What to Bring to Seller Appointment - Wholesale Real Estate

132 Replies

@John Thedford ok, I have read several of your posts and totally agree with your premise about wholesalers in the state of Florida, but nobody “at the state” said anything about BP. That’s a fabrication and you know it, and before you go through with a keyboard warrior personal attack save your energy. I really could care less.

Originally posted by @Chuck Klinger :

@Charlie MacPherson. The wholesale asignment fee that rehabers pay is basically the marketing the wholesaler has done to find the property! Most rehabers would rather spend their time on the property not marketing. It is a lot of work to find these deals. I know plenty of rehabbers that are happy to pay the assignment fees.

 I know what the assignment fee is and why the wholesaler charges it - and I know that it's done every day.

But the fundamental issue remains - here in MA and in many other states, it is a license-required activity.  

Unlicensed wholesalers are breaking the law and in most (and perhaps all) cases, stripping equity from a desperate or uninformed seller. Not only illegal, but also unethical.

Originally posted by @Chuck Klinger :

@Charlie MacPherson. The wholesale asignment fee that rehabers pay is basically the marketing the wholesaler has done to find the property! Most rehabers would rather spend their time on the property not marketing. It is a lot of work to find these deals. I know plenty of rehabbers that are happy to pay the assignment fees.

 I know what the assignment fee is and why the wholesaler charges it - and I know that it's done every day.

But the fundamental issue remains - here in MA and in many other states, it is a license-required activity.  

Unlicensed wholesalers are breaking the law and in most (and perhaps all) cases, stripping equity from a desperate or uninformed seller. Not only illegal, but also unethical.

@Chuck Klinger  

From your own profile:

"If you're a wholesaler who wants me to shoot out dozens of lowball offers I will do so at $200.00 per offer for the first 10 offers, $100 each thereafter, as each offer takes about 2 hours of my time."

How dare you send out low offers and conspire to "steal equity" from sellers?! I guess it's alright as long as you get your beak wet. ; )

Turns out that everyone in a transaction is looking after their own best interests. Even you! Shocker.

@Jon Allen In my market there are plenty of houses listed on the MLS for sale ‘as is' that are in very rough shape. I bid on one in the past two weeks that needed a complete gut plus exterior work and was outbid by numerous others.

***Gets more popcorn***

@Mark S. that's great. I hope they're getting the price they wanted. I'm not suggesting that nobody can list a distressed house on the MLS. I'm not surprised that they found a buyer that way. But when you subtract the agent's commission, holding costs of what is almost inevitably a much longer closing process, time and hassle involved in showing the place, etc, there's room to debate whether selling it on the MLS is the clear winner for everyone.

@Jon Allen Well my offer was cash, close whenever seller wanted.

@John Thedford Wholesaling is not illegal. Countless investors have made a good living by wholesaling properties. ... Case in point: it is legal to wholesale real estate, as long as you follow the rules of your particular state. When all is said and done, there is nothing illegal about selling a contract ~ Than Merrill

@Charlie MacPherson Wholesaling is not illegal. Countless investors have made a good living by wholesaling properties. ... Case in point: it is legal to wholesale real estate, as long as you follow the rules of your particular state. When all is said and done, there is nothing illegal about selling a contract ~Than Merrill. All I’m hearing is one side of the story when it comes to the couple getting “screwed over.” What if the couple knew about the rehab cost and decided it was best to just sell the property as is? As a wholesaler, I’d offer the seller two options. Option 1: fix-up property then put it on market at full retail value (or whatever they think reasonable). Option 2: Go to a real estate agent. It’s my understanding that a wholesaler is able to close deals faster than an agent and able to help sell a property as is. Do you have a source that says wholesaling is a illegal? I’ve done all the research I can and I can’t find a single source that says wholesale Real Estate is illegal.

I find it fascinating many folks on BP have such strong stances against wholesaling, quite vigilant in fact. Yet they are paid supporters of a website that hosts a wholesaling forum, interviews wholesalers on their podcast and includes wholesaling in some of their literature they sell...

Whether they like it or not... they are voting with their wallets and participation, in support of wholesaling. 

@Alan Johnson Do you know where I can find more info on  "Option Agreements" you spoke of? This sounds interesting. Thanks

I came to Bigger Pockets to be able to learn about real estate investing and to learn to do it the ethical way. One way the Bigger Pockets guys suggest we learn is through using the forums to get the help we need from other investors and that includes wholesalers. It’s a shame when someone goes on a forum to get answers and instead the get called a crook.

