Is this the usual attitude in wholesaling?

27 Replies

I am a licensed real estate agent. My husband has been looking into getting into real estate wholesaling.

After watching a bunch of videos and looking around wholesaling FB groups, I see that there is a very large majority of people that think that telling homeowners they are the buyers when in fact they really aren't isn't wrong.

Am I the only one that doesn't think this is right?

Hey @Meagan Dorsey I'm a licensed agent. But I'm an investor and wholesaler full-time. When you contract to buy a home, you are in fact the buyer at that moment. You can choose to move forward with buying the home for yourself, or you can assign your rights of purchasing the home to another buyer, as long as your contract states you can do so. There have been several occasions on deals I've wholesaled where we didn't assign the contract, and we actually closed on the property using a double close, or even transactional funding. Then re-sold the property same day. Hopefully that helps you feel more comfortable with your husband getting in the business using this strategy. If you have any other questions, or still feel that this isn't "right". I'll be happy to chat further with you guys. 

Thanks for your response. I actually had a meeting with a representative of my broker this morning and there are a lot of rules to be careful of when being an agent and doing wholesale. I found out that I can't even put out bandit signs because as a agent, you can't put out real estate signs without your brokerage name and the usual equal housing opportunity images on there.

He said wholesaling is perfectly legal as long as I am careful of how I tell things to a seller. Way too many things to list here.

My whole thing was seeing wholesalers who have no actual plan to buy a property at all but they tell the homeowners that and then sell the contract to an inestor. I've seen wholesalers say you have to tell the homeowners that what you are offering is the best they can get, when in fact if they put it on the MLS, they could get more and find a buyer just as fast.

I am looking into it but will not do anything unless approved by my brokerage. I don't want to do anything that will get me sued or lose my license.

^^If I was your broker I wouldn't allow it. Part of your job as a realtor is to bring listings into the brokerage. Not even so much as you getting sued or losing your license, one of the reasons you get the portion of your commission is the work you do in bringing listings to the home office, along with showing properties, walking buyers/sellers through the process, etc. 

It may be Semantics to say you’re the buyer when you are in fact wholesaling to an end buyer but I personally think that’s unethical and shouldn’t be done that way.

Originally posted by @Meagan Dorsey :

Thanks for your response. I actually had a meeting with a representative of my broker this morning and there are a lot of rules to be careful of when being an agent and doing wholesale. I found out that I can't even put out bandit signs because as a agent, you can't put out real estate signs without your brokerage name and the usual equal housing opportunity images on there.

He said wholesaling is perfectly legal as long as I am careful of how I tell things to a seller. Way too many things to list here.

My whole thing was seeing wholesalers who have no actual plan to buy a property at all but they tell the homeowners that and then sell the contract to an inestor. I've seen wholesalers say you have to tell the homeowners that what you are offering is the best they can get, when in fact if they put it on the MLS, they could get more and find a buyer just as fast.

I am looking into it but will not do anything unless approved by my brokerage. I don't want to do anything that will get me sued or lose my license.

 follow your moral compass.. if you think basically lieing to a client is OK  then that's were your moral compass is pointing to. ..  and it puts wholesalers in the used car salesmen category not a professional or providing a service the only service they provide is to make money for themselves.. which you can do being an agent.. or better yet be a true investor just buy the house do something to it and resell it.. 

@Meagan Dorsey

The example in the original post is unethical. Leaving out key facts such as the sellers could make a significantly more money to list FSBO or using an agent is completely different then getting into the minutia of how title and escrow works; or the intricacies of how a global supply chain and distribution network that was built over decades works. God forbid, a seller asks questions to understand the process. What a lazy.... I have nothing nice to say....

I have yet to see a wholesale transaction where the seller really understood he/she was leaving significant money on the table. The fact that sellers “loose” money is obfuscated through the use of technical terms and jargon. At least in the few “deals” I have seen.

In NV, it's not necessarily illegal for a licensed agent to wholesale but its nearly impossible to follow the regulations/rules set by the real estate commission, the MLS and still maintain licensure.

@Meagan Dorsey The wholesaler doesn't need to tell the seller that they intend to assign the deal as long as they are ready and willing to close the deal themselves. If they're not able to close themselves, then they definitely need to tell the seller that.

