017 · 33 posts · 16 votes8y
Disclosure: I'm an investor and "wholesale" properties!
I was shocked how a simple question started a heated thread... but here is my view:
Lying to any party is shady let's get that out of the way! but as an investor my job is not to run comps for a seller and I NEVER force anyone to sign a contract. In fact, I read the contract point by point to them and explain the details including the fact that I have the right to assign this contract for portion of the profit. I also advise them to consult a RE agent because I'm not one! There is simply nothing to hide! I do disclose that I'm making a profit... that's what I do. I can't speak for other people (wholesalers or not) but fully explaining your position to both sellers and buyers is a must! That's the rule to do business!
For those who say wholesaler do not provide any value:
From the buyer/investor side: As a newbie investor I looked at MLS for months and did not find a single deal that made any sense and all of them said something along the lines of: "investor friendly" or "HUGE Equity" etc I guess those agents are shady too because a simple calc tell them that ain't no deal! But I have found real deals through wholesalers and guess what they call me with their deals! sure 80% are trash but the other 20% are good deals! From my point of view as an investor that's a good deal for both of us... I didn't have to spend time or money marketing and dealing with people and the wholesaler makes $. for the most part I don't give a crap how much the wholesaler makes. I ALWAYS do my own due diligence though! I do not expect wholesalers to do due diligence and frankly I don't trust it anyway (I do a full due diligence on my own deals when wholesaling but also inform the buyer to do their own!) The stuff that yall are pissed about seems to be from the guru trainees and not the legitimate wholesalers.
Now from the seller side: I get their property sold that an average agent has no chance to! I also do it often faster and without any hassle it's up to them to do business with me. A lot of times I wholesale properties from other investors who know EVERY SINGLE DETAIL and still do business with me because I provide them value -Again I can't speak for others this is just my experience- When I'm talking to a buyer I tell them all of my intentions and give them some advise to help them make a decision. If I'm in a buying mode (being the usual investor) I go through the property and figure out the repair cost and let them know how much I can pay for it and also let them know what I'm planning to sell the house for when I fixed it up (I try to sell lower than 100% ARV to sell fast) NOTE that I don not give advice on their ARV in fact I tell them to seek advice from a RE agent for that (yes I do tell them, I learned that from @Michael Quarles). I do my own ARV analysis which is probably different from agents. If they don't like my offer they can walk away if they like it then sweet let's do it! If your ethics says that's shady well I guess our ethics standards are different!.... When I'm in wholesale mode I pretty much do the same thing except that I tell them that I'm most likely going to assign the deal to someone else for a portion of the profit! I also tell them that the property HAS to pass my and my assignee due diligence. Note that even in wholesale mode I have the ability to close if everything on the property checks out!
Final note: When I find a deal myself I expect my profits to be more than when I get it from the wholesaler... why? because I busted my behind to find the deal myself and if someone gives one to me and asks for 5-10k of the profit I'd be a fool if I say no (given the deal is a deal). In the end, my offer to the seller either as a wholesaler or an investor is the same... the deal finding process get a piece of the profit (say 20%) and the fixing/risk/etc gets the rest now it's up to you if you want to do all the work or outsource parts of it.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Dean Letfus:
@Mark Sewell, that is what it has come to mean but technically a wholesaler is anybody who buys anything at the lowest possible rate and then sells it at a profit but below retail price. At some point someone decided that you were only a wholesaler if you assigned your interest without closing. I always read a hint of self justification in the wholetailing tagline. I mean of course adding value and then selling is great but if you can learn to buy homes at discounted prices and sell them as is and make a profit that is the easiest and best strategy. No contractors no hassles. Just close on it then resell it. I have done hundreds of these in 3 countries. I would rather use my skills in acquisition than have to manage contracting, which in Memphis is a complete nightmare! I can do a lot more deals as it is infinitely scaleable and can therefore be very flexible on margins.
dean you should comment on the remote rehab threads that are going around on BP... Idea someone with ZERO experience can to build there dream team and set up in some cash flow market and cut out the middle man and then do the BRRR strategy.. I am of the mind that there is nothing riskier for the average BP beginner than doing this. And of course not many agree with me.. since the guy wrote a book on it and says it can be done.. of course it can .. but at what risk
- Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes8y
Originally posted by @David Hines:
Originally posted by @Michael Le:
It seems like the arguments against wholesaling jumps around.
