Please advise. My wholesale world just came crashing down.

7 Replies

Hey all! 

After months of following the subject, my entire wholesale world turned upside down today when I discovered most wholesalers are breaking the law, operating unethically, or both.  Anyway, I was hoping you guys could help me understand how to approach wholesaling in a way that's legal and ethical.

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I learned that you can't market to a seller, put a property under contract, market to a buyer, then assign the buyer that contract without having an RE license (in many states).  That's essentially what most wholesalers do.

From what I understand if you actually BUY the property with your own or borrowed money, close on the property, take title to the property, and THEN market and sell it, you're good to go.  Makes sense.

So, I started researching options for wholesalers who need funding to execute that workflow after reading a BP post that mentioned "transactional lenders."   

I called up a few and it turns out that they fund double close transactions.  One site expressly stated the key benefit to using their service was that they'd help the wholesaler hide how much money they were making from the buyer. I was expecting more of "we help you wholesale legally... the right way."

Nonetheless, their service seemed worthless to anyone looking to wholesale without an RE license since they require a double close, as in order to arrange a double close, you must act as an agent... In order to act as an agent, you must have a license...

Now... here's the thing.  In order to set up a double close, or a assign a contract to a buyer - LEGALLY, you must have license.  Isn't there a conflict of interest issue here though?  

Do I call up Joe Seller and say "hey Joe, I am a licensed real estate agent and I'm calling to lowball you."?  Isn't your responsibility to get the best possible price for your client? 

How does one navigate these issues successfully?  More specifically,

  1. How do you successfully and LEGALLY operate as a wholesaler WITHOUT an RE license?
  2. How do you legally and ethically lowball people if you are licensed?  

What if Joe Seller says "No I will not take a lowball offer, I want max dollar." What are you supposed to do, list the house and say "Ok, I understand you've declined my lowball offer, I will list and work hard to get you max dollar."?

Thanks for your time!  

Jay Ballman well the whole RE license thing or not is determined by your state. I believe you need a license in Florida. I’ve been told you don’t need on here in NC, of course the only people who have told me that are wholesalers.

The way to wholesale without a license is to double close. Seller sells house to you at X price, then you turn right around and sell it to X plus wholesale fee to your end buyer.

Ofcourse to do this you need either your own cash or access to cash which most wholesalers don’t have when starting out.

get your money first ... and yes exactly get a license if they dont want to exit low list it and make a sale and a commision. 

but find a way to buy your properties and keep control..

I have been an agent for 4 decades and probably bought and sold as much property as most on this site over the years.

I make an offer i disclose i am a broker and i am buying for PROFIT or LOSS... my dads attorney had me put that in my contracts in about 1976..  works like a charm.. 

but what i do is i close with my own money or a loan etc.

then i figure out what to do with it once i own it.. 

simple as that.

those that dont want to sell for what i want to pay .. I would list it and sell it.. or refer to another agent for a referral fee. all leads had some income.

the amount of money wholesalers spend to get leads then let those leads just walk when they cant make a deal to tie it up is just the most assinine thing i have ever seen.  

One young couple down in Slidel  was all hot to trot on this spent the money got the leads.. Never did do a deal first 6 months but gave their real estate buddy j6 ot 7 referrals that turned into listings.. so not sure about them but i an NOT a non profit orginzation when i am doing real estate deals..

@Caleb Heimsoth - I understand that it does vary state to state.  I have also seen the double close being referred to as the ideal method when you are NOT licensed. Now, regarding having money there are companies that will fund wholesalers who are doing double closes. I think that solves the legal issue... I also think I over thought here, lol. 

I got wrapped up in the whole "middleman" portion of things.  If you are acting as a middle man between buyer and seller then you're acting as an agent and should be licensed. But, if you have buyers and you're double closing, you're not the middle man legally speaking.  So, I got myself all confused thinking "if you're double closing with their cash you're still breaking the law because you're a middle man."  But again, once you close with the seller, you're the owner ( for a few moments) and I would imagine you're allowed to sell to whomever you want.

***Not legal advice, just my interpretation. 

That said, if anyone can shed led on the whole acting as an RE agent and wholesaler / lowballing vs. listing the property dynamic, I'd be very curious to know how that all works.

Each state is unique but instead of getting 1000 different opinions on BP i simply sent a flyer of a wholesaler that I got that i knew for a fact did not own the house.. 

I sent it to my state financial investigator and asked is this legal.. here is her response.. 

I suspect this wholesaler will probably hear from the state.. 

