Buyers asking about my assignment fee?
Cincinnati, OH · Member since 2013 · 90 posts · 89 votes
Do you tell your buyers your assignment fee before closing? I have friends who have been asked by potential buyers what their assignment fee will be even before they sign any contract. I really do not feel you should have to up front. Yes they will find out in closing or if you do a double then about a month or so later on. Thoughts?
So would if a flipper/seller/agent that sold a property to a buyer for $100,000k above market value, would they be considered the same as a wholesaler in that situation? Selling a property for more than they know its worth? Some buyers don't know they overpaid for a property.
Also, take the wholesaler out of it.
If a flipper finds a owner willing to sell & The flipper knows the property is worth 100k AS IS, you mean to tell me he/she isn't going to try and get that property for 50 or 60k?
I feel like a lot of ppl are just mad they aren't finding those deals.
If I'm not lying about what I'm doing, my buyer and seller are both happy with the deal, what's the issue?
I'm sorry I refuse to believe some of you all that dislike whoelsalers, would pass up the opportunity to get a house at 40k when you know its worth 100k as is. Would you be scammers and what not for lowballing the seller?
I don't dislike wholesalers.
I dislike unethical business practices.
There is a difference in low-balling a seller who is represented by an agent with a fiduciary duty to represent their interests and who is obligated to obtain the best possible price for the seller's property and buying a property from someone who may (or may not) have made one or more misrepresentations to a possibly poorly informed seller regarding a properties' value, the wholesaler's willingness and ability to close, and the marketing ability of the wholesaler-- keeping in mind that is is illegal in Ohio for the wholesaler to market a property that they don't own without a license.
I focus on multi-family and It does seem 'safer' to buy multi-family properties from a wholesaler, when most of the time the owner is an investor who presumably knows how to value the property. But with one (wholesaler) exception, I rarely see anything worth buying from wholesalers-- most are trying to unload overpriced slums.
Guess I'm not on the right lists. Oh well-- at least I'm in Ohio where I can still find more cash flowing deals than I have money to buy.
I don't know if it's unethical, I just know how I'm attempting to do it.
I'm licensed, that's disclosed in any offer I make, and the people I'm dealing with not only know this but prefer to sell off market, easily, for cash, AS-IS. There are certain issues with the properties we are solving.
To the original question on the thread, it's ridiculous. Of course the buyer knows what your assignment fee is, if you're assigning a contract, it's the contract he's buying. He'll want to review it carefully before he signs an assignment. Your fee shouldn't be outrageous relative to the service offered. What you can offer is a number that is fair to the seller and you still can run a business on.
The offer to purchase we just assigned and closes in two weeks has been reviewed by the sellers (an old German elderly couple who I adore), their kids, and an attorney who unfortunately knows nothing about real estate and is probably a waste of money. In this case I expressly wanted their kids to be involved. Property has a few not crazy but significant enough items that lending could be a problem (old fuse box, garage structural issue that paying retail could make a bit costly, and a roof). I made two offers, one land contract they could've cleared significantly more money on, and the other, somewhat lower offer, cash. Both offers have a post closing lease back to the couple at reduced rent.
@Jay Hinrichs Where's the rub? I read these threads on occasion and end up feeling like I'm doing something shady but I don't think so. As you pointed out, I think the problem with this particular niche ends up being the total lack of professionalism, lack of transparency, and just overall idiocy of the parties trying to carry it out.
But as someone else pointed out, I'm not sure agents selling homes at retail pricing with all sorts of issues just so buyers can get a home in this market are doing anything better. It's not like agents are really any more conscionable than a wholesaler just because they have a license, or that mortgage lenders actually care about the real financial positioning of the buyer when they encourage people to stretch on loan amounts or maximum DTI ratios.
Supply and demand, seems like either buyers or sellers always have to be losing.
Again we all see value in different things. But resorting to name calling doesnt change a person's mind. If I choose to deal with a wholesaler, that is my choice. If the numbers meet my criteria, I and I said I dont worry about what they make. Again it's my opinion. But happy investing everyone.
1. Be Honest
2. Learn Values
3. Deliver tons of equity to prospective buyers
4. Spend time in front of sellers (not debating “What If’s” on hypothetical deals on the internet)
5. Rinse and repeat
Make It Happen...
NONE of your business, Or if they press, and say hey thats to much, Do I look in your pocket you are happy with the numbers so who cares if I am making 1 mill,,,, I provide a service, or you can go find your own deals,
@Paul Rogert the PP you provide the buyer includes the fee, so no you do not have to tell them . If they complain when they find out, tell them do not look in my pocket you are happy with the numbers so ..
Disclose, brother!
If you're assigning contracts to anyone, they should be made aware of your purchase price the moment they sign the assignment. Not necessarily by you, but by the contracts themselves.
When we purchase assignments from wholesalers, we ask for the assignment page - that usually discloses the assignment fee - and the contract that the wholesaler has with the current owner. We do this not to uncover the original purchase price, but to discover what exactly is being assigned to us.
