Wholesaling with Honesty?

Member since 2019 · 21 posts · 8 votes

I've seen it on both sides so lets settle this here and now.

*Slides weapons across the floor*

One side says if you offer them options of what you're planning on doing that keeps you in the clear. Something like "Buy and Hold, or Flip or Sell to an investor I work with". The other side says to just be honest. That would be something like "I work with an investment group who are looking for deals like yours."

First of all, which do you lean toward? The option approach or the get all the cards on the table approach?

Second, GET THOSE WEAPONS OUTTA HERE!

It seems like wholesalers get a bad rep. As soon as you make an offer they go "Are you one of those Wholesalers?"

So BP fam. Drop some jewels, I'm tired to searching for threads from 10 years ago with 2 responses. Give me what you got!

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Mike B.Pro Member

Developer · Chicago, IL · Member since 2013 · 434 posts · 357 votes

Tough crowd... Unfortunately, BP generally looks at wholesalers with the same disdain that society has for Realtors. It's always comical to see the Realtors jump on with their holier than thou attitude only to log off and talk one of their clients into purchasing an overpriced house so they can get a bigger commission check.

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Anson YoungBusiness Member
Flipper/Rehabber · Denver, CO · Member since 2009 · 1k+ posts · 726 votes
6y
Tony, I go with the first option, ONLY because at that point I'm not sure if I will buy it to flip it, or buy it to wholesale it. Also, since I always double close, I'm ALWAYS the buyer on the property, so there is never confusion. I might sell it 30 minutes after buying it, but thats my business, right? :-)

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7 Reply
Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
6y
It may be 9 years old, but it certainly has more than 2 responses, longest running thread on BP I believe.

https://www.biggerpockets.com/forums/93/topics/58383-the-truth-about-wholesaling-
Setting my arsenal to the side, the problem with wholesaling is not the strategy, it is the people doing it. Most of them (I said most, not everybody) operate illegally, or immorally, or unethically, or all of the above and that is why the bad rap. Most of it is promulgated by gurus pitching their real estate riches programs using wholesaling as the main strategy claiming anyone can do it with no money, no credit, and no experience so long as you buy their program. Talk about slimy, there it is.
If you want to do it right, read that thread above from start to finish.
Second, get your real estate license, that gets you on the legal side in all states. Lastly, make sure you have ability and intention to close no matter what and not use the slime ball escape clauses taught by the gurus.
When speaking with a potential seller, the most ethical and straight forward approach (especially when you are licensed) is to make two offers. One all cash with quick close for X. The second offer is to list their home on open market for list price of Y where Y is greater than X. Now they have all the info they need, have two options to go with, and you can be the hero in both versions.
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Barry Pekin
Specialist · Purcellville, VA · Member since 2015 · 1k+ posts · 841 votes
6y
@Tony Roberts,
Honesty and transparency, always. I also say come at this as providing a service to the seller to help them out with their situation.
Even if you're not an agent, offer that as an option as well. Let them know, honestly, that they can get more by selling their house through an agent. If that's what works best for them, then that's what they should do. And if it's best for them, but you convince or "trick" them into selling to you at a discount, then you are doing a disservice to them. Understand that selling retail through an agent of FSBO is almost always the best option. In those cases where it isn't, then hopefully you can provide the service they need.
1 Reply
Charlie MacPherson
China, ME · Member since 2014 · 3k+ posts · 4k+ votes
6y
@Tony Roberts It depends on what you mean by honesty. If you include not breaking the law, then the answer in almost every state, is a resounding NO.
That's because most states require a real estate license to market a property that you don't already own - meaning that you're already on the title.
I suppose being honest to the point that you clearly tell the seller that you're going to pocket $30,000 of the home's equity (which rightfully belongs to them and a Realtor would get for them) to put this deal together is somewhat of an improvement - but still illegal.
The only way to wholesale honestly is to actually buy the house and then resell it for a profit. But that's not how wholesaling generally works.
Better yet, renovate the house and THEN resell at a larger profit. That makes you an ethical player - a rehabber who adds value, improves neighborhoods and provides good housing for buyers.
The difference between wholesalers and rehabbers is night and day. The wholesaler skirts the law and works in the shadows. The rehabber is a benefit to sellers, contractors, towns, neighbors and buyers.
1 Reply
Mike B.Pro Member
Developer · Chicago, IL · Member since 2013 · 434 posts · 357 votes
6y
Tough crowd... Unfortunately, BP generally looks at wholesalers with the same disdain that society has for Realtors. It's always comical to see the Realtors jump on with their holier than thou attitude only to log off and talk one of their clients into purchasing an overpriced house so they can get a bigger commission check.
847-857-8574
19 Reply
Dean Carter
Rental Property Investor · Fayetteville, NC · Member since 2016 · 67 posts · 37 votes
6y
Contrary to popular realtor belief, the wholesaler offers value. Quick close, no hassle just move out. Granted at a less than retail price. Let the seller decide if they want to wait a month or more and pay commissions or get out quick and easy for cash...Be honest ALWAYS. No slight of hand, clever BS. Plenty of deals to go around for all involved to WIN.
2 Reply
Jerryll Noorden
Flipper/Rehabber · Wilton, CT · Member since 2015 · 4k+ posts · 4k+ votes
6y
Originally posted by @Charlie MacPherson:
@Tony Roberts It depends on what you mean by honesty. If you include not breaking the law, then the answer in almost every state, is a resounding NO.
That's because most states require a real estate license to market a property that you don't already own - meaning that you're already on the title.
I suppose being honest to the point that you clearly tell the seller that you're going to pocket $30,000 of the home's equity (which rightfully belongs to them and a Realtor would get for them) to put this deal together is somewhat of an improvement - but still illegal.
The only way to wholesale honestly is to actually buy the house and then resell it for a profit. But that's not how wholesaling generally works.
Better yet, renovate the house and THEN resell at a larger profit. That makes you an ethical player - a rehabber who adds value, improves neighborhoods and provides good housing for buyers.
The difference between wholesalers and rehabbers is night and day. The wholesaler skirts the law and works in the shadows. The rehabber is a benefit to sellers, contractors, towns, neighbors and buyers.

