All Forum Posts by: David Hines

I recently got into a lengthy discussion on another thread about wholesalers and whether they bring any value to the real estate industry or not. I am interested to see what everyone's experience has been with wholesalers.

It has been my experience that for the most part, they bring no real value to a real estate transaction. I have come across wholesalers who quote wildly inaccurate numbers on ARV, repair costs, etc. I have come across wholesalers who straight up lie about what price they are under contract for in order to maximize their assignment fee. It seems to me that a large percentage of wholesalers have no ability to actually close on a property. Many seem to be fresh from a local meetup or guru seminar and they are interested in jumping into the real estate industry with no funds of their own to invest. Their actions strike me as not just operating in a gray area, but tending toward outright deception (especially when it comes to getting a property under contract with an uneducated and inexperienced seller).

A note on definitions- it has been my experience that most people who call themselves wholesalers are doing the following;

1) Getting a property under contract for substantially less than it is worth (when I say worth I don't mean ARV, if the property is distressed or in need of repairs then it is worth some lower amount than ARV, when I say worth I mean the amount that the wholesaler knows they can turn around and sell to their buyer list at quickly and easily)

2) The wholesaler does not disclose what they believe a property is worth to the seller, they take the view that they are just making an offer and the seller can take it or leave it. 

3) The wholesaler uses a contract that outlines all the things they may do with a property (fix and flip, buy and hold, assign, etc) once it is under contract, but in reality is fully planning to assign the contract as quickly as possible. 

4) If they are unable to assign the contract, then they walk away and only give up a sometimes ridiculously low earnest amount (I've seen as low as $25!)

It is entirely possible that there is a large group of people who call themselves wholesalers that this doesn't apply to and if that is the case then I am not referencing you and it is just unfortunate that the people who do act this way call themselves the same thing that you do.

One final note - I am honestly looking for everyone's experiences with wholesalers to gauge if maybe I've just been unlucky in the ones I've come across. I know the temptation will be huge for wholesalers to defend themselves on this thread, but please hold off, I'm not interested in having a debate. If wholesalers do tend to conduct themselves ethically then I'm sure a large majority of the responses here from other people in the real estate industry will support them, I just don't want this to become an unwieldy thread where every wholesaler under the sun feels the need to stick up for themselves. By the same token, I'm not interested in "Ya, wholesalers are bad" posts, I'm really looking for concrete examples from your personal experience.

Thank you all!

First of all, I have been very careful in my posts to use terms like "most" and "it seems to me" and "given my experience" and "based on my experiences". I never intended to attack a whole industry, just look through my posts praising wholesalers who can do it honestly. But how can you protect an entire industry just because you're in it? To use your terminology, that is just silly...

You also make assumptions about me and my experience, based on precisely nothing. Full disclosure, I'm a real estate broker, but I don't do many transactions, I mostly have the license to deal with my own properties as an investor. I am a stay at home father and own a retail business with my wife as well. I post on BP because I enjoy it. Through my experiences and interactions with investors and wholesalers and seeing the way wholesalers present themselves to the public (me included), I have formed the opinions that I've outlined in this thread. I haven't been burned by anyone and I don't compete with wholesalers. It seems that everything you think you know about me from some online comments is wrong. You are the one making assumptions and trying to stand up for an entire industry, I am only attacking (what seems to me to be) the very high percentage of wholesalers who are unethical. If that doesn't apply to you, congratulations, you officially have a pat on the back from me for meeting the minimum standards of real estate investment...

I'm not sure how much further down this rabbit hole I want to go, but here's one more shot...

No, becoming an expert and using what you've learned to buy homes is not deceptive, what I said is using an information advantage to deceive is deceptive, which should be plainly obvious. The point I'm making is about (what seems to me to be) the majority of wholesalers who act unethically. If you are able to wholesale while being completely honest and open and truthful and sellers still choose to go with you, then hey no problem, I wouldn't say you are acting unethically. However, that is not my experience with wholesalers in general.

I don't believe that sellers who are fully informed are very likely to choose to go with a wholesaler. 

