Attention Wholesalers: Beware!!!

200 Replies

This topic has been locked by an administrator.

Originally posted by @Doug Pretorius :

They can also assign sub2 and land contracts since title transfers with the former and the latter is an unconditional sale.

 you just gave Mark a full license to do his full advertisement of his business on BP.. which is usually forbidden.. I wish I could advertise what I do for my clients.. which would put his stuff to shame.

@Jay Hinrichs 30 to 40%? Those poor little old grannies you robbed of their retirement equity. You monster!

I don't know about the US but there's about the same level of interest in LO/LC/S2 here as there's always been. About 30% are 'kinda' interested, 10% are very interested, and 1-2% are actually doable.

@Jay Hinrichs .........Thank you so very much for offering me your thoughts on this issue.  As I mentioned in my post, I am a licensed Broker.  I'd heard from various sources regarding wholesaling a contract vs the house.  I was only curious as to the opinion of others on this subject.  

I sincerely appreciate your professional answer.  Again, thank you very much.

This post has been removed.

Sorry for the double post -- 

I actually find most of the realtors I work with are pretty adequate (not that I work with them often).

I think if done right, wholesales and realtors can not only co-exist but thrive.  They are really swimming in different ends of the real estate property pool... or should be.

Originally posted by @Doug Pretorius :

@Mark Sewell Unfortunately realtors don't understand that and think all sales should go through them regardless of the situation.

 but Doug frankly most of the largest wholesalers out there have license.. they need them lest they get shut down.. keep that in mind. 

you will always have the small fry in wholesaling as for every one that fails 10 went to guru school or some internet the way to get rich with no money is to wholesale and they fail at an alarming rate.. but then again 50% of those that get licensed will fail in the first 24 months its just a tough business this real estate.

@Jay Hinrichs Think about it for a minute Jay... you are literally arguing that it's unethical and illegal for @Jason Palmer to advertise something he bought and paid for and is clearly disclosing. While at the same time saying it is ethical and legal for a realtor to use their expert knowledge, privileged access to information, and trusted status to buy a house for ANY price they can talk a seller into, with the simple disclosure: "I am a licensed agent but am not acting in that capacity in this transaction."

100% Grade A, BS.

@Doug Pretorius In my experience, its SUPER RARE for a home to be listed above what its worth simply because the agent wants to sell it for that. We're talking about 2.5% here in income. That's an additional $250 per $10,000 increase in sale price. But no pay if it doesn't sell - so why would agents purposefully list over the comps just for the chance to get, say $1k extra, and put $5k+ in income and $1k in hard expenses at risk?

Most of the time, homes are listed over the comps because the seller "needs" that much or "wants" that much (no matter what the data supports), and the agent doesn't have the skills to convince them that listing at the amount the data supports is in their best interest. Or, they simply don't care and just want to get buyer leads knowing it won't sell for the lowest $ the seller will take.

There is no reason wholesalers and licensed agents can't be both considered bad or good. The barrier to entry here in Illinois is extremely low - seriously the test is very easy after the mandatory classes, and the cost is under $1k all in to get started (minus MLS/association fees). I don't believe the license laws are in place to signify a certain level of professionalism, but rather are there as a matter of recourse. If I screw a client, their recourse is a complaint with the licensing board, which could literally take my livelihood/career away from me by revoking my license. That's a pretty good motivator to work straight. Wholesalers however, with their generally unlicensed nature, can act with impunity, they can screw one client to the next with little to no consequence beyond a civil suit from that individual client.

With as low as the bar to entry is, and as small as the cost is, why not just get licensed and then the issue is moot? You don't have to join the MLS or association and can continue to operate as you do.

Originally posted by @Doug Pretorius :

@Mike M. I take it the $50k to fund the LLC is used for paying the seller any equity you agree to, closing costs, and repairs. Good system!

 Right. And I would think a similar set up would work in your neck of the woods.

You mentioned that realtors that promise too much to get the listing are a problem. I see that happen too. While wholesalers tend to offer way below the value, realtors can for instance get the listing by exaggerating what the value of the property is - they list high at $200,000  - they get the listing and after the house doesn't sell their solution is to reduce the price to say $190,000. 