I am not sure I agree.

When WE give the seller the options, and tell them, I can either buy your house for cash right now for XX dolalrs

or I can send a contract out for wholesale for YY dollars and the selles says "... hmmmm I choose you to wholesale it".

How am I being dishonest? I am doing what the seller wants, their choice their decision.

Who are YOU to tell me or the seller what they should want?
I mean this comes from the SELLER herself:

On what grounds are you going to argue with this seller's opinion?
2 Reply
Mike CumbieBusiness Member
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
6y
@Dean Carter:
"Contrary to popular realtor belief, the wholesaler offers value. Quick close, no hassle just move out."
Strictly based on this argument and not the rest of it because there are plenty of rockstar wholesalers out there that are good at what they do. Not making a statement about Wholesalers in general.
However, when I see that "Quick close, no hassle, just move" argument I honestly would like anyone to give me an example where me as an agent. Cannot sell that house in my market as fast, with the same terms and conditions as a wholesaler sending it to an "individual buyers list". Things like "no internal showings", "cash only", "Do not disturb tenants", "property to sell AS/IS", "All contents go with the property", "Barn is a safety hazard do not go within 50 feet" are all terms I have used on the MLS. Of course I also have an internal buyers list of actual players that have worked with people I know in case they don't want to list (including a full network of agent friends I throw a text or email out to).
I would like someone to provide me a single solitary example where wholesaler can do what an agent can't? I don't mean individual people, I mean two equal players in the market.
2 Reply
Charlie MacPherson
China, ME · Member since 2014 · 3k+ posts · 4k+ votes
6y
@Mike B.@Jerryll Noorden As I said, if your definition of "honest" includes not breaking the law, then wholesalers who don't close on the property before marketing it for resale are not operating honestly. That's because almost every state (and maybe all) requires a real estate license to market a property that you don't already own.

Real estate laws are put in place to protect the public from unethical operators and flim-flam artists.

