Turning Wholesalers into the Good Guys
Rental Property Investor · Newport News, VA · Member since 2018 · 11 posts · 14 votes
Turning Wholesalers into the Good Guys
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@Latia Rowland @Mike Cumbie is totally ignoring the fact that there are several categories of sellers who can't or won't sell through a realtor. He's living in a fantasy if he thinks every seller can list every house in every possible scenario and come out better than selling direct. I know this because I exclusively buy direct from sellers who fall into the following categories:
1. Sellers who have been burned by agents before.
2. Sellers who have no equity with which to pay a commission.
3. Sellers who don't have the time, money, or desire to get their property "listing ready".
4. Sellers who don't want the fact that they need to sell to be "shouted from the mountain tops". They want a private and discreet transaction.
5. Sellers who don't want a parade of tire-kickers marching through their house.
6. Sellers who tried listing and their agent failed to produce an offer.
You can do real estate however you want. But being a realtor is totally different than being an investor. You work with a different group of sellers with different needs. "Wholesaling" is not about scamming sellers into taking less than they can get listing with a realtor. True wholesaling is an entirely separate market from the retail MLS.
78 Replies
- Member since 2018 · 27 posts · 4 votes8y
@Van Blackman, your below is on point.... I have to go thru my buyers' Sr. Acquisitions & Dispositions managers, and yes, all ask me first where is my assignment fee,finders fee etc., and will tell me what they will do if interested in the property.... For example. Recently there was a 200+ SFR off market portfolio all over the internet in the Atlanta Market. Because it came from an agent I sent it to buyer.... Of course they see all asset manager releases, but instead of saying they had seen it already, they gave me an offer of 70-75% of asking price.... Never could contact the contract holder. Yes, I found out who the REIT was who released the assets, but prior contractual agreements precluded n e thing I could do.
I agree with just about everything you replied because I have been there.
"You'll also need to disclose to your buyer all the terms of your original contract you're assigning, which means they'll know how much you're making on any given deal. Also could be a touchy subject, but if handled correctly, should be no big deal."
- Member since 2018 · 27 posts · 4 votes8y
@Van Blackman, your below is on point.... I have to go thru my buyers' Sr. Acquisitions & Dispositions managers, and yes, all ask me first where is my assignment fee,finders fee etc., and will tell me what they will do if interested in the property.... For example. Recently there was a 200+ SFR off market portfolio all over the internet in the Atlanta Market. Because it came from an agent I sent it to buyer.... Of course they see all asset manager releases, but instead of saying they had seen it already, they gave me an offer of 70-75% of asking price.... Never could contact the contract holder. Yes, I found out who the REIT was who released the assets, but prior contractual agreements precluded n e thing I could do.
I agree with just about everything you replied because I have been there.
"You'll also need to disclose to your buyer all the terms of your original contract you're assigning, which means they'll know how much you're making on any given deal. Also could be a touchy subject, but if handled correctly, should be no big deal."
- Member since 2018 · 27 posts · 4 votes8y
To any wholesalers out there that are new, just remember this.... Everyone in REI started as a newbie 1000 of yrs ago. Its always going to be a work in progress. Always. Some folks invest in distress markets and keep it distressed.... They be waiting on the progress too.
- Investor · Vancouver, WA · Member since 2014 · 270 posts · 111 votes8y
Had a great example today that helps in this situation. Seller calls me off my letters and said he needs to sell his house. When I look at the property I see it's going to auction next Friday. Now this guy has been in and out of foreclosure 3 or 4 times but this time it's going to go. Now we dont market to foreclosures, this guy was on my d4d list. This guy had about 120k of equity and the house needed work. Now I know this guy has been bombarded by agents and wholesalers. 1st the "agent" that was trying to "help" him had his cash buyer make an offer, they offered 235k now the guy countered them at $275k hoping they would meet in the middle well the agents buyer got mad and since they knew he was in a corner they came back at $216k just out of spite. #2 this guy got contacted all the time on Facebook by "wholesalers" that said they could get him $5k and he could just walk away. Both the "agents" buyers and the "wholesalers" tried to screw this guy. We inked it up at $235k and will close on Tuesday which is basically where it should be. There is good and bad on both sides of the aisle.
- Rental Property Investor · Newport News, VA · Member since 2018 · 11 posts · 14 votes8y
Thank you for that insight! Yes I definitely have been connecting with different investors and attended my area's REI association. And I have to admit that networking has actually landed me with a partner to do my first flip. Looks like I might not need to start with wholesaling after all (lol). But this is still helpful because I may end up getting my license as you said.