Think about it: if there are stipulations in your contract that aren't disclosed in the assignment, how do I know what I'm agreeing to?
Aside from that, it's just good business practice to disclose as much as you can to all parties. Plenty of homeowners are okay with you making money on an assignment if you can actually get them a quick, smooth close. Everyone's situation is different, and sometime owners value convenience and time over money.
Lastly, it's better that your buyer know the assignment fee 15 DAYS prior to closing rather than 15 MINUTES prior to closing. You never want to put yourself in a pinch on close day.
If you're wholesaling correctly, buyers should not care about your fee because they should feel good about getting a solid deal that they put zero effort into finding. I know first hand how tough it is to find a great, off-market deal. Your $10k assignment fee could come as a result of the last 3 months of work. That's only a little over $3k per month for all your work!
Frankly, if your buyers aren't comfortable with you making money for all the effort it took to find the deal, then don't send them deals. However, a relationship in which there is full disclosure is the best relationship. If you can provide good deals with ethics and manage to make some money yourself, you'll be around a very long time because good wholesalers, despite some of the other opinions above, create tremendous value for investors if it's done right.
When assigning, our contract always discloses the purchase price and the release & termination fee. We also provide a copy of the original P&S agreement, since that is technically what an investor is buying from us. The seller is always aware that the right to purchase the property may be assigned to another buyer/investor. Full disclosure is the name of the game. When sellers are truly motivated, they are rarely concerned with how much we wake on the deal. The buyers we work with also understand that if the numbers work for them, our fee in inconsequential.
A wholesaler will never win on price. Period. That is always shared with my sellers.
Depending on the property and seller, I have a realtor run ARV comps to show the seller or tell them my estimated ARV and how I came to that number. I discuss the #s for repair estimates. I offer hard money and private money lenders and discuss how they work - in case the seller is interested in flipping the property themselves. I have Realtors I recommend if price is important and they want to list on MLS. Also, I discuss lease options with them, if price is important and they are willing to carry the note/rent out their property, etc.. I run through their options to make sure that's not a better fit for them.
Wholesaling provides time and and convenience to the seller, NOT the highest price. Every seller I have spoken to understands this. However, I certainly cannot speak for how any other wholesaler conducts themselves.
A wholesaler will never win on price. Period. That is always shared with my sellers.
Depending on the property and seller, I have a realtor run ARV comps to show the seller or tell them my estimated ARV and how I came to that number. I discuss the #s for repair estimates. I offer hard money and private money lenders and discuss how they work - in case the seller is interested in flipping the property themselves. I have Realtors I recommend if price is important and they want to list on MLS. Also, I discuss lease options with them, if price is important and they are willing to carry the note/rent out their property, etc.. I run through their options to make sure that's not a better fit for them.
Wholesaling provides time and and convenience to the seller, NOT the highest price. Every seller I have spoken to understands this. However, I certainly cannot speak for how any other wholesaler conducts themselves.
This seems like a good way to go about it with sellers. The question is, when treating a deal this way, how many sellers have you sat with and how how many have turned into wholesale deals? Have you met with 100 possible deals and turned 50 into wholesales, or has it been better/worse?
This sounds like you are doing wholesaling the right way and conducting your business honorably.
Unfortunately, in my experience, you are not at all representative of wholesalers. I don't believe that there are many sellers who are fully educated who value "time and convenience" at tens of thousands of dollars. The much more common scenario is the wholesaler who leads a seller to believe that their property is worth less than it really is just so they can add their assignment fee and market the property to investors.
That's an interesting scenario, this house you're buying for $1.00, did a seller approach you and they are adamant that they only want $1.00 for their house or is it more likely that you've convinced them that their property is only worth $1.00 so you can maximize the assignment fee you can make on the deal??
So would if a flipper/seller/agent that sold a property to a buyer for $100,000k above market value, would they be considered the same as a wholesaler in that situation? Selling a property for more than they know its worth? Some buyers don't know they overpaid for a property.
Also, take the wholesaler out of it.
If a flipper finds a owner willing to sell & The flipper knows the property is worth 100k AS IS, you mean to tell me he/she isn't going to try and get that property for 50 or 60k?
I feel like a lot of ppl are just mad they aren't finding those deals.
If I'm not lying about what I'm doing, my buyer and seller are both happy with the deal, what's the issue?
I'm sorry I refuse to believe some of you all that dislike whoelsalers, would pass up the opportunity to get a house at 40k when you know its worth 100k as is. Would you be scammers and what not for lowballing the seller?
It's definitely an interesting conversation. As an agent I overpriced properties on the MLS being purchased all the time. Is it unethical for those buyer's agents to let their buyers buy those properties? If the property sold for less than what it could have, does that unethical behavior now fall on the listing agent for advising their seller to accept that offer?
