Attention Wholesalers: Beware!!!

200 Replies

This topic has been locked by an administrator.

Originally posted by @Doug Pretorius :
Originally posted by @Todd Burton:

That's a pretty bold accusation you're making. Can you provide any proof or empirical evidence to support these statements? 

 You need look no further than right here on biggerpockets. Lying to sellers is regularly recommended as a good way to get leads as an agent. Here are a couple examples:

https://www.biggerpockets.com/forums/311/topics/322484-cold-calling In this thread 2 agents recommend telling potential sellers that you have people interested in the area, even though you don't.

https://www.biggerpockets.com/forums/311/topics/442419-are-open-houses-worth-it In this thread a Realtor admits that doing open houses is primarily to appear to the seller to be working and to generate other leads and exposure for his business.

https://www.biggerpockets.com/forums/21/topics/248195-agents-how-do-you-not-waste-your-time-with-an-unrealistic-seller In this thread some advocate taking an overpriced listing and relying on the market and life to force the seller to drop their price. Others recommend taking the overpriced listing and charging the seller for marketing. A few actually recommend not taking the listing.

https://www.biggerpockets.com/forums/621/topics/408029-case-study-how-to-steal-an-overpriced-high-dom-property In this interesting thread Wes describes how listings agents who lie to sellers about the price can create a buying opportunity for you.

 I certainly don't disagree that this may be done by some unethical people and it is unfortunate that it happens (and apparently some even promote it) but to say it is "common practice" is untrue. There are bad apples in all businesses. 

@Todd Burton Sadly in my experience it's the other way around. Very few agents I've met are trustworthy. I have a personal experience to illustrate:

I had already been buying houses on terms (lease options, contract for deed, subject to etc.) for a few years so I knew the percentages of FSBOs open to these kinds of deals. And I wanted to expand into buying homes listed with agents. So I talked to several and they all told me the same thing: "I sell 100% of the listings I take and none of my sellers would ever consider a sale on terms."

I tried a few buyers agents out but none of them were willing to do written offers. A few made verbal offers to the listing agents, but gave up after getting the same story the listing agents gave me.

So I decided to run a little experiment.

I wrote offers on 700 listed homes and sent them direct to the listing agents. Without exception every single agent told me the same thing: "Sorry. The seller has rejected your offer." Nothing in writing of course, only a verbal rejection from the agent.

Not convinced, I called the sellers myself. Not even one of them had actually received my offer. All 700 agents had lied.

Needless to say I haven't tried to do deals with agents since.

Originally posted by @Doug Pretorius :

@Todd Burton Sadly in my experience it's the other way around. Very few agents I've met are trustworthy. I have a personal experience to illustrate:

I had already been buying houses on terms (lease options, contract for deed, subject to etc.) for a few years so I knew the percentages of FSBOs open to these kinds of deals. And I wanted to expand into buying homes listed with agents. So I talked to several and they all told me the same thing: "I sell 100% of the listings I take and none of my sellers would ever consider a sale on terms."

I tried a few buyers agents out but none of them were willing to do written offers. A few made verbal offers to the listing agents, but gave up after getting the same story the listing agents gave me.

So I decided to run a little experiment.

I wrote offers on 700 listed homes and sent them direct to the listing agents. Without exception every single agent told me the same thing: "Sorry. The seller has rejected your offer." Nothing in writing of course, only a verbal rejection from the agent.

Not convinced, I called the sellers myself. Not even one of them had actually received my offer. All 700 agents had lied.

Needless to say I haven't tried to do deals with agents since.

 I'm sorry to hear that. By law, agents are required to present any offer they receive. The only exception is if the seller has specifically told them to reject that type of offer. You could file ethics complaints against them but I suspect you neither have the time or desire to do so on 700 agents! For future offers, I would recommend you put language in your offer that requires the agent to provide a written response signed by the seller. 

Originally posted by @JD Martin :

I have said this before, but I think the biggest problem for me with wholesalers is that many - maybe most - of them don't have the means or ways of actually closing on the property, and to me knowingly signing a contract without the ability to close is at best totally unethical and at worst outright fraud. 