If I have no intention of closing a deal myself I tell the seller that and enter a non-exclusive option contract with them so they can continue to market the house themselves. They understand that if I find an end-buyer I will assign my contract, if not I will let my option expire.

This definitely costs me deals so I can understand why people would be tempted to lie and pretend to be the end buyer when they aren't able to close. That's definitely unethical and possibly fraudulent.

@Meagan Dorsey You're right that it's wrong to tell someone you have all the cash to close when you don't. The simple solution is to explain that you will be using someone else's money to close. Leverage is a very common thing in RE and sellers don't have a problem with it. 

I don't know why some people think wholesalers have some kind of ethical obligation to give advise to the seller. A wholesaler is acting as a principle party in the transaction and does not represent the seller.

I wouldn't say that your offer is the best they can get, because frankly, sellers aren't that stupid to believe that. Why would they? You're the guy they are negotiating against. 

Yes being an agent and investor is definitely tough to comply with all the disclosures and clearing things through your broker. Ofcourse brokers are in business to make money from the Agents' work of representing others so they won't exactly be excited about the idea of you investing as a principle in the deals. 

I do all types of investing strategies all around the county and internationally now, not just wholesaling, but I'm sooo thankful for what wholesaling and lease options allowed me to learn as an investor along the way. 

All my deals actually creatively and quickly solved a problem for the sellers, with everything disclosed. No sly talk needed, just giving them multiple offers and allowing them to choose what's best. Alot of the times they already tried selling traditionally unsuccessfully and didn't want to go that route again. 

If you're looking to do investing yourself and you're an agent, I would suggest you just make a choice on which side you want to be on. I actually just took my own advice and surrendered my license today back to the real estate commission. I feel so much more free now! Being an agent just never fit my lifestyle personally. Good luck on your choice. 

@Pratik P. I think the issue you bring up about people thinking wholesalers have some sort of obligation to hand hold sellers comes from the communistic nanny state mentality. It assumes that no one is capable of thinking for themselves or acting in their own best interests, so it falls on others to look after them.

Personally, I've never met one of these supposed little old ladies who are so easy to take advantage of. Every older person I've met has been a far better negotiator than I am because they come from a time when people had to actually take care of themselves.

Originally posted by @Doug Pretorius :

@Pratik P. I think the issue you bring up about people thinking wholesalers have some sort of obligation to hand hold sellers comes from the communistic nanny state mentality. It assumes that no one is capable of thinking for themselves or acting in their own best interests, so it falls on others to look after them.

Personally, I've never met one of these supposed little old ladies who are so easy to take advantage of. Every older person I've met has been a far better negotiator than I am because they come from a time when people had to actually take care of themselves.

 Doug I have met many mainly when I bought their home at auction because they let their kids borrow against it and blow the money.

and of course in my 30 plus years of loaning HM I have seen a bunch of this activity over the years.

18 months ago I had a wholesaler contact me ( which is rare because I generally wont talk to them) but he got through to me and it was a property in Charleston SC were I build.. and the price was right .. but when I did a quick title search I saw that he had recorded a power of attorney for this lady that spelled out that he could sell the house and pay her 100k and he was offering it to me for 196k.. so I called him on it.. and said hey there.. this lady obviously does not know what she has the value is in the lot.. so no real up side as is unless you build a new home so for me to buy it at 196 was about market.. I said to them I just cant be a party to you making a 96k wholesale fee. so I am going to pass.. and this was an elderly single lady . So they go and list it on MLS for 260 it never sells of course because its no deal.

it swings back to me and sure enough.. once we dug into it a little more these guys did not realize she owed 195kk against it and it was in foreclosure.. about to be lost.. so they had it tied up  had fouled up her title by recording that document and they were going to lose out. 

so long story short I told them I would give them 6k and the seller 5k. and stroke a  check on the spot for 211k.. and it was done.

they were lucky to get that. but they would have had no compunction ripping 100 to 150k of equity from this older lady in distress.

I leveled the house built a new construction that sold for just under 750k and we made right at 200k net profit on the deal.. but I would have passed if I thought these guys were ripping this ladies equity I don't care how much I would have made I can make that on another deal and not take advantage..

now granted when folks CLOSE and then resell well all bets are off and its harder to go back and see what someone paid for things.. 

