Originally posted by @John Thedford:
Unlicensed brokers work against the seller trying to drive the price down so they can middle man the deal shaving off some profit in their pocket, and walk. An agents job is to get the MOST for the seller. So they beat the seller down, slice off equity, and pass it on. What value is that to an owner? None. Many of these unlicensed brokers operate illegally. Many of them use lies and deception. What seller would knowingly sign a contract if the unlicensed broker admitted he didn't have any cash to close on the deal? Many of these people don't want to get licensed for reasons such as the one stated above: income tax fraud. Add to that no licensing, no education, and no accountability you get what? According to one of them, their "qualification" for the job is a driver license. YUP...posted here on BP! I do know some LICENSED agents that wholesale properties. Personally, I haven't dealt with them but have been offered some of their "deals". Most of them have -0- profit so why bother. Is there a benefit to these guys? In most cases, no! I often post the following suggestions to avoid getting scammed by them:
1. Always require WRITTEN comps that can be substantiated
2. Always require WRITTEN bids from LICENSED contractors
3, Always require WRITTEN comps to substantiate ARV
4. NEVER pay a non-refundable fee
5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.
6. Demand a copy of the contract to prove they have an equitable interest.
Unlicensed brokers generally have no insurance. From personal experience most just pull their ARVout of thin air. Lets see: claim it costs x and it will sell for y. If someone uses an agent, an agent won't provide or should NOT provide the BS an unlicensed broker does. They should not or do not provide rehab figures (to protect themselves). They should tell a prospective buyer to get their own bids. They can provide comps in some situations on an updated unit vs an original unit. Agents have something to lose, can be fined, and have their license suspended or revoked. Unlicensed brokers, acting as fringe operators skirting the laws have nothing to lose. They are acting as an agent without the laws, ethics requirements, education, and insurance that are vital IMO.
If you want an education in frauds and scammers, you will get it reading the threads on BP. This is the new get rich quick with no money and no education. Sadly, no ethics and honesty are often the case as well. One of the funniest threads I saw on BP was an unlicensed broker with NO money posting how to find qualified buyers WITH money. So, he didn't want to get screwed by his own kind:) It is OK if I scam YOU,,,,,,but DONT try that on ME! LOL!
Just like with any business, There are people that do it the right way, and people who are scammers. I have seen some wholesalers help people that agents wouldn't go near, especially in low dollar areas. I see a lot of agents supposedly working to get their client top dollar with nothing else but a bare bones MLS Listing. Lets face it, 6% on 20k properties is not too motivating, especially if another agent gets involved and you only make 3%. That being said there are a lot of people getting into wholesaling with no idea of what they are doing, and promising the world to a seller when they have no way of delivering.
As far as your points above. I need to Disagree with you on a few, as I put on my Wholesaler Hat.
1) Always require written comps that can be substantiated.
Why would a buyer trust anyone comps but their own? I never tell people what the ARV is. A buyer needs to be confident in the ARV that they use for their own numbers. How do I know what that buyer is going to do to the property to even guess at what type of ARV they might get.
2) Always require written bids from licensed contractors.
What value is a BID on a property from a contractor the buyer doesn't know like and trust. What value is a BID on what I think needs to get done vs what the buyer thinks needs to get done. There are a lot of choices that can dramatically affect the BID. ALSO. There are a lot of contractors that will UNDER Bid Jobs just to get started, and then request all sorts of change orders.
3) Always require WRITTEN comps to substantiate ARV
See number 1
4) NEVER pay a non-refundable fee
Your not buying a deal from me unless I get NON-Refundable Fee.... Well Actually it is refundable if the deal doesn't close because of something on the Seller's Side. Its Non-Refundable if the BUYER chooses not to close. Makes Sense right? If I take the contract off the market, then yes you need to close.
All that being said, DO NOT give the wholesaler a CASH Deposit, And make sure it is payable to a neutral third party (Escrow company, attorney, ETC). Also make sure you have an escrow agreement with that 3rd party that spells out what happens to that money in case things go "sideways"
5) Always correspond via email so there is written record to bring suit in the event of misrepresentation.
This is always a good way to make sure that everyone is on the same page. Get it in writing, and whatever is said needs to match what is in writing.
6) Demand a copy of the contract to prove they have an equitable interest.
Absolutely, the wholesaler needs to show a copy of the contract they are selling. Remember... a wholesaler is usually selling a contract and not a house. Legally, They can only sell a house that they OWN (Unless Licensed). But they can sell a contract.
Happy Investing!
:)
-Steve