Not to come out of left field, but when you buy an Option on an underlying Security in the Stock Market you may never have the intention (nor is it required) of purchasing said Security in the future but rather speculate for profit/loss on the option to purchase or sell that security instead of using it as a long term investment strategy.

I know this is apples and oranges in a sense, however I see a direct correlation between the two in that both underlying assets are being speculated upon by the Buyer. 

In my opinion Wholesale Contracts are no different than Option Contracts. Both are contracts of speculation on an underlying asset for a finite amount of time with the possibility for profit or loss. 

And saying your a cash buyer is basically the same as saying your the living person doing business in America; it's all Cash. Go to dinner tonight and pay with your credit card, guess what, at the end of the night your credit card company is paying that resturaunt cash on you behalf. Buying a property with 250k in bank financing: does that make you a Cash Buyer when using other people's money just like a Wholesaler uses OPM to close?

That's my 10 cents, my 2 cents was free! Lol

Speculation might be the same but the contract you are signing is not unless the seller has agreed in writing that you are speculating on buying his/her house but may not have any money to do it with. And a stock is not similar because it has already been released into the market, i.e. it is a secondary piece of paper that is being traded and is a minute piece of the company, not the entire company. 

Regardless of the source of funds, it is unethical and possibly illegal to sign a contract that you have no ability or intention of executing.

I agree, the devil is in the details. Options are used in all sorts of contracts of speculation is my point: from stocks to commodities, to real estate to mineral harvesting rights to automobiles and so on. It's the responsibility and more so the right of the Seller to read the contract and amend it to suit their needs of risk mitigation as it where. Devil is in the detail as the lawyer said previously. 

My point is someone doesn't have to have intent (or a license) to enter into a contract of speculation for an asset, regardless of its size. 

* I wanted to add very importantly, that I'm not advocating for people lying, cheating or out there causing harm to these people in distress or anyone for that matter. Also if it's illegal in your state than, uh, yeah that obviously bad too. So I agree, those types of people need to go.

Originally posted by @William Higdon :
Originally posted by @JD Martin:

I have said this before, but I think the biggest problem for me with wholesalers is that many - maybe most - of them don't have the means or ways of actually closing on the property, and to me knowingly signing a contract without the ability to close is at best totally unethical and at worst outright fraud. 

Not to come out of left field, but when you buy an Option on an underlying Security in the Stock Market you may never have the intention (nor is it required) of purchasing said Security in the future but rather speculate for profit/loss on the option to purchase or sell that security instead of using it as a long term investment strategy.

I know this is apples and oranges in a sense, however I see a direct correlation between the two in that both underlying assets are being speculated upon by the Buyer. 

In my opinion Wholesale Contracts are no different than Option Contracts. Both are contracts of speculation on an underlying asset for a finite amount of time with the possibility for profit or loss. 

And saying your a cash buyer is basically the same as saying your the living person doing business in America; it's all Cash. Go to dinner tonight and pay with your credit card, guess what, at the end of the night your credit card company is paying that resturaunt cash on you behalf. Buying a property with 250k in bank financing: does that make you a Cash Buyer when using other people's money just like a Wholesaler uses OPM to close?

That's my 10 cents, my 2 cents was free! Lol

 Apples and oranges is right...

Scenario 1 (not what wholesalers do) is: I am going to pay you $1000 for the right to buy your home for $100,000 in 30 days. If I choose not to, you keep that $1k.

Scenario 2 (what they do) is: I am going to buy your home in 30 days for $100,000, although I have no ability to do so. I am going to give you $25 right now when you sign. Except that if I ambiguously decide that the property doesn't meet my "inspection criteria" in 29 days, I don't have to buy it and you have to give me my $25 back. In the mean time, I can bring others through to attempt to sell the home to them at a price I specify under the guise of being contractors, inspectors, and partners.

Neither is the focus of this discussion. What is at discussion is if wholesaling is brokering, which is illegal in most states without a license. At its most clean definition, no, its not. But how MOST execute it, yes, they make their activities brokering. In many states, if you advertise that you have a contract to purchase 123 Main St. for $100k, and you are willing to sell that ability to do so for $25k, that's ok. But you cannot advertise the details of the property - after all, its the contract you are a party to that you are selling, not the 3/2 home on a quarter acre lot with a 200k ARV.