I mean I don't buy anything unless it has major upside and but I buy them close on them then do something to create value.. that's how my business works.. and sometimes I lose money and sometimes I make big hits.. 

@Jay Hinrichs Wow they got power of attorney? That's definitely unethical. The moment you step into a position of representation, you HAVE to do what's best for your client, which they clearly weren't doing. I'd say this is somewhat of a rare occurrence. I go on a lot of appointments to meet sellers and they all seem to have a notepad with a list of investors they are meeting, etc. None of them seem uninformed. In fact, most of them are smart for not using a realtor because even if MLS got them a bit more, it would be lost in commissions....at least in this hot market.

This is why I was saying wholesalers are principles in the transaction and not fiduciaries. 

What I don't understand about your logic is why someone is unethical if they wholesale a property for a large profit but if they buy it and then sell it, they become ethical? Correct me if that's not what you mean.

For example, I'm under contract to purchase a property and will make a decent profit. I was going to wholesale it but decided to buy it and then sell it soon after. So all it took for me to become ethical was a couple grand in loan fees?

Most of the sellers that you deal with as a wholesaler are probably in a very stressful place in their lives. They are probably not going to understand a real estate contract on their best day, let alone when a wholesaler comes knocking. I look at it like this.... If they would not deal with you if you disclosed exactly what your intentions are, so you omit parts to make it sound more appealing to the seller, its unethical. There are guys that are highly successful wholesalers BECAUSE they are upfront and honest. Be one of those wholesalers....
Originally posted by @Pratik P. :

@Jay Hinrichs Wow they got power of attorney? That's definitely unethical. The moment you step into a position of representation, you HAVE to do what's best for your client, which they clearly weren't doing. I'd say this is somewhat of a rare occurrence. I go on a lot of appointments to meet sellers and they all seem to have a notepad with a list of investors they are meeting, etc. None of them seem uninformed. In fact, most of them are smart for not using a realtor because even if MLS got them a bit more, it would be lost in commissions....at least in this hot market.

This is why I was saying wholesalers are principles in the transaction and not fiduciaries. 

What I don't understand about your logic is why someone is unethical if they wholesale a property for a large profit but if they buy it and then sell it, they become ethical? Correct me if that's not what you mean.

For example, I'm under contract to purchase a property and will make a decent profit. I was going to wholesale it but decided to buy it and then sell it soon after. So all it took for me to become ethical was a couple grand in loan fees?

its not my logic someone who closes on a property before reselling is known as an investor.. and or rehabber or investor flipper.

assigning contracts is bringing two parties together for compensation ( definition of activity that necessitates a license in most jurisdictions including CA .)   I don't make the rules or the laws..  when I was with the state of Oregon investigator who was interviewing me regarding unlicensed wholesaling in our state.. this was one of her question.. she says wait a minute this is not an investor they are not buying it.. they are just making an assignment fee.. also just putting EM down in their eyes is not equitable interest.. so I don't know Oregon seems that the way people wholesale is violating the licensure laws.. I don't write em.. I just have to work within them. 

Originally posted by @Pratik P. :

@Jay Hinrichs Wow they got power of attorney? That's definitely unethical. The moment you step into a position of representation, you HAVE to do what's best for your client, which they clearly weren't doing. I'd say this is somewhat of a rare occurrence. I go on a lot of appointments to meet sellers and they all seem to have a notepad with a list of investors they are meeting, etc. None of them seem uninformed. In fact, most of them are smart for not using a realtor because even if MLS got them a bit more, it would be lost in commissions....at least in this hot market.

This is why I was saying wholesalers are principles in the transaction and not fiduciaries. 

What I don't understand about your logic is why someone is unethical if they wholesale a property for a large profit but if they buy it and then sell it, they become ethical? Correct me if that's not what you mean.

For example, I'm under contract to purchase a property and will make a decent profit. I was going to wholesale it but decided to buy it and then sell it soon after. So all it took for me to become ethical was a couple grand in loan fees?

 well if there Is no equity and its being eaten up by realtor fee's how are YOU making any money ??? unless your charging far less than a realtor which is usually not the case with most wholesalers and if they are .. they are in the wrong business .. lots of work lots of overhead for the money.. I suspect you make what you can talk someone into selling for the less informed the better the deal for you.. 