When you do the math, since listing fees in my markets run about 6% (or $12,000 for a $200,000 listing) - and the agent gives their cuts to their broker, the other agent and the other agent's broker - so by 4 people - the agent winds up with $3,000

The house doesn't sell so the agent cuts the price to $190,000 - a four way split of 6% on $190,000 is $2,850 or about $150 hit to the agent - so, buy dropping the price the agent loses only $150

However, the Seller has taken a $10,000 hit. That is enough money for me to take you and everybody else on the thread to the Four Seasons Resort here for a very nice night out. That is a lot of money to the seller.

I got a call last thursday from a potential seller that went off market. The agent had the property at $399,900. No offers. I looked at comps (sold within the last 90 days) and all three comps put her place at about $340,00. Doesn't the agent realize that the buyer has to have an appraisal and the appraiser is going to use "Solds", and not use wishful thinking? Why deceive the seller? It gives false hope. 

Rather than argue with the seller who was convinced her property is worth $399,900 (I could hear the disappointment in her voice) I sent her to a wholesaler. :-)

@Matthew Olszak Maybe you're new but it's common practice among agents to start by lying that they have a buyer, then take the listing at a price they know the house won't sell for to milk it for buyer and seller leads, all the while telling the seller a sob story about how "the market has turned" or "things are just slow right now" and they need to lower the price. Over and over again until either they do eventually come down to the price the agent should have listed for in the first place, or the listing expires, all while the agent has sold other houses and generated more listings off of that one.

That scenario is so common I assume it must be taught either during the licensing course, or it's the very first thing agents learn during orientation at their new brokerage.

Why don't I just get licensed? I have no interest in paying fees to a corrupt trade organization that perpetuates itself on lies and fear, in order to buy and sell my own property, which I already have the legal right to do as a citizen of a free country.

Speaking of fear. You should see the disgusting ads on TV that the Canadian Real Estate Association puts out. They literally imply that you are just asking for your wife and children to be raped in their own home if you don't list with a Realtor!

@Mike M.  I've looked into working with both cash and credit partners but come to the conclusion that I prefer to keep the number of people involved in the deal to a minimum. Just me, the seller, and my tenant is about as far as I want to go these days.

I've also bounced around a lot of different ways of doing deals and have settled on doing an LO at market value, unless they don't have any equity, then buying for the mortgage balance is the way to go.

My target deal now is a move-in ready home in a desirable neighborhood with a reasonable rent that goes 100% towards the purchase price. The seller gets the principal reduction and all the appreciation. I get my rent credit, but only if I exercise my option. I also cover the seller's closing costs. They can hire an agent if they like, or if they already have one when we strike a deal, they will have the equity to pay them at closing.

This is the cleanest way to do deals I can think of, and as long as the seller is in a position to wait for their equity, it's a no-brainer. They make more money and have no management.

This thread is insanely long.  But my company is wholesaling a property in Texas.  I work directly with a few realtors.  (Pulling comps, getting advice, not being an idiot thinking I know it all).  No clue why you guys have had so many horribly odd experiences around the country.  But I'm guessing that is a coastal thing.  

How does a contract that assigned a vested interest to a company in real property not supply the interest in the property?  

How does that magically become as mentioned above selling securities.  Or acting as a broker of property when all that takes place is the supply of an introduction of two interested parties.  There is no way to legally act on behalf of either party without a power of attorney, there is no representation of ownership implied (at least not in the contracts i use) accept unless an idiot puts that in the contract which would be fraud.  In fact even in the posting of the ad it explicitly states that.  Not in some fine print, but directly at the top in easy to read language.  Once the ability to pay comes in my very prepared and experienced in home sale owners (whom have clued me in on nuances unique to our area) are prepared to walk through this sale.    

I am assuming that to many people have read to many books with information that is not unique the their state laws.  

But how do you even start any business with zero knowledge of the law in your area?  

Reading is such a lost art.  

Originally posted by @Duane Brown :

This thread is insanely long.  But my company is wholesaling a property in Texas.  I work directly with a few realtors.  (Pulling comps, getting advice, not being an idiot thinking I know it all).  No clue why you guys have had so many horribly odd experiences around the country.  But I'm guessing that is a coastal thing.  