You don't like that wholesalers are not offering full market value for a house. Buying anything below FMV is scamming the owners.
Oh but you have the funds to close? If you can close then it's okay if you buy for 70% ARV and get it under title. Somehow you were scum for buying it $40k under market previously but if you can close then you're good again.
So let met think, if it's okay to buy it cheap then what else do I hate about you? Oh I know, you don't put enough earnest money down. And you don't have a license. And you're only in it for the money and not building long lasting personal relationships.
It only seems like the arguments are jumping around because you don't seem to have a full grasp of what I'm saying. Do I expect everyone to pay full market value for a property? No, absolutely not. Do I think it is unethical for a wholesaler or anyone else involved in a real estate transaction to use an informational advantage to deceive a party to the transaction in order to personally gain? Yes, absolutely YES! Unfortunately, this is the business model that a large percentage of wholesalers tend to follow.
I've said it before and I'll say it again, if you cannot be 100% completely honest, open, forthright and truthful when conducting a real estate transaction, then you are being unethical! Ask yourself if you ever have to be concerned about whether the party you are dealing with is gonna go through with the transaction after they know how much you make on the deal or what the assignment fee is or what the property is worth. If any of that raises a concern, then you are not acting ethically.
So you tell sellers at closing that you could have paid more? Otherwise you're not being 100% honest, open, forthright and truthful.
I do far more work as a wholesaler in a transaction than I do when I act as a real estate agent and often make far more acting as an agent. Now, it could be different in other states, but at least in Ohio the Division of Real Estate will bring enforcement actions against unlicensed people if they believe they're doing things that require a license. I've had several long conversations with various people in the Division and we're comfortable that our activities fall within the law.Ethics are subjective. The law rarely is. I'll go by the law saying I'm legal over your ethical questions.
- Houston, TX · Member since 2017 · 33 posts · 16 votes8y
@Sean Cole I think law is less of a question here. Although some wholesalers act illegally by acting as a broker without license the wholesaling process is lawful (in most states at least). The argument is about ethics and I think as long as people are transparent it fall within the ethics "rules" (or at least my rules). And yes ethics are subjective.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @JDee Moore:
Originally posted by @Jay Hinrichs:
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??
How do we think this presentation would go to a seller IE full disclosure.
HI mr. seller I am Jay.. I have no ability to close this deal on my own as I don't have enough money to buy it.
However I do have buyers that will buy highly distressed assets.. but there needs to be enough margin in it for them and then enough for me to make a profit..
although I might tell you I may keep it or its subject to my partner ( who does not exist) approval.. the reality is I am just trying to make a middle man fee.
So yes your house is worth 200k but for my buyer to buy it they need it for 160k and I need to make 10k profit.. so we can solve your problem for the purchase price of 150k.. or you can list it with a broker in this uber hot market for say 190k and expect multiple offers.
which would you prefer to do .
now you do have some weirdos out there that are afraid of realtors for whatever reason.. and for sure you have hoarder houses.
and so on and so forth.. but if the facts were laid out as to exactly how 99% of wholesalers work I would think most people would realize this is not in their best interest.. but some even with all the facts may do that..
for sure the rougher the house the more motivated.. and less likely to work with the RE community.
99%
1% "so you you're telling me there's a chance" lol.. sorry had to.
Read all comments up to this point, very interesting...
I think if you give all parties the option up front, with volunteered disclosure of the deal on all ends... Why can't this transaction be viewed as respectable/ethical?
good one Lloyd :)
- Member since 2018 · 3 posts · 1 vote8y
dean, do you see any 100+ low rise, C condition - I am your man. Will jv if you prefer
- Investor · Silverdale, WA · Member since 2017 · 121 posts · 27 votes8y
Interesting enough, we are finding that some hard money lenders will not fund a deal we are wholesaling unless the wholesale fee is only a max of 10% of the purchase price. It most cases that works fine, but if its a hot deal, then the investor/buyer would pay anything above it out of their own pocket. Its a new spin for us.
This has been quite a thread. A lot of great comments-bottom line-If you are running an honest business with disclosures on both sides, wholesaling or not, you will get repeat business and be able to help people who, for reason of a life problem or house problem, can't sell on the MLS. We provide a service that does have value as we walk many of our sellers through a difficult situation. We have many testimonials to prove people are happy and have benefited from what we did. We wholesale, fix and flip, owner finance....we offer solutions to people who didn't think they had any option. And I am proud to say the company I am part of does all that. Its the only way I would ever do business.