If I as a Realtor was found to be screwing a seller (or for that matter a buyer), I can be fined, have my license suspended or even revoked. I can lose my ability to make a living. Wholesalers are outside of the law and only risk prosecution if an angry family member turns them in or sues them after they steal a pile of Grandma's equity.

The simple fact is that every cent a wholesaler makes comes from only one place - the equity in the property. That equity rightfully belongs to the seller - self-serving fiction about "providing a needed service" aside.

As @Mike Cumbie pointed out, there is nothing that a wholesaler can do for a seller that a competent Realtor can't.
1 Reply
Mike B.Pro Member
Developer · Chicago, IL · Member since 2013 · 434 posts · 357 votes
6y
@Mike Cumbie the best example I can give you is this...seller has a foreclosure sale date next Friday. You put it on the mls and have people interested but can’t close in that timeframe. Are you, as their realtor, prepared to close on the property yourself so they don’t lose their equity?
I am...and have people on BP that can verify that I’ve done this on several occasions.
I won’t argue that a good portion of wholesalers don’t have the ability to close and can be dishonest. However, my point from the beginning was that I can paint with that same wide brush and say most (not all) realtors are just as worthless.
847-857-8574
6 Reply
Mike B.Pro Member
Developer · Chicago, IL · Member since 2013 · 434 posts · 357 votes
6y
@Charlie MacPherson I have an re license and I know several other wholesalers that have them as well. It costs $700 and part time classes for 2 months... you guys act like you took classes at Harvard. Why do you assume we’re all acting outside of the law?
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Mike CumbieBusiness Member
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
6y
@Mike B.
My argument was not about actually purchasing a smoking deal as fast as anyone else. Yes... yes I can and have closed houses for myself as fast as anyone else can. Grated we are an attorney state so nobody is closing by next Friday. In your foreclosure example I can often stop a foreclosure by getting it listed and a hardship letter over to the bank if you have a week in most situations. If it's not publicly listed the bank is not putting the brakes on a foreclosure. I have bought clients a year by listing them in preforeclosure as a short sale. They normally refuse showings and have zero intention of actually selling but I work for them not the bank.
The entire premise of my point, was that anybody with the expectation that they will "Contract Assign" as a business model and somehow have some magic pill to sell houses to their "buyers list" faster, more efficiently or better than an agent can do is false. There is nothing in a license or lack of a license that makes a dirty, falling down house go via wholesaler marketing a contract sell faster than someone marketing the property itself out in the open.
Whenever I say anything negative about ANY aspect of wholesaling people lump me into some anti wholesale camp. Farthest thing from the truth. I know many and work with many solid good business runners who move and shake. We have a great working relationship and we move some property together. I have zero ill will to them and actually like getting the call or making the call to see if either one has a buyer lined up.. My single complaint was "Well houses in bad shape are better for wholesalers than agents because they can move them faster" Which is false across the board.
You are the exact person I advocate brand new people who plan to wholesale to become. Spend $89 on an online course, $50 on a test and registration, hang a license with some non Board brokerage. Then you can actually market the property. Although everytime I say that people assume I am "anti-Wholesaler (which we really mean contract assigning in most cases) Nobody complains about people who buy and then sell. I have bought and sold with contract assignments, it is a tool in a tool box. It should be used when appropriate. Just like the MLS, it's a tool for the right application. The problem lies when the only arrow in the quiver someone has is the "contract assign" option. It's like poker, leave yourself outs and ways to win that. If the only hand you know is chasing a 3 of a kind you make a mess of a table.
4 Reply
Brian Pulaski
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
6y
Originally posted by @Mike B.:
@Mike Cumbie the best example I can give you is this...seller has a foreclosure sale date next Friday. You put it on the mls and have people interested but can’t close in that timeframe. Are you, as their realtor, prepared to close on the property yourself so they don’t lose their equity?
I am...and have people on BP that can verify that I’ve done this on several occasions.
I won’t argue that a good portion of wholesalers don’t have the ability to close and can be dishonest. However, my point from the beginning was that I can paint with that same wide brush and say most (not all) realtors are just as worthless.