If there's one thing for sure, I'm happy to not be drinking the koolaid made from water in Kitchener-Waterloo, Ontario, with all the paranoid psychosis it seems to be causing some folks there. I can assure you, the bar to getting a license couldn't be any lower in most states, and at 1/10th of a single deal's commission, the entry-fee is hardly a barrier either. NAR has bigger fish to worry about. Sorry to make you not feel as important Doug, but you really aren't on anybody's radar, unless of course you are breaking your province's or locality's laws, in which case you should be prosecuted irregardless of how you feel its fair or not.

@Matthew Olszak 

Word. Both scenarios are okay (for sake of the arguement if legal) if the parties in those scenarios agreed to those terms, then no one can raise a claim against a breach of or seek damages from that contract. 

My point was you dont have to have intent to buy the asset to enter into speculation of that asset. 

@William Higdon That is what I was thinking as well. What if the seller understands the play and agrees? Would there still be an issue?

There's lots of different scenarios being discussed here, but would it be fine in the case of a wholesaler being up front about finding an end buyer to assign the contract? Being clear from the start that there is no intent to purchase the property, and the seller agrees?

(Reference BP podcast 271. Sam Craven runs a very successful wholesale company and seems to do exactly this.)

I am a RE broker and really want to find and work with wholesalers. If you bring me a deal and the numbers make sense then I am all over it. I will pay you what ever you are getting out of the deal. But that being said I am really trying to figure out how I can wholesale and still broker deals. As a broker I have a fiduciary duty to my clients, be it buyers or sellers. So for me to "wholesale" a property is what the state of CA says is "equity stripping" and that flies in the face of trying to get the highest and best offer for my client. I guess I can disclose to them that I am getting an assignment fee but why not just get a commission. I think if most sellers knew how wholesaling worked they would get tweaked out more so than paying a commission. I guess its ok to make an offer on a house as a non broker that is below market but when you tack on an assignment fee you are essentially "brokering" that property and that is where I can see running afoul with the state law. At this point if you just want to be a wholesaler you might as well just become an agent. You do all the work maybe more and you do the hardest part and that is to find listings, and even harder you are finding below market listings. Most agents will take any listing just to get something on the wall and hope it sticks, they dont have to find another buyer to buy wholesale they get a retail buyer to pay the commission.

And let me say this the NAR[National Association of Realtors] lobby is big and powerful. And if they feel wholesalers are taking their commissions then the heat will be on legislators to legislate it. They have a monopoly. I remember 20 years ago saying why should I get my real estate license the internet is just going to disrupt the agent model just like travel agents. Well it has not happened yet and it might take another 20 years for the low cost listing services kick in but I think eventually they will.

Yeah who ever mentioned the Tesla thing is right about insane. How can this be considered not a monopoly or unfair business practices. If you think that big gov and big business are looking out for the consumer or the little guy, no its profit over people all the time all in the name of enriching shareholders and government coffers.

Originally posted by @Rob Massopust :

I am a RE broker and really want to find and work with wholesalers. If you bring me a deal and the numbers make sense then I am all over it. I will pay you what ever you are getting out of the deal. But that being said I am really trying to figure out how I can wholesale and still broker deals. As a broker I have a fiduciary duty to my clients, be it buyers or sellers. So for me to "wholesale" a property is what the state of CA says is "equity stripping" and that flies in the face of trying to get the highest and best offer for my client. I guess I can disclose to them that I am getting an assignment fee but why not just get a commission. I think if most sellers knew how wholesaling worked they would get tweaked out more so than paying a commission. I guess its ok to make an offer on a house as a non broker that is below market but when you tack on an assignment fee you are essentially "brokering" that property and that is where I can see running afoul with the state law. At this point if you just want to be a wholesaler you might as well just become an agent. You do all the work maybe more and you do the hardest part and that is to find listings, and even harder you are finding below market listings. Most agents will take any listing just to get something on the wall and hope it sticks, they dont have to find another buyer to buy wholesale they get a retail buyer to pay the commission.

