Fiduciary responsibility when wholesaling
Realtor · Chicago, IL · Member since 2019 · 222 posts · 153 votes
I have someone who is a family friend who has had their father pass away.
They want to get rid of his condo ASAP. They don’t want the trouble.
I am an agent (but a newer one) and can list the place but they would also be willing to take potentially as low as 50% fair market value in cash.
If I put it under contract then sell it myself as a wholesaler would do, am I violating my responsibility to them as an agent?
Just buy the house yourself and rent it out. If you haven't signed anything yet, then you aren't their agent yet and have no legal responsibilities. You don't need to be an agent to buy directly from another person, just skip the agent part all together and have a lawyer draft up a contract.
@Mike Cumbie By that standard how can any realtor buy an off-market house? 1. Only if you pay full fair market value (which is subjective, only to be known upon an open market sale). 2. Call up a realtor friend who can list it for the seller and then you buy it (effectively gifting someone 3% of your money).
I also question if you are always acting as a realtor at all times. In effect, anyone who owns a home or wishes to own a home has control over you and your ability to invest.
Hence my comment about self-imposed rules.
@Michael J Scanlon
Oh and then get rid of your license...It's so much easier to invest in real estate without all the self-imposed rules :)
If you haven't signed anything with the seller saying you are acting in their interest, how do you have any special responsibility to them???
I so disagree with this opinion. Having a license opens up so many more doors for a real estate investor. We have profited numerous 6 figure incomes strictly off of having the license and that does not take into consideration the value the MLS access brings us as well as the opportunities with other agents (referral fees for one). The rules regarding agency are not "self imposed" and following said rules is very simple and easy if you are ethical and have good business sense. Stating otherwise is a cop out in my opinion.
@Mike Cumbie By that standard how can any realtor buy an off-market house? 1. Only if you pay full fair market value (which is subjective, only to be known upon an open market sale). 2. Call up a realtor friend who can list it for the seller and then you buy it (effectively gifting someone 3% of your money).
I also question if you are always acting as a realtor at all times. In effect, anyone who owns a home or wishes to own a home has control over you and your ability to invest.
Hence my comment about self-imposed rules.
Very simple, make them two offers. One all cash quick close offer below market, the other offer to list at retail on the MLS, seller gets to choose.
@Joe Norman
But this goes back to the original question that nobody seems to want to answer
If their priority is getting rid of it ASAP (and condos in this complex are sitting for 150-250 days), then what exactly is the best interest of the family?
If they want it gone ASAP, they’re going to have to accept a lowball offer.
So what is my responsibility to them? To push them to hold out for the best offer? Or honor their wishes to offload it ASAP?
Offloading it ASAP will result in cash offers that are 50-70% of the lowest fair market value for this property (50-70% of about $32-36k)
But if it sits on the market for 150-250 days then it could reach $50-80k. But that does not seem to be the family’s priority.
So then my question comes back around of: it some random flipper is offering them 50-70% of that and I can match it, then have I not done everything in my power to do my best for them yet I can still procure the property without them sacrificing anything.
It seems as though most responses are ignoring that the family wants it gone ASAP.
I will take a stab at this: See my post above, make them two offers as described or better yet, put it on a listing agreement and list it for $20k (well below the value and what you know it will sell for). Offers due in 2 days. You should have 10-50 offers all cash, counter the best offers and get it up as high as you can for your sellers. Job done in 3 days, that quick enough for them?
@Will Barnard
So are you saying list it far below market and try to get offers above asking? Being a somewhat newer agent, I know above listing offers are common in places like Hawaii and San Francisco but I was unsure of here.
@Will Barnard
So are you saying list it far below market and try to get offers above asking? Being a somewhat newer agent, I know above listing offers are common in places like Hawaii and San Francisco but I was unsure of here.
Same everywhere, any listing priced well below market is likely going to attract multiple buyers offering over ask price. In a competitive market, you can never under price a property. In a non competitive market, pricing well below will get you the multiple buyers and create that competitiveness to get your client the highest amount possible.
Quite easily. By being honest up front. Either I am here to help you out of your problem as an agent and get you the best price/terms I can for you and your family (from the beginning). Or I am here as a buyer (or representing a buyer) and so you know before we start discussing your house and motivations, you have to know that I plan on getting this property as cheap as I can for me (or my client) and making as much of a profit as I can.
The other way (most common for me) is I get a call from another agent, investor or lawyer who says "Mike my client needs you to take a look at this and give them an offer". They know the deal and they are representing the seller (not me). What is not OK is going in as a "friend/family member/trusted source" and getting all the dirty info and then turning around and keeping it a secret and buying it, while they believe you are helping them.