The wholesalers are being called crooks because they do not have a license but, a license doesn’t make someone ethical and that’s what we need in whatever field we decide to work in as an investor. We all need to be honest and get our clients the most help they can get and, in the process, make money to grow our businesses. A license doesn’t mean you are going to be the best answer for a client and it doesn’t mean you will in some way be the one who helps out a client in their time of need.

Two years ago, I went through a divorce and we decided to sell our house and after our licensed realtor got finished splitting up their commissions, we received a whopping $120.00. If I knew then what I know now, I would have been grateful to meet a wholesaler that would have offered me more cash in my hand and see someone buy the house, fix and flip it.

Before you go and assume everyone with a license is ethical and everyone without is not, get the facts from each individual person and then determine who they are as an investor, real estate agent etc.

@Brittany Witt, I hope you received the help you needed from the ones who actually wanted to help you and don’t be discouraged from the ones who definitely jumped to the conclusion that you are some kind of Scammer!!

I used to run appointments with a million-dollar wholesale team, and I put 17 property under contract in a three-month span.

All I brought was a purchase and sale agreement, and comparables print it out on a sheet of paper or on a PDF in my phone to show their what other houses were selling for.

All you need is your purchase and sale agreement and some confidence, which comes from doing your due diligence.

@Mary Mitchell I can see this is a very sore spot for you and I agree there are some unscrupulous wholesalers out there. However, if a property is in horrible shape it is by nature worth considerably less than its after repair value. Moreover, every homeowner is aware of the option to list their property with a real estate agent. But there are very strong reasons why they don't and that should be examined, as well. 

For example, I just sold my home to Opendoor.  I could have profited a few thousand $ more had I listed my property, but I appreciated the *ease* and *convenience* of dealing with an investor. Sure, there was a fee and repair costs, but I loved being in control of the timing of the closing, I loved not having people come in and out of my home, and I was able to complete much of the transaction on my mobile phone.

Let's be honest, there are also some real estate agents who don't deserve their commissions. They are those who simply sit back and do very little to market your property. They don't seem to recognize the changing RE landscape and they don't use technology, video and social media marketing to sell homes more quickly.  The 30-60 day traditional sales cycle of lackluster performance seems A-OK for those agents. But no matter what level of effort they put forth, they receive the 3-6% commission. Personally, that offends me much more than an ethical wholesaler or flipper buying from me at a discount and making my life a lot easier.

Originally posted by @Juensy Pierre :

@Charlie MacPherson Wholesaling is not illegal. Countless investors have made a good living by wholesaling properties. ... Case in point: it is legal to wholesale real estate, as long as you follow the rules of your particular state. When all is said and done, there is nothing illegal about selling a contract ~Than Merrill. All I’m hearing is one side of the story when it comes to the couple getting “screwed over.” What if the couple knew about the rehab cost and decided it was best to just sell the property as is? As a wholesaler, I’d offer the seller two options. Option 1: fix-up property then put it on market at full retail value (or whatever they think reasonable). Option 2: Go to a real estate agent. It’s my understanding that a wholesaler is able to close deals faster than an agent and able to help sell a property as is. Do you have a source that says wholesaling is a illegal? I’ve done all the research I can and I can’t find a single source that says wholesale Real Estate is illegal.

 Yes - I have a source that says wholesaling is illegal in MA.  It's the actual state law.  

https://malegislature.gov/Laws/GeneralLaws/PartI/T...

As a result of these discussions, I've looked up RE laws in CA and MI and both are nearly identical.  They not only prohibit unlicensed brokering, but also include selling your contract.

These state laws are put in place to protect the public, not the Realtor - and unethical wholesalers are Exhibit #1 of what people need protection from.

As to my current clients, there is no "other side" to the story.  This well known franchise wholesaling company that buys ugly houses offered my clients $100,000 less than the current market value of their home.  They lied to them and convinced that that their home was actually worth only $228,000.  Being naive about real estate, they believed this very convincing flim-flam man.

So you can tell yourself that selling real estate contracts is legal all you want.  Regardless of how many people break that law every day, actual state law says that it's not.

Just remember, when it eventually goes wrong, and someone hauls you into court for screwing their grandmother, you won't have to explain yourself to me.  You'll have to explain yourself to a judge.

@Kenny C. For starters, I recommend the book "How To Make Money With Real Estate Options" by Thomas J. Lucier. It is as close to an "operating manual" as anything else I have found.  It is loaded with sample documents (but see my caveats below) and step by step instructions.