As a cash buyer, I get the deals from wholesalers and the MLS. If Charlie listed on the MLS and a wholesaler sent it to me, I would close in the exact same amount of time. There is no magic the wholesaler brings to the deal. It's the end buyer that closes fast, and those end buyers also scour the MLS, or even better work with agents and close deals that way.
0 Reply
Storm S.
Real Estate Agent · Santa Barbara, CA · Member since 2016 · 518 posts · 283 votes
6y
@Dean Carter contrary to wholesalers beliefs, realtors can offer sellers quick and fast closing to investor clients off market too
1 Reply
Jerryll Noorden
Flipper/Rehabber · Wilton, CT · Member since 2015 · 4k+ posts · 4k+ votes
6y
Originally posted by @Charlie MacPherson:
@Mike B.@Jerryll Noorden As I said, if your definition of "honest" includes not breaking the law, then wholesalers who don't close on the property before marketing it for resale are not operating honestly. That's because almost every state (and maybe all) requires a real estate license to market a property that you don't already own.

Real estate laws are put in place to protect the public from unethical operators and flim-flam artists.

If I as a Realtor was found to be screwing a seller (or for that matter a buyer), I can be fined, have my license suspended or even revoked. I can lose my ability to make a living. Wholesalers are outside of the law and only risk prosecution if an angry family member turns them in or sues them after they steal a pile of Grandma's equity.

The simple fact is that every cent a wholesaler makes comes from only one place - the equity in the property. That equity rightfully belongs to the seller - self-serving fiction about "providing a needed service" aside.

As @Mike Cumbie pointed out, there is nothing that a wholesaler can do for a seller that a competent Realtor can't.

You just WANT to be against wholesalers and you will forever come up with "stuff" to try to prove that point. The answer I gave you is more than obvious and you know this.

You completely ignored my reply to you and you continue that rant.

Read my reply again.

And read the screenshot I posted. Then try again!

Do you know HOW many agents couldn't sell a property too? Why do you bish and use that as ammunition against wholesalers when they can't sell a property, when agents also can't at times?

And do not define MY definition of honesty! That is the dumbest thing you can do in a debate. (wow)

0 Reply
Mike B.Pro Member
Developer · Chicago, IL · Member since 2013 · 434 posts · 357 votes
6y
Originally posted by @Mike Cumbie:
@Mike B.
My argument was not about actually purchasing a smoking deal as fast as anyone else. Yes... yes I can and have closed houses for myself as fast as anyone else can. Grated we are an attorney state so nobody is closing by next Friday. In your foreclosure example I can often stop a foreclosure by getting it listed and a hardship letter over to the bank if you have a week in most situations. If it's not publicly listed the bank is not putting the brakes on a foreclosure. I have bought clients a year by listing them in preforeclosure as a short sale. They normally refuse showings and have zero intention of actually selling but I work for them not the bank.
The entire premise of my point, was that anybody with the expectation that they will "Contract Assign" as a business model and somehow have some magic pill to sell houses to their "buyers list" faster, more efficiently or better than an agent can do is false. There is nothing in a license or lack of a license that makes a dirty, falling down house go via wholesaler marketing a contract sell faster than someone marketing the property itself out in the open.
Whenever I say anything negative about ANY aspect of wholesaling people lump me into some anti wholesale camp. Farthest thing from the truth. I know many and work with many solid good business runners who move and shake. We have a great working relationship and we move some property together. I have zero ill will to them and actually like getting the call or making the call to see if either one has a buyer lined up.. My single complaint was "Well houses in bad shape are better for wholesalers than agents because they can move them faster" Which is false across the board.
You are the exact person I advocate brand new people who plan to wholesale to become. Spend $89 on an online course, $50 on a test and registration, hang a license with some non Board brokerage. Then you can actually market the property. Although everytime I say that people assume I am "anti-Wholesaler (which we really mean contract assigning in most cases) Nobody complains about people who buy and then sell. I have bought and sold with contract assignments, it is a tool in a tool box. It should be used when appropriate. Just like the MLS, it's a tool for the right application. The problem lies when the only arrow in the quiver someone has is the "contract assign" option. It's like poker, leave yourself outs and ways to win that. If the only hand you know is chasing a 3 of a kind you make a mess of a table.