- Rental Property Investor · Newport News, VA · Member since 2018 · 11 posts · 14 votes8y
That made me happy! Your business will have much success. That’s what I am trying to achieve. To be honest with my sellers and buyers. If they can do better I want them to know they can do better.
- Rental Property Investor · Newport News, VA · Member since 2018 · 11 posts · 14 votes8y
Honestly, I would never go over 10k assignment fee. Until this post I didn’t know/realize that wholesalers were out there being greedy for lack of better words. For me to go over 10k the deal would’ve had to be top notch.
Originally posted by @Joe Splitrock:@Garth Kukla I don't see any issue with wholesalers if they are making sure the seller knows there are other options that will yield higher net value. Of course the other options may take more time, which is often the value a wholesaler brings - making it happen fast.
I agree there are bad actors in every profession, but wholesaling has a higher percentage than other professions. That is because it unregulated and there is no barrier to entry. Knock on a door and you are a wholesaler. Of course real estate sales are regulated, but wholesaling exists outside the regulation. So you have uneducated and unlicensed people often learning fast talking tactics from a guru. You see it all the time on BP. People say, I have no money and I am in heavy debt so how can I get started in real estate? Wholesaling is always the answer.
One thing I have wondered for wholesalers with integrity. Is there a limit to what you will take for profit? For example lets say you asked a person how much they wanted for their house and they said $50,000. You know on a bad day you could have 10 people willing to pay $150,000 cash for it. Would you offer the seller more, less or equal to $50,000? Would that situation change if it was a little old lady? Meaning if you feel the person isn't savvy, will you treat them different?
@Latia Rowland If you want to restrict your fee to only $10k why don't you just get your license? The commission on an average priced house in Newport News is $10k. That's for finding both the seller and the buyer, which is what you have to do as a wholesaler anyway.
- Wholesaler · Newport, KY · Member since 2014 · 62 posts · 47 votes8y
Just because someone has a license doesn't mean they will represent their clients properly. I agree you can become a wholesaler very easily but that doesn't mean you are a good one. I personally think the same is true with other professions in real estate because you can get your real estate license in 3 weeks with much less effort than what I went through before I started my company, does that make sense? I personally spent about 1000 hours educating myself before I quick my job and that was 2 years ago. Unfortunately, in real estate, there are a lot more bad actors, not just wholesalers. Heck, you can find 30 realtors that would list a house for 130k, knowing it would never sell because its only worth100k but they get their sign in the yard. Does that help the seller?
As for your second point, that situation doesn't exist but I have on many occasions given more than what I have on my contract because it was the right thing to do. When I'm sitting across from someone I know I'm better at negotiating, I don't take advantage of that. I give as much as I can give while making a profit. And regarding how much that is, finding houses in this market is really, really hard. I spend about 10k/month and since I'm a company, I'd like to make a profit. When I started and had very low costs, I could do deals for 3-5k, now I don't even go after those as my company would go out of business if I did. All too often non-wholesalers think what we do it easy but if you do it the right way, it's not, just like any other profession.
But I do love a good discussion about real estate,
Cheers,
Garth
- 8yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
"I am going through the same situation and like you I thought well let me get my license so I can do it the right way but then I learned about net listings."
Net Listing are not just illegal if you are licensed. They are illegal for everyone. It is not like you could go get a seller to agree to let you sell their house and you get everything over $5K and the regulators would say "Well your not licensed so you are fine". They will get you for brokering without a license and for a NET listing.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Elliot Smith:
Had a great example today that helps in this situation. Seller calls me off my letters and said he needs to sell his house. When I look at the property I see it's going to auction next Friday. Now this guy has been in and out of foreclosure 3 or 4 times but this time it's going to go. Now we dont market to foreclosures, this guy was on my d4d list. This guy had about 120k of equity and the house needed work. Now I know this guy has been bombarded by agents and wholesalers. 1st the "agent" that was trying to "help" him had his cash buyer make an offer, they offered 235k now the guy countered them at $275k hoping they would meet in the middle well the agents buyer got mad and since they knew he was in a corner they came back at $216k just out of spite. #2 this guy got contacted all the time on Facebook by "wholesalers" that said they could get him $5k and he could just walk away. Both the "agents" buyers and the "wholesalers" tried to screw this guy. We inked it up at $235k and will close on Tuesday which is basically where it should be. There is good and bad on both sides of the aisle.
have you checked out the pre foreclosure rescue laws that are on the books.. I did this for years.. but it became very tightly controlled in 08. that's why Nylund and I quit doing it.. you may want to check out what you can and cant do buying a home pre sale like this..