How does a contract that assigned a vested interest to a company in real property not supply the interest in the property?  

How does that magically become as mentioned above selling securities.  Or acting as a broker of property when all that takes place is the supply of an introduction of two interested parties.  There is no way to legally act on behalf of either party without a power of attorney, there is no representation of ownership implied (at least not in the contracts i use) accept unless an idiot puts that in the contract which would be fraud.  In fact even in the posting of the ad it explicitly states that.  Not in some fine print, but directly at the top in easy to read language.  Once the ability to pay comes in my very prepared and experienced in home sale owners (whom have clued me in on nuances unique to our area) are prepared to walk through this sale.    

I am assuming that to many people have read to many books with information that is not unique the their state laws.  

But how do you even start any business with zero knowledge of the law in your area?  

Reading is such a lost art.  

 The OP is in FL and my comments relate to FL. Texas has a more liberal policy (for now).

Originally posted by @Doug Pretorius :

@Matthew Olszak Maybe you're new but it's common practice among agents to start by lying that they have a buyer, then take the listing at a price they know the house won't sell for to milk it for buyer and seller leads, all the while telling the seller a sob story about how "the market has turned" or "things are just slow right now" and they need to lower the price. Over and over again until either they do eventually come down to the price the agent should have listed for in the first place, or the listing expires, all while the agent has sold other houses and generated more listings off of that one.

That scenario is so common I assume it must be taught either during the licensing course, or it's the very first thing agents learn during orientation at their new brokerage.

Why don't I just get licensed? I have no interest in paying fees to a corrupt trade organization that perpetuates itself on lies and fear, in order to buy and sell my own property, which I already have the legal right to do as a citizen of a free country.

Speaking of fear. You should see the disgusting ads on TV that the Canadian Real Estate Association puts out. They literally imply that you are just asking for your wife and children to be raped in their own home if you don't list with a Realtor!

In our area most listings sell for 96% of list price or higher. These agents aren't feeding sellers BS. I have met some incompetent agents that grossly overpriced listings due to being new. Most agents aren't overpricing by mistake or to get listings. That irritates the seller and they often will drop that agent. Sellers want results. 

Honestly folks I think we can all supply ample evidence of 'integrity-challenged' actors out there in the marketplace, whether they are wholesalers or they are real estate agents.  But we can also supply plenty of good examples of people out doing the right thing everyday, doing it the right away.  That also applies to both.

Whenever I go look at a property, the first thing I ask is why they want to sell and why don't want to list it. If the answer is understandable, I keep asking questions. If they just aren't sure, we talk through it. Listing might be the better route, and it only helps my credibility to point that out. Usually it is the condition of the house that answers the question -- eg., it is not going to likely pass inspection, or appraise. Just throwing it out there as 'a handyman special that just needs a little TLC' is going to accomplish every little, other than attract a bunch more wholesalers. That nice young couple with the FHA approval isn't going to take on a bathroom renovation, or worse.

Originally posted by @Joe Splitrock :

You are asking wholesalers to stop bragging, haha good luck with that.

 An unlicensed broker CANNOT offer a seller anything a licensed agent cannot. My most recent purchase was a train wreck. I believe it was on the market less than 10 days before getting a buyer (me). The first buyer backed out after inspection. I came in about 20K less and we did the deal.

Originally posted by @Mike M. :
Originally posted by @Doug Pretorius:

@Mike M. I take it the $50k to fund the LLC is used for paying the seller any equity you agree to, closing costs, and repairs. Good system!

 Right. And I would think a similar set up would work in your neck of the woods.

You mentioned that realtors that promise too much to get the listing are a problem. I see that happen too. While wholesalers tend to offer way below the value, realtors can for instance get the listing by exaggerating what the value of the property is - they list high at $200,000  - they get the listing and after the house doesn't sell their solution is to reduce the price to say $190,000. 