I agree that wholesalers aren't the only people in the industry that have contacts for cash buyers. My point was that if a Realtor's cash buyers pass, the realtor isn't prepared to close on it. I never meant to imply that you personally didn't have the ability to close on a property quickly, I'm saying as a business model, you aren't guaranteeing a closing when you agree to list the property. It's all together possible that I have a different idea of what wholesaling is or should be.
I also agree that wholesalers should have an RE license. If for nothing else, you should be able to comp properties on your own to determine value. It's hard to own the numbers you're putting out to the world if you're relying on third party opinions. Further, wholesalers shouldn't be assigning rehab numbers if they haven't had it quoted by a GC OR have never done a rehab project themselves.
847-857-8574
2 Reply
Mike B.Pro Member
Developer · Chicago, IL · Member since 2013 · 434 posts · 357 votes
6y
Originally posted by @Storm S.:
@Dean Carter contrary to wholesalers beliefs, realtors can offer sellers quick and fast closing to investor clients off market too

Yes, anybody can "offer" quick and fast closings, but can you guarantee it? Will you hand the seller $5k nonrefundable on the spot to back up your claim? That's the difference I'm referring to.
847-857-8574
3 Reply
Mike B.Pro Member
Developer · Chicago, IL · Member since 2013 · 434 posts · 357 votes
6y
Originally posted by @Charlie MacPherson:
@Mike B.
The simple fact is that every cent a wholesaler makes comes from only one place - the equity in the property. That equity rightfully belongs to the seller - self-serving fiction about "providing a needed service" aside.

That same fact would apply to Realtor's commissions, no?
If your commission equates to $25k and my fee mark up is $10k, are you the one screwing the seller or is that still me?

847-857-8574
1 Reply
Ross Gleason
Member since 2020 · 53 posts · 23 votes
6y
@Mike B. While I'm not someone who has any experience with wholesaling, that last point isn't really a fair argument to make because those numbers are situational. I know that a realtors commission is a percentage of the total value of the home, so if you're competing for the sale of an expensive home those may hold true but what about with cheaper homes.
In my hometown, a lot of the flips that I see are being sold initially for around 50-70k. Your 10k upcharge is going to be significantly more of the equity than the commission of a realtor. A true unbiased argument there should have been "A wholesaler will put in similar amounts of effort to a realtor for less of a cut on higher priced homes (If your cut is 10k then your generally going to make less than an agent on homes priced over 167k).
0 Reply
Jerryll Noorden
Flipper/Rehabber · Wilton, CT · Member since 2015 · 4k+ posts · 4k+ votes
6y
Originally posted by @Storm S.:
@Dean Carter contrary to wholesalers beliefs, realtors can offer sellers quick and fast closing to investor clients off market too

It is not what a realtor can do too. It is what a realtor CAN'T do what a wholesaler CAN!

0 Reply
Jerryll Noorden
Flipper/Rehabber · Wilton, CT · Member since 2015 · 4k+ posts · 4k+ votes
6y
Originally posted by @Ross Gleason:
@Mike B. While I'm not someone who has any experience with wholesaling, that last point isn't really a fair argument to make because those numbers are situational. I know that a realtors commission is a percentage of the total value of the home, so if you're competing for the sale of an expensive home those may hold true but what about with cheaper homes.
In my hometown, a lot of the flips that I see are being sold initially for around 50-70k. Your 10k upcharge is going to be significantly more of the equity than the commission of a realtor. A true unbiased argument there should have been "A wholesaler will put in similar amounts of effort to a realtor for less of a cut on higher priced homes (If your cut is 10k then your generally going to make less than an agent on homes priced over 167k).

Absolutely wrong. EVERYTHING is situational.

You just want to take into account the situations where the theory does NOT hold and ignore the rest?