- 8yMatthew Irish-JonesBusiness MemberReal Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
@Jay Hinrichs I could not agree more.
In my opinion the BRRRR strategy has more moving parts than most other strategies, has far more that can go wrong, and is not a good way to figure out if you have the right team in place or not. Once you get the the second "R" and find out there is some sort of major complication in the project you can be set back years if it is your first investment. On top of all of that if you are an out of state investor you are now skeptical of the entire situation and everyone involved.
The strategy can work but, I certainly would not advise it to anyone for a first time investment.
Irish Jones Realty4.947 Reviews - 8yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Sean Cole:
Originally posted by @David Hines:
Originally posted by @Michael Le:
It seems like the arguments against wholesaling jumps around.
You don't like that wholesalers are not offering full market value for a house. Buying anything below FMV is scamming the owners.
Oh but you have the funds to close? If you can close then it's okay if you buy for 70% ARV and get it under title. Somehow you were scum for buying it $40k under market previously but if you can close then you're good again.
So let met think, if it's okay to buy it cheap then what else do I hate about you? Oh I know, you don't put enough earnest money down. And you don't have a license. And you're only in it for the money and not building long lasting personal relationships.
It only seems like the arguments are jumping around because you don't seem to have a full grasp of what I'm saying. Do I expect everyone to pay full market value for a property? No, absolutely not. Do I think it is unethical for a wholesaler or anyone else involved in a real estate transaction to use an informational advantage to deceive a party to the transaction in order to personally gain? Yes, absolutely YES! Unfortunately, this is the business model that a large percentage of wholesalers tend to follow.
I've said it before and I'll say it again, if you cannot be 100% completely honest, open, forthright and truthful when conducting a real estate transaction, then you are being unethical! Ask yourself if you ever have to be concerned about whether the party you are dealing with is gonna go through with the transaction after they know how much you make on the deal or what the assignment fee is or what the property is worth. If any of that raises a concern, then you are not acting ethically.
So you tell sellers at closing that you could have paid more? Otherwise you're not being 100% honest, open, forthright and truthful.
I do far more work as a wholesaler in a transaction than I do when I act as a real estate agent and often make far more acting as an agent. Now, it could be different in other states, but at least in Ohio the Division of Real Estate will bring enforcement actions against unlicensed people if they believe they're doing things that require a license. I've had several long conversations with various people in the Division and we're comfortable that our activities fall within the law.Ethics are subjective. The law rarely is. I'll go by the law saying I'm legal over your ethical questions.
I skimmed through this thread starting last night and came back to it today. Some of this is amusing and shows a lack of knowledge or even willful ignorance to even consider how deals come together. I chose your post Sean mostly because I agree with your postings.
To say that a seller has never been taken advantage of, whether it be an individual who is going to sell the property for quick profit or a licensed professional wanting to list it, is naive. To even insinuate that licensing and the MLS protect sellers and buyers and create level playing fields is pretty naive as well, in my opinion. People are people and unless there is something nefarious going on that has nothing to do with the real estate profession, rarely are sellers forced to sell their property. It is their choice to sell.
As far as wholesaling is concerned, most I know spends thousands of dollars monthly on response marketing. They are canvassing neighborhoods, skip-tracing out of state owners of run down properties, sending mailers and doing the one thing that makes them better than most agents I have met...they are answering their phones and responding to sellers quickly.
Our company has purchased thousands of homes now in multiple cities across the country from wholesalers. Some have sold us hundreds of homes and others we've chosen not to work with after a few deals. A few haven't made it past one sale.
As far as assignment fees and double closings, for the most part we couldn't care-less what they make. We don't do a lot of assignments and won't do one without seeing the contract we are buying, but as far as what they make it doesn't matter for the deal. We have a formula that we use when we purchase properties for our company. If the sale price fits our formula, then we are a buyer. We could be short sighted and try to limit what others are going to make on a deal, but that seems very self-limiting. Why would we choose not to make a profitable deal just because someone else is making more profit than we think they should make?
Now, it is also short-sighted when a wholesaler chooses to make $30,000 to $40,000 on a single transaction which has happened. We are buying between 80 and 90 properties a month through the first 5 months this year and most wholesalers we are working with understand that longevity is more important than one big score. But, is it there fault that they were able to buy a property at a price good enough to make that kind of profit?