I have always told possible sellers the whole story. Just this morning I looked at a property that a coworking wants to get rid of because his family outgrew it. He moved into a bigger house and is now paying two mortgages. 

This is how I explain it to all of my motivated sellers. "I work with a group of investors that pay me a fee for finding properties that fit their criteria. In order for them to buy your house, I must do an analysis on what I think the possible repairs would be on the property and I make an offer to you based on that analysis. We first subtract 70% from the price of what the price of the home would be if it were completely renovated, then we subtract the cost of any repairs. I present the offer to several investors that will let me know if they are interested. If none are interested I will get with you to see what we can adjust to make this deal go quicker and stay within the best interest of both you and my clients. Are you O.K. with that process?

His response: I don't care, I just want it gone. I said "will you sell for what you owe? His response. "Yes whatever it takes for you to make the deal work, I don't want to pay nothing out of my pocket".

The Stress of paying two mortgages and a wife nagging you about it can be a powerful motivator. He is very motivated!!

If you truly have a motivated seller even the total truth won't stop the deal.   I'm drawing up the contract now.     

my broker rep said he would even have to look at the E&O insurance in terms of wholesaling. All it takes is one person complaining and I could be in front of the board.

As a person said above, he doesn’t think sellers shouldn’t be hand held but from my own experience as an agent, I come across so many people every day that don’t understand real estate transactions, so I’m sure wholesalers comes across many, many people who are like a deer in headlights when you are talking to them about selling their house and putting a contract in front of them to sign.

Originally posted by @Michael Williams :

I have always told possible sellers the whole story. Just this morning I looked at a property that a coworking wants to get rid of because his family outgrew it. He moved into a bigger house and is now paying two mortgages. 

This is how I explain it to all of my motivated sellers. "I work with a group of investors that pay me a fee for finding properties that fit their criteria. In order for them to buy your house, I must do an analysis on what I think the possible repairs would be on the property and I make an offer to you based on that analysis. We first subtract 70% from the price of what the price of the home would be if it were completely renovated, then we subtract the cost of any repairs. I present the offer to several investors that will let me know if they are interested. If none are interested I will get with you to see what we can adjust to make this deal go quicker and stay within the best interest of both you and my clients. Are you O.K. with that process?

His response: I don't care, I just want it gone. I said "will you sell for what you owe? His response. "Yes whatever it takes for you to make the deal work, I don't want to pay nothing out of my pocket".

The Stress of paying two mortgages and a wife nagging you about it can be a powerful motivator. He is very motivated!!

If you truly have a motivated seller even the total truth won't stop the deal.   I'm drawing up the contract now.     

 this works in certain areas of the country were landlords are burnt out and or neighborhoods have turned for the worse.  Non starter in higher value or robust markets just not going to get anyone to sell you a home at 70% of market minus rehab.. 

Originally posted by @Jay Hinrichs :
Originally posted by @Michael Williams:

I have always told possible sellers the whole story. Just this morning I looked at a property that a coworking wants to get rid of because his family outgrew it. He moved into a bigger house and is now paying two mortgages. 

This is how I explain it to all of my motivated sellers. "I work with a group of investors that pay me a fee for finding properties that fit their criteria. In order for them to buy your house, I must do an analysis on what I think the possible repairs would be on the property and I make an offer to you based on that analysis. We first subtract 70% from the price of what the price of the home would be if it were completely renovated, then we subtract the cost of any repairs. I present the offer to several investors that will let me know if they are interested. If none are interested I will get with you to see what we can adjust to make this deal go quicker and stay within the best interest of both you and my clients. Are you O.K. with that process?

His response: I don't care, I just want it gone. I said "will you sell for what you owe? His response. "Yes whatever it takes for you to make the deal work, I don't want to pay nothing out of my pocket".

The Stress of paying two mortgages and a wife nagging you about it can be a powerful motivator. He is very motivated!!

If you truly have a motivated seller even the total truth won't stop the deal.   I'm drawing up the contract now.     

 this works in certain areas of the country were landlords are burnt out and or neighborhoods have turned for the worse.  Non starter in higher value or robust markets just not going to get anyone to sell you a home at 70% of market minus rehab.. 