Mike makes extremely valid points! Read the topic of this thread again. You will see (with a bit of thinking) that that response is totally valid.
1 Reply
Mike B.Pro Member
Developer · Chicago, IL · Member since 2013 · 434 posts · 357 votes
6y
Originally posted by @Ross Gleason:
@Mike B. While I'm not someone who has any experience with wholesaling, that last point isn't really a fair argument to make because those numbers are situational. I know that a realtors commission is a percentage of the total value of the home, so if you're competing for the sale of an expensive home those may hold true but what about with cheaper homes.
In my hometown, a lot of the flips that I see are being sold initially for around 50-70k. Your 10k upcharge is going to be significantly more of the equity than the commission of a realtor. A true unbiased argument there should have been "A wholesaler will put in similar amounts of effort to a realtor for less of a cut on higher priced homes (If your cut is 10k then your generally going to make less than an agent on homes priced over 167k).

Even if we use the same number, the point still holds true. The original claim was that "every cent a wholesaler makes comes from only one place - the equity of the property"...but so does the Realtor's commission. I'm not understanding why it's a noble act for a Realtor to charge that fee yet looked at as dishonest when a wholesaler charges a fee.
847-857-8574
3 Reply
Brian Pulaski
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
6y
Originally posted by @Mike B.:
Originally posted by @Storm S.:
@Dean Carter contrary to wholesalers beliefs, realtors can offer sellers quick and fast closing to investor clients off market too

Yes, anybody can "offer" quick and fast closings, but can you guarantee it? Will you hand the seller $5k nonrefundable on the spot to back up your claim? That's the difference I'm referring to.

I rarely is ever see wholesalers who do this. The majority (not all) are new to REI and have no money. They can't guarantee anything. Most offer $0-100 EMD, not $5000 (just look through forum posts on the subject).
The larger outfits probably can, but I see more people discussing clauses to get out of wholesale deals, than ways to close if they can’t find a buyer.
I’m not saying everyone should go realtor verse wholesaler, as it seems most wholesale deals the seller wasn’t even a seller until contacted, and that to me is where the wholesaler stands out (marketing to potential leads). I just don’t agree the wholesaler “will” sell the house in instances a realtor won’t. In the market we are in, deals get tons of offers from flippers/buy and holders.
0 Reply
Mike CumbieBusiness Member
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
6y
@Ross Gleason
"I know that a realtors commission is a percentage of the total value of the home". I will respectfully disagree.

In every state I am aware of "Real Estate Agent Commissions are negotiated between the parties". For Anti-Trust reasons there is no "Set" commission" and there is nothing that says it has to be "A Percentage" or a "Set price" Either are perfectly acceptable. I have sold houses for 1%, I have sold houses for 25%, I have sold houses at 6% and 3%. I have sold houses for a flat fee of $1,000 and a flat feel of $5,000 I have also had a case of Ultras as the commission (I was buying that one).
An assignment fee can be a percentage or a flat fee. There is nothing in stone either way. Putting something in stone most likely would trigger every anti-trust thing you can think of. So my stance is (and has been) There only difference between what a wholesaler can do and an agent can do is "market the property" vs "market the contract". That in the totality is the complete difference. People like to debate it like they are the Sharks vs the Jets but in reality it's The red Rock-em-sock-em robot vs the Blue one.
0 Reply
Randall Weatherall
Real Estate Agent · Memphis, TN · Member since 2019 · 261 posts · 253 votes
6y
In my area, the best wholesalers I know do one of two things in terms of actually buying/selling:
Can identify a great deal they WILL sell, get it under contract and get it sold with no issues in the timeframe OR buy buy it and list it with someone. Lesson: they always do right by the Seller and close on it. They have the means to make that happen and the knowledge to choose something that will make them money either way.
When it comes to mindset, the most successful ones in town are genuinely out to help the owners. They ask: what do you really need from this? Then, they work to get it done if they can and if they can't, they don't string them along and build their hopes up. They'll follow up and try to make it happen later if that's the case, but no need to tie them up. Most of them even recommend the properties to Agents to try and list (for a fee, of course) to do right by the Seller.
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