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Mike Cumbie:
"I am going through the same situation and like you I thought well let me get my license so I can do it the right way but then I learned about net listings."
Net Listing are not just illegal if you are licensed. They are illegal for everyone. It is not like you could go get a seller to agree to let you sell their house and you get everything over $5K and the regulators would say "Well your not licensed so you are fine". They will get you for brokering without a license and for a NET listing.
However commission rates are negotiable.. I see this all the time... especially bank owned low value assets that sell for say 5 to 10k agents will have a 2 to 3k minimum fee.
Myself when I started in real estate in the mid 70s I sold dirt.. some dirt was really tough to sell I charged 20 to 30% commissions and folks gladly paid me to do it because I actually sold it.. so agents in areas of low valued or super distressed real estate could do the same thing they could just charge a flat fee and call it a day the net is the same to the seller.
now this relates to those that don't close on deals.. which is the vast majority of wholesaler who in essence are selling real estate with o
I finally got tired of is this legal or not .. I got a e mail flyer from a wholesaler and sent it to my real estate division for clairity this is what they wrote me back.. so its up to agents to police this activity and the public..
I have two bird dogs in Oregon that use me to take title because they have been turned in and fined and cease and desist. And all of the larger successful wholesalers in our state are licensed and 95% of the time take title. its not their scheme to assign every deal.
Same thing when I was funding deals in Orlando that wholesale company ( which since went out of business because the deals dried up) they were licensed .. they were to big to fly under the radar.
State of Oregon - Real Estate Agency
Frances Hlawatsch | Financial Investigator
Best regards,
Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.
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 for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!
Hello Jay,
ut a license.. some states track this and will hammer them some just don't do anything.. depends on where your at..
- 8yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
Not trying to be snarky, but I think I am missing something. The agent was screwing him over by getting him a $235 offer from a cash buyer, but you came in and got him the same $235 and you are the hero of the story and they are the villians?
As a buyer, these two are super important.
Look: I analyze deals constantly every day. Unless you personally know the seller or grew up in the area, likely I know my target area as well as you. I know what the MLS looks like, which houses are selling and which aren't, why, etc. If your comps or rentals are off, its a huge red flag to me. Same with rehab costs. Be really clear about what kind of rehab you are doing. There are many different kinds of rehabs.
I like to assess wholesalers by getting their quoted ARVs they have given in the past and watch the property over a 6 month period to see what it sold for. If you can share those numbers starting out, that would be a great way for me to gain trust.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes8y
I usually don't enter wholesaling waters, but see my friends Mike, Joe and Jay are here...
I've done this a few times with sellers- get an option to buy that still allows them to sell on their own for more if they can.
Mr Seller, I can give you $x and need 30 days to secure the financing. I'll write up a non-exclusive right to buy that allows you to continue marketing and sell for more if you can. If I buy it first, we have a deal. If I don't, no problem and you owe me nothing.
That's for higher end houses that won't pencil as rentals but the owner has become a sudden seller for any number of reasons. They usually aren't junkers either. Just an idea and form of 'ethical wholesaling' - usually an oxymoron LOL.
@Steve Vaughan I've done the exact same thing. Great way to 'ethically wholesale'. Works really well for nice properties in good areas and there's zero risk for the seller.
- Real Estate Agent · Marietta, GA · Member since 2018 · 27 posts · 8 votes8y
Thank you for asking the question "what are things that wholesalers do that annoys REI."
Thank you @Mike Cumbie, @Caleb Heimsoth and others for giving your advice. Last week I had an investor call me because the comps that a wholesaler had given her did not look correct. When I pulled my own comps they were very different than the ones she had received. The comps were not apples to apples. After reviewing the deal she realized it was not a good deal at all. A seller came to me crying because a wholesaler had told her that her property was worth much less than expected. After I pulled comps I explained to her the Real value of her home. I am sure the majority of Wholesalers are honest and have Integrity but situations such as these give them a bad rep. To be fair I have had clients come to me with the same complaints about RE agents. For me personally my number one goal is to work in Honesty and Integrity and make sure the deal is beneficial for ALL.
Originally posted by @William Brown:
This is a forum of investors. We speak a different language--one of numbers, ROI, licenses, "correct" ways to do things, etc. All by the books. All formal, proper, and regulated. Wholesaling here is like the punching bag for 90% of the folks on this site that are either a) flippers and don't like having to pay to have opportunities sent to them or b) realtors who know huge demographic and tech changes are coming and unless you're with a big company leveraging big data you'll be wiped out.