Most wholesalers I know are working hard, with large marketing budgets and they answer their phones. They are being called by sellers. Understand what that means. The seller could call a real estate agent. But they either don't trust them, don't have the time to wait or more likely, they have a house that is in need of some attention. Have you ever seen an agent advertise that they specialize in listing old, ugly and in-need-of-some-work houses? No, me neither. They want to sell beautiful, well-kept, slightly under-market priced homes. The easy, low hanging fruit.
So home owners turn to the person who says I will give you an offer, you are not forced to accept it, but it will be my offer and I will close on it. The best in the business act professional, make same day appointments, arrive on time, act courteous to the home owner and make offers. The home owner is always in control and responding to an offer. I'm not sure how anyone can have a problem with a transaction laid out like that.
Our company buys a percentage of homes directly from sellers using this same direct response strategy.
As far as the rest of the debate about ethics and who is good and bad, I tend to agree with @Dean Letfus. We could get involved in a philosophical debate about human behavior and ask why there are bad people in every profession, but wholesalers who purchase a property at a price that makes sense for them and one that they can make a profit is neither unethical nor illegal. A home owner selling their property to someone they chose to call and accepting an offer that they are happy to receive, regardless of open market value, is neither unethical nor illegal.
- Flipper · Friendswood, TX · Member since 2017 · 400 posts · 368 votes8y
Lots of talk and debate of the fact:
Nothing wrong with people doing what is best for themselves as long as they are honest about it to others whom they may or may not benefit.
Most "wholesellers" are just newbs who followed the cliche, and another big bunch is people who found out most "investors" are just newbs w/out the time to wholesale, or think they are past that and as a result won't know or try to know if its a deal.
But, I have bought more deals from "wholesellers" than a realtor. Realtors are people, and people don't really find honor in doing what their title says as you may think.
Anyway, yea. Everyone can do things right or wrong and that individual doesn't speak for all with that title; but can tarnish the image of the industry.
- Member since 2018 · 5 posts · 0 votes8y
Tell them, they should know it when running their numbers, also they'll find out later on anyway. Most investors won't care as long as it a good deal. If the property fits their needs, or the way in which they do real-estate it shouldn't matter. If they feel like you assignment fee is too high, don't do business with them.
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes8y
@Jay Hinrichs, in particular I think remote rehabbing would be the fastest way to lose money for a beginner, other than piling up cash in the back yard and setting it on fire :-). As you know Jay we were in 3 cities initially and just trying to find an attorney you could trust was difficult, let alone rehab crews. We've been lied to and stolen from by attorneys, property managers, general contractors and HOA companies. That side of this business is a minefield.
We pulled out of 2 cities as trying to manage 1 was hard enough. And I moved there for a year to try and find some decent people.
Anyway this is a great discussion.
@Chris Clothier, I am genuinely surprised that anybody on here can find fault with a wholesaling model and single it out as some sort of evil. Is capitalism dead in America?
- Cleveland, OH · Member since 2018 · 133 posts · 59 votes8yI would say it’s just like a realtor having a commission, no one works for free. This is my fee and I hope we can do business together.
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes8y
I wonder if this divide comes from the realtor/investor who as a realtor has an obligation usually to serve the best interests of the seller and a straight investor who has an obligation to maximise the returns for his shareholders, typically himself.
So one will tend to fall into the "should look after the seller" category and the other doesn't even consider that.
I also wonder if we are confusing ethics and integrity. Ethics is hugely subjective and as an argument becomes pointless. Is it ethical to buy at a discount? Well it depends etc.
But have I acted with integrity in this deal that's a simpler question I believe. I have made an unconditional offer for your property and you have accepted it. I have offered you my best price and terms and you have accepted. I will close when I said I would and you will get your money. Have I acted with integrity, hell yeah, more than most buyers. I probably paid your asking price or maybe more. I have dealt faithfully with you and with myself.
- Wholesaler · Waldorf, MD · Member since 2015 · 459 posts · 245 votes8y
@David Hines, I disagree with your premise slightly. A good wholesaler/assigner doesn't have to deceive or lie. Unfortunately, what many wholesalers do is try to get contracts from sellers that aren't TRULY MOTIVATED!!! A motivated seller is NOT concerned with the how much their house could sell for!! They have a situation that needs resolved fairly quickly.