Caveats:

  1. The book was written in 2005, and various regulations and statutes may have changed since then.  In addition, these regulations and statutes vary from state to state, so you definitely would want to have any of the sample documents reviewed by an attorney before using them.
  2. The book contains links for the documents, as well as contact information for the author.  However, the links no longer work and the office number and email address for the author are no longer valid as well.  If you can find an electronic version of the book in a format that can be copied (e.g., pdf version), then you could cut and paste the documents.
  3. Contrary to what the author states in the book, I have been told here on BP that a real estate license is required to buy and sell options (at least in Massachusetts).  This doesn't seem logical to me, so I am in the process of confirming this with various attorneys.  Connect with me and/or send me a PM if you would like to be kept up to date on my progress.
  4. Perhaps most intriguing to me is that the book does not go into detail about how to value and price an option.  I have some experience with listed equity options, and I believe the option pricing concepts in that arena can be applied to real estate options as well.  Again, PM and/or connect with me if you would like to discuss this further.

Hope this helps!

Alan

Originally posted by @Tim G. :

I find it fascinating many folks on BP have such strong stances against wholesaling, quite vigilant in fact. Yet they are paid supporters of a website that hosts a wholesaling forum, interviews wholesalers on their podcast and includes wholesaling in some of their literature they sell...

Whether they like it or not... they are voting with their wallets and participation, in support of wholesaling. 

What I have a strong stance against is home sellers getting screwed.

What I have a strong stance FOR is following the law - which is designed to protect the public.

If BP was a 100% wholesaling site, you might have a point.  But it's so much more than that.  BTW, if you want to listen to a good podcast on wholesaling, try #231 with Brent Snodgrass:

https://www.biggerpockets.com/renewsblog/biggerpoc...

Even the intro to the episode starts with "There are a lot of “shady” people in the real estate space, and wholesalers tend to be the worst offenders"

Brent does wholesaling the right way.  He first buys the properties and then resells them.  100% legal and ethical.

@Alan Johnson thanks I'll check it out, great info. I'll be in touch soon.

Originally posted by @Jon Allen :

@Mark S. that's great. I hope they're getting the price they wanted. I'm not suggesting that nobody can list a distressed house on the MLS. I'm not surprised that they found a buyer that way. But when you subtract the agent's commission, holding costs of what is almost inevitably a much longer closing process, time and hassle involved in showing the place, etc, there's room to debate whether selling it on the MLS is the clear winner for everyone.

I question this... I am the end buyer that wholesalers are targeting. I'm a cash investor who flips, I don't need contingencies and the money is in my bank to close as fast as title clears.

With that said if the house was listed on the MLS, I am also the end buyer who would see it and make an offer on it.

If you have a distressed house and the sellers just want it gone. The house should sell for $100k to a flipper/brrr buyer. The wholesaler gets it under contract for $80k and sends it to their "buyers list" (I'm on 20+ of them). Flipper sees house agrees to pay $97k and the deal happens. Seller makes $80k, wholesaler makes $17k and flipper makes whatever he makes.

That same house gets listed by a realtor as is, needing work for $100k. I see it and ask my agent to go view. I like it, I offer $97k. They accept. They pay 6% agent costs ($5820). Seller walks away with $91,180, agents make their expected cut and the flipper is in the same position.

I'm not arguing against wholesaling... I just don't agree that there is some magic that a wholesaler does that gets a house sold for cash faster than it would in the market. The same real buyers buying from wholesalers, are also real buyers buying from the MLS.

Originally posted by @Charlie MacPherson :
Originally posted by @Tim Gordon:

I find it fascinating many folks on BP have such strong stances against wholesaling, quite vigilant in fact. Yet they are paid supporters of a website that hosts a wholesaling forum, interviews wholesalers on their podcast and includes wholesaling in some of their literature they sell...

Whether they like it or not... they are voting with their wallets and participation, in support of wholesaling. 

What I have a strong stance against is home sellers getting screwed.

What I have a strong stance FOR is following the law - which is designed to protect the public.

If BP was a 100% wholesaling site, you might have a point.  But it's so much more than that.  BTW, if you want to listen to a good podcast on wholesaling, try #231 with Brent Snodgrass:

https://www.biggerpockets.com/renewsblog/biggerpoc...

Even the intro to the episode starts with "There are a lot of “shady” people in the real estate space, and wholesalers tend to be the worst offenders"

Brent does wholesaling the right way.  He first buys the properties and then resells them.  100% legal and ethical.