And let me say this the NAR[National Association of Realtors] lobby is big and powerful. And if they feel wholesalers are taking their commissions then the heat will be on legislators to legislate it. They have a monopoly. I remember 20 years ago saying why should I get my real estate license the internet is just going to disrupt the agent model just like travel agents. Well it has not happened yet and it might take another 20 years for the low cost listing services kick in but I think eventually they will.

 The problem with the "equity stripping" argument is the question that I've asked twice on this thread, and countless other threads:  do other investors offer 100% of what they're willing to pay when they buy a house?  Just because you're an agent or broker, doesn't mean that you have to pay 100% of what you think a house is worth.  There are so many factors that go into what a buyer is willing to pay and what a seller is willing to accept!

The piece of the puzzle that most are missing on the brokering activity argument is that the PUBLIC advertising is what runs afoul of brokering laws.  If you're not advertising publicly, you're generally not breaking any brokering laws.  At least in Ohio, the Division has drawn a distinction between private email lists and password protected websites vs. posting on Craigslist or public FB pages (or BP Market).  There's a chicken and egg thing there, though, for people starting out.  How do you build a private buyer database without advertising deals publicly?  Lots of legwork finding people that have bought cash before and tracking down their contact info.  Most people starting out as wholesalers don't have the work ethic to do that.

@Sean Cole According to the Ohio regulators in this video https://www.youtube.com/watch?v=9fi54S8nwUA&t=691s a wholesale can advertise their contract. They can not put a photo or address of the property in the ad.

So you could use a generic ad like:

"Wholesale real estate deals! 30-70% below market value. Sign up for my email list."

Or you could advertise a property you have under contract like this:

"FOR SALE: Contract for 3/1 in Cincinnati. 40% below value. Willing to sell contract for $10,000."

You can also build your buyers list by going to investor meet ups. Calling for rent ads and asking if they want to buy more properties. Or research homes sold for cash in your area and contact the buyers.

@Maugno M.

We are here to grow and expand, but we are not (or should not) act, promote, or in any way shape or form condone turning a blind eye to what others are doing just because "it is not our business." This is the type of behavior that gives everyone involved in any sort of real estate a bad name. This is counter to the whole reason this website was created and @Joshua Dorkin vision. 

Ethics are important. Integrity is important. Holding people (investors) to a standard is important, and if history is an indicator of anything - "all it takes for evil to succeed is for good people to do nothing." Maybe I am being a bit melodramatic, but it is my opinion that attitudes "advocating to turn a blind eye" are not acceptable and not the type of business I want to interact with or be a part of in any way. 

 @John Nachtigall

Originally posted by @Doug Pretorius :

@Sean Cole According to the Ohio regulators in this video https://www.youtube.com/watch?v=9fi54S8nwUA&t=691s a wholesale can advertise their contract. They can not put a photo or address of the property in the ad.

So you could use a generic ad like:

"Wholesale real estate deals! 30-70% below market value. Sign up for my email list."

Or you could advertise a property you have under contract like this:

"FOR SALE: Contract for 3/1 in Cincinnati. 40% below value. Willing to sell contract for $10,000."

You can also build your buyers list by going to investor meet ups. Calling for rent ads and asking if they want to buy more properties. Or research homes sold for cash in your area and contact the buyers.

lol Thanks, Doug.  I've got 1300+ people on my buyer's list and wholesale lots of properties each year here in Ohio.  As I've made clear, I have a handle on how to operate in Ohio. 

@Jonathan Pflueger You are correct. Integrity and ethics are important. But when people on here are promoting to turn people in to state boards, etc. when it has absolutely nothing to do with them with the intention of hurting somebody's business, that is being very petty. I get a hint of jealousy or envy. Bad apples will eventually fade away anyway. What service are you doing to yourself by snitching on someone that is not doing any harm. We need wholesalers in this industry. The experienced ones. The ones that bring deals. We need them. 