Also, on a website that is mostly concerned with finding properties that fit the numbers, how are all real estate investors not labeled as unethical? If a seller agrees to a low ball off of 150k for their property because that's the price that "Fits the numbers" is that investor unethical for accepting that offer? Are you stealing their equity as the investor?
When you're on the buy side you're looking to buy for as little as possible. When you're on the sell side you're looking to sell for as much as possible. No one forces anything on anyone and I think there are agents out there who do the exact same thing as wholesalers. As long as everything is disclosed properly then there is nothing wrong. No one is forcing anyone else's hand to sign these contracts.
There are plenty of people out there willing to sell for less than what they could get because of their situation. Some sellers prefer a cash offer that will close quick without having to prep the house for the MLS or having to deal with an agent.
A wholesaler will never win on price. Period. That is always shared with my sellers.
Depending on the property and seller, I have a realtor run ARV comps to show the seller or tell them my estimated ARV and how I came to that number. I discuss the #s for repair estimates. I offer hard money and private money lenders and discuss how they work - in case the seller is interested in flipping the property themselves. I have Realtors I recommend if price is important and they want to list on MLS. Also, I discuss lease options with them, if price is important and they are willing to carry the note/rent out their property, etc.. I run through their options to make sure that's not a better fit for them.
Wholesaling provides time and and convenience to the seller, NOT the highest price. Every seller I have spoken to understands this. However, I certainly cannot speak for how any other wholesaler conducts themselves.
This seems like a good way to go about it with sellers. The question is, when treating a deal this way, how many sellers have you sat with and how how many have turned into wholesale deals? Have you met with 100 possible deals and turned 50 into wholesales, or has it been better/worse?
I'll have to get back to you on the numbers - maybe in a year or so (haha), as I'm still new at this
@David Hines I noticed that you used the word "worth" in your last 2 posts. I do believe it is the Realtors/Brokers responsibility to show a homeowner what their property is "worth". An investor is looking to buy based on THEIR OWN CRITERIA!! I'm not representing a seller, nor do I tell the property owner that I am buying their property. I'm a wholesaler that does disclose what I do. I tell the MOTIVATED SELLER, that one of my investors will be buying your property. I also give them several options to choose from in order for our investors to purchase their property: wholesaler price; seller finance option; lease puchase option.
Worth is really irrelevant, since I'm not buying thier house to live in nor neither are my investors. Nor do I try to strong arm a deal. I usually get the seller to give me their price for thier property & work with that, a big thank you to @Michael Quarles for that technique.
Why not? Disclosure is a big thing in real estate! Agents are required to disclose commission as well as any interest in the property! It will help avoid any confusion at closing!
No offense, but your business model seems shady to me. If you can't be completely open and honest and still get the deal done, then there is a problem with what you are doing. It doesn't matter if its legal or not or if other people do it that way or not. If a wholesaler is put off by full and complete disclosure, that's a big problem in my eyes...
@David Hines That is to assume all wholesalers are indeed convincing a seller their property is worth less than it is worth. In fact, how I feel wholesale deals are best done are by simply being honest with the seller that their house is indeed worth this amount of money and if they sold it to a wholesaler for a price that is less than market value, yes they would be taking home less than what they could get for it on the open market than if they just did do everything an investor would do and of course put the time in it would take to get top retail value.
However, now that ALSO assumes the seller does indeed have the time to sell it on the open market and wait for a retail buyer... Not everyone is motivated by money and thus creates a problem that realtors would like to neglect in order to earn the contract. It's about finding the solution, not earning another contract for the books.
On a brighter now, I think we both agree that if you are not being honest with people about the situation as a whole, you shouldn't be in this business at all. 👍
@Jill F. "I will happily pay a wholesaler an assignment fee up to 10%..." That IS a limitation. I am glad however that you are standing by your ethics. If you ever change your mind let me know and I will put you on my buyers list.
No, it is not a limitation, it is a condition for making a deal WITH ME. I cannot possibly impose a limitation on your profits, I can only decline deals with you that I don't find acceptable.
I know this thread is nearly a year old, but I really would like to understand your logic? If I purchase a property for $10.00 and it has an ARV of $300,000 with roughly $50,000 in needed repairs and I offer you the property at a $60,000 assignment fee, why do you give a shxt that I made $59,990? What does MY money have to do with your deal? It's either the deal works for you or it doesn't. What does my economic outcome have to do with YOU? The fact that this industry even needs double closings is because of the insecurities of the end buyers NOT finding the great deal(s) themselves. If the end buyer initially agreed to the numbers presented then backed out because of an assignment fee that was already included in the marketing price as a whole, the end buyer is the unethical one, NOT the wholesaler; not to add a boarder line "hater" with all due respect to all end buyers. Also, there are very professional (advanced) wholesalers who also rehab properties themselves and know their numbers and are very transparent with the seller in regards to wholesaling the property. Not all wholesalers are bums trying to make a quick buck in an unethical way. You're the reason why we need double closings NOT the seller.