Your first sentence and last sentence contradict each other. If I am screwing over a homeowner, what's the difference between assigning the contract or closing and then reselling the property? 

The "regular" wholesaler bashers always make two points 

1. That wholesalers should be licensed 

2. That wholesalers steal equity from uneducated sellers and all properties should be listed on the MLS to get the highest and best price

I agree with the first point, and reject the argument that a wholesaler does anything other than broker a real estate transaction. They might do more work and have to be more creative than a typical agent but at the end of the day, they're connecting a buyer and a seller together. 

The second point is where I have a problem. There's several different scenarios where selling directly to an investor or a wholesaler and not listing a property on the MLS is beneficial. The first and most common one I deal with are houses about to be sold on the courthouse steps that have equity. If I find a deal that's going to be sold at auction in let's just say two weeks, should I pass because it's not on the MLS and I don't want to feel unethical? OR, should I approach the homeowner, explain that I am an investor who can close in a week, put money in their pocket, give them time to move (or even rent back) and avoid the auction?

I'd be curious if any of the "regulars" that seem to obsess over wholesalers have ever bought an off-market deal. If you have, then your only real argument about wholesalers can be about licensing. If your argument is that they steal equity, and you've bought an off-market deal, then you're simply a hypocrite. 

@Brittany Witt you can do it either way. I've done both.

Originally posted by @Juensy Pierre :

@Charlie MacPherson Wholesaling is not illegal. Countless investors have made a good living by wholesaling properties. ... Case in point: it is legal to wholesale real estate, as long as you follow the rules of your particular state. When all is said and done, there is nothing illegal about selling a contract ~Than Merrill. All I’m hearing is one side of the story when it comes to the couple getting “screwed over.” What if the couple knew about the rehab cost and decided it was best to just sell the property as is? As a wholesaler, I’d offer the seller two options. Option 1: fix-up property then put it on market at full retail value (or whatever they think reasonable). Option 2: Go to a real estate agent. It’s my understanding that a wholesaler is able to close deals faster than an agent and able to help sell a property as is. Do you have a source that says wholesaling is a illegal? I’ve done all the research I can and I can’t find a single source that says wholesale Real Estate is illegal.

 "Wholesalers" cannot necessarily close deals faster OR for money than a licensed agent. That is purely "wholesalers" propaganda to legitimize themselves. The same goes for unlicensed brokers as well.

Case in point: One went under contract after being on the MLS for 4 days. It was full of cat feces, and the owners were hoarders. It was an all cash sale. How do I know this? I was the buyer!

This is what it looks like now:

Originally posted by @Eric A. :

@John Thedford ok, I have read several of your posts and totally agree with your premise about wholesalers in the state of Florida, but nobody “at the state” said anything about BP. That’s a fabrication and you know it, and before you go through with a keyboard warrior personal attack save your energy. I really could care less.

 No personal attacks here--but you are WRONG! Funny thing is, what she said almost mirrors what the State of CO PSA says about these operators: elderly, etc. 

Consumer Advisory: Long-term Home Ownership Concerns(Wholesaling/Assigning Transactions and Distressed Rescue Transactions).
The Division of Real Estate is seeing an uptick in cases involving two types of cases involving long-term home ownership: Wholesaling/Assigning Transactions and Distressed Rescue Transactions. Wholesaling/Assigning Transactions Investors and real estate brokers are targeting people with home ownership of over 20 years. This targeting translates to people over the age of 50 who are close to paying down their mortgage and holding equity in their property. The investor will offer the following:
  • Cash transaction;
  • A quick sale closing with no inspection; and
  • You can leave behind any items you don’t want.

The problems begin when the homeowner is elderly, alone, and doesn’t know the true market value of their property:

  • They may have purchased their property over 20 years ago for $50,000, $100,000, or maybe $200,000.
  • That same property now could have a market value of $300,000, $400,000 or even $500,000.
  • The idea that they purchased the property 20 years ago for $120,000 and are now being offered $220,000 sounds appealing to these homeowners – their mortgage might be paid off and they will make $100,000 – sounds good right?
  • They don’t realize that an investor or real estate broker who knows the true market value of the property may be taking advantage of them by actively misleading the homeowner as to the true market value.