It only seems like the arguments are jumping around because you don't seem to have a full grasp of what I'm saying. Do I expect everyone to pay full market value for a property? No, absolutely not. Do I think it is unethical for a wholesaler or anyone else involved in a real estate transaction to use an informational advantage to deceive a party to the transaction in order to personally gain? Yes, absolutely YES! Unfortunately, this is the business model that a large percentage of wholesalers tend to follow.

I've said it before and I'll say it again, if you cannot be 100% completely honest, open, forthright and truthful when conducting a real estate transaction, then you are being unethical! Ask yourself if you ever have to be concerned about whether the party you are dealing with is gonna go through with the transaction after they know how much you make on the deal or what the assignment fee is or what the property is worth. If any of that raises a concern, then you are not acting ethically.

This is the only thing that you said that matters. You agree that most wholesalers are doing it wrong. This is NOT a few bad actors who are breaking some set of rules. There are no rules for wholesalers the way there are for agents. Your conclusion is wrong. The fact that most wholesalers are doing it wrong is exactly what makes wholesaling shady.

Based on my experience (and I grant you that it may be possible that I have been unlucky and only come across the ones trying to make a quick buck), I believe that wholesalers are more likely to be dishonest or deceptive than realtors or pastors or cab drivers. As I believe Jay Hinrichs has pointed out repeatedly, realtors are subject to licensing and a code of ethics from various local and national associations. With wholesalers it is the wild west, caveat emptor and all that. If a realtor is dishonest, they get caught and lose their license, unfortunately the same can't be said of wholesalers. The lack of licensing requirements, oversight and the ability to swindle some pretty stunning amounts of money from uneducated sellers is exactly what attracts a lot of wholesalers and gurus in the first place.

Believing that there isn't a large majority of wholesalers who are deceptive, dishonest and do nothing of value in a transaction is just nonsense. You can deflect to larger points like capitalism being the bedrock of western society, but that doesn't change the fact that the incentive to be deceptive as a wholesaler is huge, just look at the OP's question.

Sent 5 minutes ago

Report SpamBlock Travis

Hi David,

My name is Travis and my brother and I run a well-known wholesale company in Southern Florida that acquires properties directly from the seller, (no middle-man), and are beginning to do some wholesale deals in Texas. Our properties are being sold at 75-80% of the ARV, less repair expenses. We would like to add you to our cash-buyer email list so you can have the first opportunity at acquiring the properties we get under contract in Houston.

Thanks,

Travis (Transaction Coordinator at Zenith Trust LLC)

Sent 1 minute ago

Dude, you are the middle-man...

Wow, I literally just received this on the BP message system...

No thanks man, I prefer not to help perpetuate a system where you deceive sellers into thinking their homes are worth less than they really are...

I'm thinking Travis may not have been reading all my posts in this thread...

No, I don't always offer 100% of market value, but I am capable of closing on the transaction. Unfortunately, whether you realize it (or like it) or not, the vast majority of wholesalers do not have the intention or ability to actually close the transaction. There is a HUGE difference in my mind between saying here is what I am willing to offer for your property vs saying here is what your property is worth while planning to add an assignment fee and immediately sell the contract to a list of buyers.

Just ask yourself, if you met with a seller as a wholesaler and were completely honest and open about your intentions and shared your knowledge of the marketability of the property, would the seller sign a contract?

I think most sellers would say no in that situation and most wholesalers know it, so the only way to make that fee is deception.

I apologize for calling you a wholesaler, I wouldn't want to be labeled one unfairly either. However, I don't think the way you break down the differences in terminology is at all indicative of how the real estate investing industry uses the terms. Just to be clear, I have absolutely no problem with a fix and flipper, I think flippers provide value and a genuine service in the industry and do not have to rely on deception to get paid (like a wholesaler).

If you're saying that there are fully informed and educated sellers who value liquidity and convenience to the tune of $140,000, then I simply don't believe you. I think the MUCH more common scenario is the wholesaler who finds a property worth 100k and convinces a less knowledgeable seller that they'll buy it for 55k, while the real plan is to assign the contract for 65k and walk away.

Maybe you are one of the tiny minority of wholesalers who really are completely honest and open and can run a successful business at wholesaling at the same time. In which case, more power to you. But you aren't going to be able to convince me that that is anywhere close to the typical wholesaling deal.