 
Normally I would agree with you on that point. But I believe if you are in this game long enough and let EVERYONE know what you do these opportunities will present themselves. Even though I agree with you I still believe this type of opportunity exists in the high-end market so I just want to be prepared with the right knowledge and people skills no matter what market I reside. 

I remember when I first started wholesaling in Atlanta there was a builder that had a gorgeous home that he had built by hand in Alpharetta, GA. He wanted $440,000 for this home because he was building another somewhere else. He was a Master Builder. 

I went and met this guy and his wife and he said if I could find him a buyer for his price he didn't care how much I made, he just wanted $440,000 out of it. 

He had it appraised and it was worth $1.1 million. If I would have known what I know now I could have flipped that house and made $60,000. He said he was O.K. with that. I didn't have the right knowledge or right connections at that time to close that deal. 

Originally posted by @Meagan Dorsey :

Its more than black and white with me being licensed.

 Interesting. You being licensed makes people you meet feel confused about real estate. I've always wondered if agents are trained to make real estate seem more complicated than it is to help justify their commission and help them feel more important. Gotta inflate those egos after all or you won't entice the best salespeople over from the used car lots!

Investors do the opposite. Since we don't charge a commission there's nothing to justify. So we can make the process simple and painless.

Originally posted by @Michael Williams :
Originally posted by @Jay Hinrichs:
Originally posted by @Michael Williams:

I have always told possible sellers the whole story. Just this morning I looked at a property that a coworking wants to get rid of because his family outgrew it. He moved into a bigger house and is now paying two mortgages. 

This is how I explain it to all of my motivated sellers. "I work with a group of investors that pay me a fee for finding properties that fit their criteria. In order for them to buy your house, I must do an analysis on what I think the possible repairs would be on the property and I make an offer to you based on that analysis. We first subtract 70% from the price of what the price of the home would be if it were completely renovated, then we subtract the cost of any repairs. I present the offer to several investors that will let me know if they are interested. If none are interested I will get with you to see what we can adjust to make this deal go quicker and stay within the best interest of both you and my clients. Are you O.K. with that process?

His response: I don't care, I just want it gone. I said "will you sell for what you owe? His response. "Yes whatever it takes for you to make the deal work, I don't want to pay nothing out of my pocket".

The Stress of paying two mortgages and a wife nagging you about it can be a powerful motivator. He is very motivated!!

If you truly have a motivated seller even the total truth won't stop the deal.   I'm drawing up the contract now.     

 this works in certain areas of the country were landlords are burnt out and or neighborhoods have turned for the worse.  Non starter in higher value or robust markets just not going to get anyone to sell you a home at 70% of market minus rehab.. 

 
Normally I would agree with you on that point. But I believe if you are in this game long enough and let EVERYONE know what you do these opportunities will present themselves. Even though I agree with you I still believe this type of opportunity exists in the high-end market so I just want to be prepared with the right knowledge and people skills no matter what market I reside. 

I remember when I first started wholesaling in Atlanta there was a builder that had a gorgeous home that he had built by hand in Alpharetta, GA. He wanted $440,000 for this home because he was building another somewhere else. He was a Master Builder. 

I went and met this guy and his wife and he said if I could find him a buyer for his price he didn't care how much I made, he just wanted $440,000 out of it. 

He had it appraised and it was worth $1.1 million. If I would have known what I know now I could have flipped that house and made $60,000. He said he was O.K. with that. I didn't have the right knowledge or right connections at that time to close that deal. 

 and at the time if you were an agent you just charge a 50k commission commissions are negotiable and your done.

I personally in 2004 had a builder approach me he had  23 standing duplex's that were not moving he knew I had a fly buy program working on the west coast.. IE I went down to SF Bay ARea and did presentations to larger groups 300 at one time and presented all manner of investment property in the Portland market .. I signed a listing contract for a 30k commission on each one.. DOUBLE what a normal commission would be.. but I had to one advertise my event and pay for the room cost me 50k in marketing expenses each time I put one of these on.. well I sold all 23 of those in one meeting  made just under 700k in commissions  spent as stated 50k in marketing.. And sold a bunch more property .. there were a few higher end brokers doing the fly buy programs in the day.. a lady Named Linda Gercheck was selling PHX  AZ  duplex's and she killed it as well.. don't know if she set her commissions any different than I did.. but one thing folks don't realize commissions are negotiable up or down..