Wholesaler Mistakes

Earlier today I had a buy appointment in a part of town that was new to me.  I had great rapport with the seller and we talked for at least an hour about the house and local real estate markets.  During our conversation I found out that seller had contacted several investors to look at his house.   I told the seller that I probably wouldn't be the highest offer but I warned him of some things that he should lookout for: non Texas Real Estate Commission contracts, no earnest money, termination option contracts, etc.  I explained how wholesaling works and I warned him on inexperienced investors that would not close.   I gave him my offer, shook his hand, wished him luck, and I ended our meeting when another investor showed up.  Before I left he let me know that my offer was $4K lower than the previous offers.

I'm normally the lowest offer when competition is involved but I always try to have great rapport with the sellers and try to educate them on the business.  I honestly want my sellers to get the best deal possible and the highest offer isn't always the best deal.  Sometimes, sellers choose to go with my offer because they "just trusted me more or liked me."

Later today I did a follow up call to see if he signed a contract and got a good deal.  Plus, I was curious to know what other investors were willing to pay in that neighborhood and I wanted to know how bought it.  He started laughing as soon as I called and said he planned on calling me later tonight.  He then told me that the investor that out-bided me never produced a contract with his offer.  The investor told him that he forgot the contract and he would bring it to him tomorrow.  The seller thought nothing of it and continued to show the house to other investors and was still looking for higher offers...

He continued to tell me that later in the afternoon he was cleaning the house when he heard a knock on the door.  He was not expecting any more showings of the property but as he said "when it's time to sell, I'll talk to anyone about money."  The guest asked if the house was for sale and if he was firm on his $35K price that he had posted on craigslist.  The seller never posted an ad on craigslist and he wanted to call the number on the ad.  He was furious when called to find out it was the investor that offered him $32K without a contract ($4K higher than me).  The seller was so mad that he sold the house to the guest for less than $32K out of spite towards the investor. 

Not bringing and getting a signed contract was this investors first mistake...  If I or other investors liked the house and were comfortable with his offer; I could have produced a contract, matched his offer, convince the seller that I was ready to close,  and gotten it signed. 

His second mistake was advertising a house that he did not have under contract.  He was foolish enough to advertise the address on the internet and it cost him a possible $3K assignment fee.  If you plan to market a house; always have a signed contract and I never list the exact address.  ALWAYS CONTROL THE DEAL!  You do not want potential buyers talking to the owner and possibly going around you.  Not advertising the address will also force all potential buyers to call you to get more information on the house.  During this call you can learn about your potential buyer, qualify him as a real REI buyer, and add him to your buyers list if he meets your criteria. 

I'm sure the seller wouldn't had been so mad if there was a signed contract.  But I believe this wholesaler was not confident in his offer and he was going to see if he could make a quick buck.  In turn he could have wasted the buyers time if the buyer quit showing the house and left the property.  I firmly believe it is in our best interest to not waste peoples time and we should always be honest with sellers about our intention with the property. 

It's not hard to explain to a seller that you're not comfortable buying at the agreed upon price but you are capable of possibly reselling it other investors at the price.  Agree on the price, agree on a timeline, get an option contract, and start marketing the house.  You may make some money or you may find out that the price is too high.  If the price is too high, you can explain it to your seller and there is a chance that he'll negotiate down to a lower price that allows you to assign the contract.

The moral of this story is to control your deals and always be honest with your clients.

Happy Investing!