Originally posted by @Maugno M. :

@Jonathan Pflueger You are correct. Integrity and ethics are important. But when people on here are promoting to turn people in to state boards, etc. when it has absolutely nothing to do with them with the intention of hurting somebody's business, that is being very petty. I get a hint of jealousy or envy. Bad apples will eventually fade away anyway. What service are you doing to yourself by snitching on someone that is not doing any harm. We need wholesalers in this industry. The experienced ones. The ones that bring deals. We need them. 

 We have two kinds: the kind that operate legally and the kind that are operating illegally. The illegal ones have no gripe if they get in trouble. Get licensed like the honest ones do. BTW---if it was truly a "service' and they were "needed" wouldn't there be a licensing category for them? The only sellers I have met that got involved with unlicensed brokers were unhappy victims. 

@Maugno M.

I agree, we do not need vigilantes patrolling BP streets. But I do not agree with "turning a blind eye" to those that are either acting unethically or in flagrant violation of any law. Calling someone out for doing something unethical or unlawful is not "snitching," it is holding people to a higher standard. There are better ways to do this than others and taking into account someones intent should be part of the equation so as not to blow issues/situations out of proportion. 

Bad apples will eventually work themselves out, but how many people have to suffer from their unethical practices before that are stopped if knowledgable and able people simply "turn a blind eye?" There is a place for lawful and ethical wholesalers in real estate investing, just like there is a place for lawful and ethical realtors, flippers, rehabbers, and whatever else there is. The key words though, are lawful and ethical. 

Originally posted by @William Higdon :

I agree, the devil is in the details. Options are used in all sorts of contracts of speculation is my point: from stocks to commodities, to real estate to mineral harvesting rights to automobiles and so on. It's the responsibility and more so the right of the Seller to read the contract and amend it to suit their needs of risk mitigation as it where. Devil is in the detail as the lawyer said previously. 

My point is someone doesn't have to have intent (or a license) to enter into a contract of speculation for an asset, regardless of its size. 

* I wanted to add very importantly, that I'm not advocating for people lying, cheating or out there causing harm to these people in distress or anyone for that matter. Also if it's illegal in your state than, uh, yeah that obviously bad too. So I agree, those types of people need to go.

 there are option to purchase real estate contracts and I think those would be better used... you have the option to purchase the seller knows your optioning the property with the intent to close it or lose your option money..  very clear.. its when you write a all cash offer close in 30 days and you have no intention or ability to do it.. and you have a wiggle out to get your EM back.. and your sole purpose of doing this is to broker it to another.. I mean come on ..its taking advantage of those that just don't know what they don't know.. 

Originally posted by @Jay Hinrichs :
Originally posted by @William Higdon:

I agree, the devil is in the details. Options are used in all sorts of contracts of speculation is my point: from stocks to commodities, to real estate to mineral harvesting rights to automobiles and so on. It's the responsibility and more so the right of the Seller to read the contract and amend it to suit their needs of risk mitigation as it where. Devil is in the detail as the lawyer said previously. 

My point is someone doesn't have to have intent (or a license) to enter into a contract of speculation for an asset, regardless of its size. 

* I wanted to add very importantly, that I'm not advocating for people lying, cheating or out there causing harm to these people in distress or anyone for that matter. Also if it's illegal in your state than, uh, yeah that obviously bad too. So I agree, those types of people need to go.

 there are option to purchase real estate contracts and I think those would be better used... you have the option to purchase the seller knows your optioning the property with the intent to close it or lose your option money..  very clear.. its when you write a all cash offer close in 30 days and you have no intention or ability to do it.. and you have a wiggle out to get your EM back.. and your sole purpose of doing this is to broker it to another.. I mean come on ..its taking advantage of those that just don't know what they don't know.. 

 Exactly. Could not have put it better myself. 

This post has been removed.

For the most part, i've dealt with good wholesalers. There is one guy i know who brings great deals. Very knowledgeable and contracts state everything he does and how he does it. He is upfront to the seller and buyer. I did have one wholesaler in the past that was pretty new, and didn't know much. Like i stated earlier, those don't last. They get weeded out by themselves. 

Create Lasting Wealth Through Real Estate

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

Start here