When you do the math, since listing fees in my markets run about 6% (or $12,000 for a $200,000 listing) - and the agent gives their cuts to their broker, the other agent and the other agent's broker - so by 4 people - the agent winds up with $3,000

The house doesn't sell so the agent cuts the price to $190,000 - a four way split of 6% on $190,000 is $2,850 or about $150 hit to the agent - so, buy dropping the price the agent loses only $150

However, the Seller has taken a $10,000 hit. That is enough money for me to take you and everybody else on the thread to the Four Seasons Resort here for a very nice night out. That is a lot of money to the seller.

I got a call last thursday from a potential seller that went off market. The agent had the property at $399,900. No offers. I looked at comps (sold within the last 90 days) and all three comps put her place at about $340,00. Doesn't the agent realize that the buyer has to have an appraisal and the appraiser is going to use "Solds", and not use wishful thinking? Why deceive the seller? It gives false hope. 

Rather than argue with the seller who was convinced her property is worth $399,900 (I could hear the disappointment in her voice) I sent her to a wholesaler. :-)

 Mike while I agree the practice of buying a listing by telling the owner a price way to high and hope they lower it goes on for sure.

but many times to most times its the seller setting the too high price while the agent tells them OK we will try it.

My wife runs into this often and with her best client ME  she tells me Jay your too high on price.. I say try it for 2 weeks and lets see. 

so a lot of that goes on

Originally posted by @Mark Sewell :

Honestly folks I think we can all supply ample evidence of 'integrity-challenged' actors out there in the marketplace, whether they are wholesalers or they are real estate agents.  But we can also supply plenty of good examples of people out doing the right thing everyday, doing it the right away.  That also applies to both.

Whenever I go look at a property, the first thing I ask is why they want to sell and why don't want to list it. If the answer is understandable, I keep asking questions. If they just aren't sure, we talk through it. Listing might be the better route, and it only helps my credibility to point that out. Usually it is the condition of the house that answers the question -- eg., it is not going to likely pass inspection, or appraise. Just throwing it out there as 'a handyman special that just needs a little TLC' is going to accomplish every little, other than attract a bunch more wholesalers. That nice young couple with the FHA approval isn't going to take on a bathroom renovation, or worse.

 you have investors I am an investor I have closed on every deal I put into contract I only go into contract with the intent to close. 

were this whole thing gets wonky is the wholesalers only intention is to flip a contract so they are not investors.. they are risking no capital other than their mailers etc.. but the whole scheme is the broker of real estate plain and simple looks like duck quacks like a duck its a duck.. no matter what..  that's the real issues states are having now.. when I sat down with the Oregon investigator who is looking at one wholesaler.. that was her comment she said he is not an investor he is a real estate broker .. but he has no license that's not legal what he is doing.. its as simple as that.

What's strange to me about wholesaling is how often discussions of its legality pop up on this site. "Is it legal?" "Isn't it legal?" "Why is it illegal?" These are the sorts of questions one sees while looking through BP.

Why are there never questions about the legality of driving with a license, or selling real estate with a license? Because we all know those actions are legal. In wholesaling threads, the term "gray area" pops up with alarming regularity.

Why can't 3 year-old kids drive? Why can't kindergartners own firearms? Why can't unlicensed people(who may also lack training) sell homes which are often the repository of the homeowners' lifetime of accumulated wealth? Because the public demands protection for its citizens- it's part of the reason we pay taxes.

I understand the wholesalers' perspective - that real estate licensure is simply to protect a monopoly and guard the realtors, who pay lobbyists to maintain their wealth. There's truth to that- just like farmers pay their lobbyists to bribe the politicians to keep the corn ethanol subsidy, which doesn't help anyone but corn farmers(it likely hurts everyone else.) There are countless examples of entrenched industries using laws to their benefit. Wholesalers, that's life, get over it- or get a lobbyist and form an organization and get your own laws on the books.

But wholesalers- the other aspect of licensure, in this case, is certainly to protect the public. It's not perfect. It doesn't always work. But it's better than nothing. If you're opposed to the requirement of a license for representing a homeowner in the sale of real estate, are you also opposed to the requirement that you must get a driver's license in order to drive? Or what about becoming an MD in order to perform heart surgery? Hey, maybe we should just let anyone perform open-heart surgery, it can't be that hard...can it? 

  

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here