The problems arise when the investor or real estate broker:

  • Drives down the property value in the seller’s mind by showing them comparable properties that aren’t really comparable.
  • Talks to the homeowner about all of the deferred maintenance that the property needs (which may or may not be true).
  • Allows the homeowner to leave items behind (What is that “convenience” worth - the costs of renting a dumpster, hiring two-three workers for a day to unload your house? Is it worth a homeowner giving up $20,000 - $50,000 - $100,000 – or more of their equity?)
  • Fails to tell the homeowner that they are actively marketing the property for market value and that the investor or real estate broker plans to assign their rights in their contract with the homeowner to another investor/buyer.
  • Fails to tell the homeowner that they intend to make a profit by accomplishing an assignment of the contract.
  • Fails to tell the homeowner when the contract is assigned to a different investor/buyer.
Investigated Case Example

Below is an example of a case that we investigated where the broker involved in the deal was referred criminally and her real estate license was revoked.

The victim had the misfortune of being on her front porch when an “investor” and his real estate partner approached her and told her they used to live in the neighborhood and wanted to move back.

They figured out her weaknesses and used them against her.

  • After “working” on her for a few days, the investor and real estate agent had a meeting with her that lasted hours. At the end of the meeting they had talked her into a purchase price of $200,000 for a property she didn’t even plan on selling.
  • At the same time, they had already assigned the contract to a second investor for $300,000 – with the agreement that the second investor would pay a $100,000 assignment fee to the original investor and real estate broker.
  • The second investor sold the property to a third investor for $360,000 two weeks after the closing.
  • Finally, the third investor held the property for eight months and sold it for $520,000.

That wouldn’t happen to any of us right? Think again. This type of thing can happen to anyone – young, old, rich, poor, no education, or highly educated. The reason it works is because people who perpetrate fraud are good at what they do – separating you from your money.

  • Unfortunately, some of our victims became victims because they responded to an unsolicited mailer, phone call, or knock on the door. Once the “investor” makes contact with someone, they start “working” on them. They are professionals at getting close and gaining trust.
  • They are charming and know how to obtain information about you that will help in their dealings with you. In just a few short conversations they will find out private information about you and then use it against you.
Things to Keep In Mind
  • Be wary if someone approaches you about something you weren’t even thinking about doing.
  • If you want to sell your property, you should contact someone you have been referred to by family, friends, or do research on real estate brokers working in your neighborhood.
  • Go to our website and see if the person has a real estate license and if they have any disciplinary history – dora.colorado.gov/dre
  • Go to the City and County of Denver website to check on neighborhood sales – denvergov.org
    • Click Search Property Information, then enter your address and click Search. In the Results link click on your address where there are various tabs and click on Neighborhood Sales.
  • If you have a hard time with technology, you can always ask friends or family members to help you navigate the web to do some research about property values in your area.

If you do find yourself entertaining an offer from an unsolicited investor:

  • Ask to obtain, and keep, a list of the comparable property sales in your neighborhood the investor used to come up with their purchase price offer.
  • Always keep someone else in the loop – your children, good friends, or someone you trust.
  • Always know that you can seek legal advice – in the end, it might be worth the money you spend on a consultation with an attorney.
  • Review the contract closely to see if it is assignable. Inquire into why it is assignable, for instance: to whom it is assigned and why, and how much the new buyer is paying the original buyer - AKA – an assignment fee.
  • Do not sign an assignable contract until you have had the opportunity to investigate the true value of your property and the legal implications with an attorney.
  • Take responsibility for being informed about the value of your property and the contracts that you areconsidering signing.
Distressed Rescue Transactions

Investors and real estate brokers are approaching distressed homeowners (those behind in their payments, facing foreclosure, or experiencing a medical issue). They offer the homeowner an “out” by agreeing to make the mortgage payments for them.

Problems arise when the investor does not explain how this will be accomplished. The unscrupulous investor will:

  • Have the homeowner sign a Quit Claim Deed in which the homeowner signs over their ownership in the property.
  • Fail to explain to the homeowner that they, the homeowner, are still responsible for the mortgage.
  • Fail to warn the homeowner that they could be violating their “due on sale clause” with their lender.

The homeowner is usually elderly or part of an at-risk population (English isn’t their first language, disability of some kind, etc.).

The Division advises the following when it comes to these types of rescue transactions:

  • Don’t sign any documents or a deed to anyone until you have had a chance to talk with your lender and an attorney about your mortgage obligations and your legal rights.
  • Colorado has a Foreclosure Protection Act that affords you certain rights when you are financially distressed.
  • It’s best to take proactive steps when you first start having financial problems, and here are some resources that you can contact:

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