I always ask the seller" why are you selling" & "WHY DON'T YOU USE A REALTOR?" I let them know that as an investor I WON'T be giving you the best price. They always understand that. I've had numerous sellers tell me - "I don't want to use a Realtor!" or "I've tried and it was taking to long to sell".
Before I even see a property they fully understand that I will not be offering what their house "might" be able to fetch on the market. Now if the house is in fairly good condition, then I will offer some type of terms to the seller.
- Rental Property Investor · Memphis, TN · Member since 2017 · 155 posts · 151 votes8y
I'm a bit surprised by the distaste of wholesalers in general on this thread.
To the answer the original OP, my assignment fee is usually disclosed once I send my Assignment Contract to be signed which outlines my fee along with the original executed Purchase Agreement. As stated in this thread, the assignment fee will be on the ALTA, and if the buyer does not approve the closing statement, then it does not close.
Most buyers I deal with do not care how much the assignment fee is if the numbers work. However, if the buyer is asking for $5k less than what your price is and you decline, I could understand some hesitance on working with you again if at closing they see you are making a $25k assignment.Although I do invest myself, I have several positive reviews from both buyers and testimonials from sellers I've worked with. However, I can understand how some investors may have a bad rap with wholesalers because I would imagine for every 1 ethical wholesaler, there are 10 unethical ones as well.
As @Chris Clothier stated, wholesalers spend countless dollars along with man hours to create these deals for investors. Chris made a good point that unlike most realtors who wait for listings, wholesalers are constantly talking to sellers and if we don't respond fast enough, we may lose the deal. The work doesn't stop there, either. I've been in many situations where I had to re-negotiate with the seller the day of closing because the mortgage payoff was higher than expected, or because they needed additional days to move out. I've had to connect sellers with my agent to find a new home, we've even moved furniture out for a seller.
Wholesalers offer several services that, for whatever reason, a realtor can't provide them. I recently assigned the contract for a $290k home outside of Memphis that was contracted at $185k and assigned for a total of $195k. This lead came thru our website and I called the seller immediately. He specifically did not want to work with an agent as he wanted to move as soon as possible and did not want to deal with showings where he would have to leave the house in order for it to be shown to a potential buyer. He also did not want to deal with potential mortgage backed buyers not being able to close 30-45 days into the contract.
In my opinion, the general "teaching" of wholesaling needs to be revised. I use to tell sellers I'm going to buy their house with cash and close in 7-10 days. This would put me in a time crunch and upset sellers if I didn't perform in the time frame given. I will still approach in this method, but only if the buyer I am dealing with has agreed upfront to a certain price I can make my offer based around, or if I have the cash myself to close with.
Wholesalers, in my opinion, should be explaining thoroughly to sellers what they intend to do, which is present the deal to their network of cash buyers. In the event of not being able to find a buyer, there is less chance of an upset seller when you need to walk away.
I've worked with both wholesalers that I couldn't stand as well as realtors that seemed more clueless about real estate than the seller. Although I work with some very successful agents, there are several out there who seem to be self entitled and "know it alls" because they took a 2 day course.We, as in wholesalers, agents, investors, flippers, are in the business of making money. We're not here looking to move into a new home. You never know what situation a seller is going thru that they are willing to accept 50% of what their home is worth. If you feel that it is unethical, then don't buy the deal, but there will always be someone waiting to snag it out from under you!
- Member since 2018 · 2 posts · 2 votes8y
I buy from wholesalers all the time in the State of Michigan and I feel that there are legitimate ways to structure deals in the same breath are there unethical wholesalers of course are there unethical real estate agents and brokers of course but to say the industry of wholesaling is centered around ripping off sellers is inaccurate and wrong because in reality realtors in today's society are not to much more a middle man or woman that collect a fee for selling a home that you can sell all alone if a wholseller does his or her due diligence to find a deal and assigns their position within the contract to another investor where is the issue in that ? For as long as the seller feel comfortable with what amount they are receiving So to say a individual should list through the MLS and if the wholesaler doesn't advise the seller of the this path or option it's a rip off is like saying when a real estate agent sells a property not telling the seller that due to the market being strong you could sell your own home online and cut out all realtor related fees is a scam also lol in short it's an opinion who's to say the right and best way is a realtor or a wholesaler or selling the home yourself and correct me if I'm wrong but 95% of properties I invest in I negotiate the AP So it's almost as if we as investors are frowning upon a business that negotiates deals as long as it's ethical I could never have a issue with that practice
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