Agency was turned into law because people would go look at a house for their buyer and offer the seller a "free CMA". Once inside they would tell them it was only worth 50K (really worth 250K). Then the seller would say OK and the "nice agent" would say "Look I got you an offer for 65K I really think you should take it". Because the seller believed the agent was looking out for them. Which is why it has to be clear who you work for.
As far as licensed or not the same agency is going to be doing the investigation if someone feels taken advantage across the line.
@Michael J Scanlon - If your friend wants to sell you the property, there isn't a direct legal prohibition from you serving as realtor for both the buyer and the seller. However, being a dual agent does not get you off the hook with respect to fiduciary duties - quite the contrary. In these cases, you have a fiduciary responsibility to BOTH the buyer and the seller. In the case law, this means that the agent is not allowed to tell the buyer that the seller is willing to sell at a lower price without the seller's knowledge and consent, and vice-verse the agent cannot tell the seller that the buyer is willing to go higher. If you're both the agent AND the buyer, and you happened to know from your communications with the sellers that they are willing to accept a price far lower than market value, this is not information you're generally allowed to profit off of. Maybe play it safe and hire a broker that can serve as a dual agent for you both - it will insulate you from potential liability while also facilitating a quick and easy sale.
Thanks for your post, and good luck!
@Charlie MacPherson
The main question I was going after though is this:
The family wants it gone ASAP
They seem more concerned about immediately getting rid of it as it is a “headache” to them, than getting anywhere near fair market value.
So my question is:
What is the definition of me acting in their best interest?
Respecting their wishes of getting rid of it ASAP in spite of price.
Or trying to get the most money for them, even though that would take longer and they want it gone immediately.
The idea of me buying it and reselling it is because there is the “buy it now” price and the actually fair market value for someone willing to wait (these condos in this complex are sitting for 150-250 days).
I can take it off their hands now at a much lower price as could anyone else. But why sell it to a random person for the same price I could buy it for? In fact, if I buy it, I can remove my commission and potentially offer a little more. Then I could wait the 150-250 days for fair market value.
Do you see my conundrum here?
Sorry, I didn’t read any replies yet.
ANY house that can be wholesaled (where the wholesaler can make a good profit) can be sold on the open market to that same cash buyer the wholesaler reached. Why not list it for what you would have offered? In the listing have it as a Cash only deal with a one day showing. Assuming it’s a deal (you want to wholesale it for a good profit, right), you will get multiple cash offers and it will sell for what it would have sold to an investor you would have wholesaled it to. This would and should be just as fast as you buying it, short of a couple days to list and have your “open house”.
If you can wholesale it, you can sell it just as fast for just as much money as an agent.
@Joe Norman you're absolutely right. Hard to represent the clients best interest and make a profit on their property's equity position at the same time.
@Joe Norman
But this goes back to the original question that nobody seems to want to answer
If their priority is getting rid of it ASAP (and condos in this complex are sitting for 150-250 days), then what exactly is the best interest of the family?
If they want it gone ASAP, they’re going to have to accept a lowball offer.
So what is my responsibility to them? To push them to hold out for the best offer? Or honor their wishes to offload it ASAP?
Offloading it ASAP will result in cash offers that are 50-70% of the lowest fair market value for this property (50-70% of about $32-36k)
But if it sits on the market for 150-250 days then it could reach $50-80k. But that does not seem to be the family’s priority.
So then my question comes back around of: it some random flipper is offering them 50-70% of that and I can match it, then have I not done everything in my power to do my best for them yet I can still procure the property without them sacrificing anything.
It seems as though most responses are ignoring that the family wants it gone ASAP.
You are ignoring the fact that the "random flipper" offering them 50-70% has no fiduciary duty. No wholesaler is offering "top dollar fast sale cash price" despite what their yellow post cards say. The wholesaler has a buyer who pays fast cash at a higher price than the wholesaler offers. Therefore it is impossible to state the wholesaler is offering top dollar fast cash. The wholesaler is simply finding a buyer. You hear wholesalers say all the time talk about having a large buyers list. They know more buyers means more potential to sell fast for a higher price.
Competition is what brings highest price. Whether that is placing it on the MLS or a wholesaler with a buyers list, it is the same end result. The difference is a realtor has a fixed fee and fiduciary duty - they work for the seller. The wholesaler has no fiduciary duty and their margin relies on their ability to negotiate price low - they work for themselves.
You can absolutely put a property on the MLS for significantly under value to get multiple fast cash offers. Flippers and investors watch the MLS looking for deals.