Enter the real world of wholesaling
Problem solving. Pound the pavement, (yes, don't just look for the ones on the MLS) and you'll find sellers that simply don't give a **** about any the above. They have problems they need solved and they don't care if they sell it to a serial killer, as long as they can get out of their situation. There's bad unethical people on both sides, both wholesalers and realtors. The folks I speak to everyday HATE realtors because most just have commission on their breath and don't take a second to actual listen and try and solve the sellers problems. Gurus don't help, and theres a lot of people doing this straight illegally and unethically trying to make a buck. Get past those 99% and you'll see a largely untapped market of people who just want a fair cash offer on their home and not deal with the hassle. Solve the problem first, get paid after.
Very well said William! Problem solving seems to be the focus of the wholesalers that are doing this successfully.
- Investor · NJ · Member since 2017 · 786 posts · 396 votes8y
@Latia Rowland This is a sound approach, and it seems like people have a lot to say on the subject. here is my $.02:
1) Dont try to sell a property that you don't actually have under contract or have the right to sell (happens way to often)
2) Dont make promises to buyers sellers or deal brokers you can't keep
3) Always do exactly what you say you will (or more) be consistent with follow up and respond to inquiries promptly
4) See point #1
In addition see what the laws are for wholesaling in your area and make sure that you are not violating them inadvertently, buying a house wholesale and then selling it on your own is a way more sound way to do business than to assign contracts though it is more expensive.
Lastly have you given thought to other ways to earn money for your downpayment other than wholesaling? I may be wrong but I think the winds of change are going to blow in the direction of wholesaling and there may be stiffer fines penalties and regulations in the future (thats why I stopped doing it). You can get a Real Estate License and become a referral agent or rental agent for instance while holding on to your W2 job and put that money to the side for your first deal.
Wholesaling is the magic weight loss pill of Real Estate right now but its not as easy as people expect it to be, it also isn't free and it comes with its share of risk.
Just my $.02
- Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes8y
Originally posted by @Pratik P.:
@Account Closed You're basically saying if someone buys a deal under market value, they are taking advantage of the seller. You don't realize how skewed that way of thinking is.
I purchase all of my deals off-market and under market value. All of my sellers know they could get a much higher price for their property if they listed it and waited (in fact, I tell them so). You know why they still take my "low" offer? Because they place value in things other than simply the price.
For example, a seller was about to lose her house in an auction and get nothing. Me buying it from her gave her a nice check and saved her credit. Yep I was buying it far below market value but she already knew that.
A house I saw today....the owner had used it as a marijuana grow house and now wants to sell it quietly without blasting it on the MLS.
"I am not actively searching for desperate sellers"...You mean marketing???
No, I am not saying that buying under market value is wrong. Buying from uneducated sellers, well actually not even really "buying" because you dont actually have money, is wrong.
- Investor · Vancouver, WA · Member since 2014 · 270 posts · 111 votes8y
Originally posted by @Mike Cumbie:
Not trying to be snarky, but I think I am missing something. The agent was screwing him over by getting him a $235 offer from a cash buyer, but you came in and got him the same $235 and you are the hero of the story and they are the villians?
You miss read it. 235k was the number that was fair. When the first guys offered 235k it was a verbal the guy tried to get a little more from them and they came back at 216k with a written offer because they knew the guy was in a corner.
- Member since 2018 · 27 posts · 4 votes8y
@Anish Tolia..... Perhaps what you imply works for established folks with a parachutte or how ever its spelled.
I saw a FSBO in FL the other day purchased at April 2018 at $190K. Comps support $215K within the last 3 months.... I have it today at $165K bottom line or less.....Husband and wife made an agreement and I know the bottom line....
So if there is value add, the wholesaler should not be in the bad guy category? Actually, the OP post should be directed to to the bad guy investor, IMO.
- Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes8y
There are two issues here. One is the price you pay, This can be negotiated between the parties and as long as both are informed and happy with the final agreement there is nothing wrong with any agreed price. I agree that there are good reasons people would sell for less than market like expediency, privacy or other reasons. The other one is the definition of "buy". To me "buying" is handing over money in exchange for title. It is not putting something under contract, tying up the seller and then hunting for a buyer who would pay more that what you "promised" to pay. You put all the risk on the seller and nothing on yourself. That is wrong. IF you put a house under contract you should be willing and able to close at that price. Most wholesalers dont have two nickels to rub together or access to credit. That is what I have a problem with.
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