I have two bird dogs in Oregon that use me because they got turned in before and it cost them a bunch of money in legal fees and fines.. so now i am their money and its a great relationship.. find guys like me at your reias.. 

but reality is legal or not folks do it will do  wont stop and unless caught they will continue.. does not make it right or anything.. and at some point i have to think the real estate community if they get bugged enough is going to turn in those that are high profile that they know dont own the assets.. 

other wise really why even have a real estate license requirement.. be like China anyone can do anything they want.

Hello Jay,

Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!

The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.

Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.

Best regards,

Frances Hlawatsch | Financial Investigator

State of Oregon - Real Estate Agency

530 Center Street NE, Suite 100, Salem, OR 9730

Originally posted by @Jay Hinrichs :

Each state is unique but instead of getting 1000 different opinions on BP i simply sent a flyer of a wholesaler that I got that i knew for a fact did not own the house.. 

I sent it to my state financial investigator and asked is this legal.. here is her response.. 

I suspect this wholesaler will probably hear from the state.. 

I have two bird dogs in Oregon that use me because they got turned in before and it cost them a bunch of money in legal fees and fines.. so now i am their money and its a great relationship.. find guys like me at your reias.. 

but reality is legal or not folks do it will do  wont stop and unless caught they will continue.. does not make it right or anything.. and at some point i have to think the real estate community if they get bugged enough is going to turn in those that are high profile that they know dont own the assets.. 

other wise really why even have a real estate license requirement.. be like China anyone can do anything they want.

Hello Jay,

Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!

The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.

Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.

Best regards,

Frances Hlawatsch | Financial Investigator

State of Oregon - Real Estate Agency

530 Center Street NE, Suite 100, Salem, OR 9730

Interesting, she said the same thing I just posted on another thread talking about wholesalers. As I suspected their activities are complaint driven, as is true of any fraud based crime. There are so many wholesalers and many are small enough that unless people report them, they just do their thing untouched. I think some wholesalers mistakenly believe that if others are doing it, then it must be legal. Or they think they have a rock solid contract that protects them. The issue is marketing properties before you own them and without a licence. 

Even in a double closing you are marketing a property before you own it. Marketing is as simple as calling up a buyer on your buyers list. The point is that a double closing would not be possible if you didn't market ahead of time.

Originally posted by @Joe Splitrock :
Originally posted by @Jay Hinrichs:

Each state is unique but instead of getting 1000 different opinions on BP i simply sent a flyer of a wholesaler that I got that i knew for a fact did not own the house.. 

I sent it to my state financial investigator and asked is this legal.. here is her response.. 

I suspect this wholesaler will probably hear from the state.. 

I have two bird dogs in Oregon that use me because they got turned in before and it cost them a bunch of money in legal fees and fines.. so now i am their money and its a great relationship.. find guys like me at your reias.. 

but reality is legal or not folks do it will do  wont stop and unless caught they will continue.. does not make it right or anything.. and at some point i have to think the real estate community if they get bugged enough is going to turn in those that are high profile that they know dont own the assets.. 

other wise really why even have a real estate license requirement.. be like China anyone can do anything they want.

Hello Jay,

Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!

The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.

Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.

Best regards,

Frances Hlawatsch | Financial Investigator

State of Oregon - Real Estate Agency

530 Center Street NE, Suite 100, Salem, OR 9730

Interesting, she said the same thing I just posted on another thread talking about wholesalers. As I suspected their activities are complaint driven, as is true of any fraud based crime. There are so many wholesalers and many are small enough that unless people report them, they just do their thing untouched. I think some wholesalers mistakenly believe that if others are doing it, then it must be legal. Or they think they have a rock solid contract that protects them. The issue is marketing properties before you own them and without a licence. 

Even in a double closing you are marketing a property before you own it. Marketing is as simple as calling up a buyer on your buyers list. The point is that a double closing would not be possible if you didn't market ahead of time.

I specifically mentioned on the phone to this investigator the double close and transactional funding.. and she said just what you state that does not change the facts..  If these wholesaler in ANY manner advertise these homes through e mail blast craigs list BP facebook linkden connected investor the penny save what have you  double close is still selling a home you don't own.

there for I will not longer be party to those transactions..  and those that I do business with use me to CLOSE and own it.. and once owned and paid for in cash.. then they go about marketing it... there is nothing wrong with that.

the only other thing that could be challenged with be unconscionable profit  taking  IE telling a seller that a home is only worth 50 when its really worth 150k.. granted there has to be margins but what is an acceptable margin.. its a tough one.

that's why I don't personally buy from sellers anymore I buy at auctions .. and on MLS.. personally.

Although I do agree with Hoarder houses and total wrecks its what ever you can negotiate.. but when your talking lipstick rehab and telling someone there house is only worth 30% of true market.. that just does not sit well with me.