[Music] Hello everyone and Welcome once again to another episode of Selling Greenville I am your host Stan McCune realtor here in Greenville South Carolina and just a reminder as always please go ahead and subscribe to the show give us a rating leave us a review download the episodes do all of those things so that we can get the show out there to as many people as possible and as always as well my contact information is always in the show notes you can reach me at any time my cell phone number is in there my email address is in there just go ahead and reach out to me and I'm happy to help you with any real estate needs that you might have today we're going to be talking about buying from a real estate wholesaler and what that entails and the reason why we're talking about this is because it's something that is becoming increasingly an issue or I shouldn't say an issue but it's something that I'm increasingly having to deal with as a realtor because there are obviously a lot of homes that are on the market but some of the best opportunities out there are for homes that are off market and so we have a bevy of what we call real estate wholesalers who are really focused on the off-market deals and sometimes they can bring deals that are pretty good I've bought several homes over the years several properties over the years from wholesalers and this can be a really good opportunity for you if you're looking to buy particularly if you're an investor looking to buy and I have a lot of connections with a lot of wholesalers so I know a lot of them I have relationships with a lot of them and I'm constantly seeing off-market deals through them and I've had clients that have been able to purchase from them over the years but we need to answer the question first what is a wholesaler and why are they there what what is it that they're doing and if you already have a lot of experience with this feel free to turn it off skip to a different episode but I feel like a lot of my clients that are dealing with wholesalers don't really understand what they're up against and what to expect and what the Norms are so I feel like it's it's important for us to go ahead and get out in front of this so what is a real estate wholesaler the short version is this the real estate wholesaler is someone who basically finds a motivated seller someone who is willing to sell a property for less than it's worth and they're able to offer them something that a realtor would not be able to offer them for instance maybe to close in two weeks and a realtor might say well we might be able to close in two weeks but they can't necessarily promise that a wholesaler might attempt at least to make that promise hey we can close on this in two weeks it'll be a smooth transaction there won't be a bunch of showings it'll be really straightforward and then you'll have your money you won't have to pay any closing costs this will be the actual amount that you'll walk away with at closing that is the typical sales pitch from the wholesaler and so the seller the person selling this property the reason why they would do that why they would sell their property for less than it's worth to this wholesaler is because you know maybe they have had issues in the past selling or maybe they've got a bunch of stuff that they have to to take care of and they don't want to go through the hassle of listing it having people walk through their home or whatever the case may be and the wholesaler is offering them something of value by making a smooth transaction well the wholesaler may or may not tell them this but the ultimate goal of the wholesaler is not to actually purchase the property but to pass it off to someone else and they use the old model of real estate brokering that was when when Realtors first came into the business on Wall Street way back in the day they use this model where basically they would find someone looking to sell a house and they would say all right how much are you looking to sell this property for $100,000 okay I will find you a buyer for $100,000 and then that Realtor would go and find a buyer for $110,000 and then the realtor would pocket the difference now we do it more on a commission basis which is better for most sellers but wholesalers are still using that old model where basically now they're going out and they're trying to secure a buyer for for more than what they have it under contract for and then they pocket the difference now I mentioned before that sometimes a wholesaler may or may not tell the seller that they are doing this a lot of wholesalers they call themselves investors and they'll go to a seller they'll be like hey I own an investment company and we buy a bunch of properties and we notice yours and we're curious if you'd like to to sell it to us we can close in a couple weeks all cash it'll be a smooth transaction and the seller is like yeah that'd be great so then the wholesaler gets under contract and then the wholesaler says I need to come back in to the property with some of my partners and we need to completely inspect everything there's going to be a lot of different people that are going to walk through and the seller says okay whatever and then they bring a bunch of people through that aren't actually their Partners they're people that they help to sell it to and the wholesaler brings these people through they collect their offers and then they have a separate contract that's then basically says that we are assigning the contract between the seller and the wholesaler to a new buyer and that contract is being assigned for this amount so again the example before the contract between the seller and the wholesaler might be for 100,000 and then the contract between the wholesaler and the actual buyer is for 110,000 you get to the closing table the $10,000 goes to the wholesaler or whatever less you know there might be closing costs or whatever but he gets the 10,000 the seller gets 100,000 the buyer pays 110,000 and then obviously there are closing costs and whatnot but then that's how all that money gets dispersed that's basically how it happens now the the wholesalers do provide some value in in the marketplace from the standpoint of they are bringing kind of quick transactions to the table obviously if a house is listed there are a lot of processes that that go into that and so I understand why some people would be willing to sell their house for thousands of dollars less than it might be worth to List It On the Open Market so that they can just have a a quicker transaction with a wholesaler unfortunately there's a lot of shady wholesalers in the area I'm not going to get into all of that right now but it's not always the best thing for the seller to to go through a wholesaler it might actually not be as smooth of a transaction as they think but that's usually the sales pitch that they're getting now we are looking at this from the standpoint of you potentially buying a property potentially from a wholesaler so what does that look like I've done this several times and like I said I've helped clients by them here's what you can expect first off we're going to start with looking at the house you're going to use have one opportunity to look at the property usually it's an openhouse style walkthr and you need to do all of your due diligence during that walkthrough so you really need to have your contractor handy if you don't have a contractor that's flexible dump your contractor get a new contractor you need a flexible contractor that isn't just booked out for weeks and weeks and weeks can actually go to you know with a day or two's notice can can go to look at a property and walk through it you're going to have that single walkthr openhouse style inspection and listen if you're the type of person that needs to do tons and tons of due diligence if you're the type of person that wants to have a full home inspection and a cl00 which is your termite moisture inspection and you want to test for Radon and do all of these things don't don't even bother don't even mess around with a wholesaler it's not going to work out you're not going to be able to do that you need to have a contractor that can look at it and make a quick decision can basically give you some quick numbers based on on looking at a handful of things maybe take a glance in the crawl space look in there glance at the roof look up there look around the house etc etc but you're not going to be able to do a full due diligence that you would be able to if you were buying from a home that's on the market and and again that's part of the appeal to the seller is that they don't have to go through all of that now one thing that's extremely commonplace at these openhouse style inspections showings whatever you want to call them is often times there are just cars lined up I mean if it's a good deal you're probably going to be walking through the house with like 30 or 40 other people I've run into this multiple times it's frustrating but it's something that happens a lot we we had one recently where apparently there was a guy that that started to threaten some of the other people that were there you know trying to to make them not interested in the house or something I don't know it's crazy keep to yourself if you go to one of these keep your thoughts to yourself don't talk in front of the tenants or in front of the seller or whatever you want to keep your thoughts to yourself because you don't know what the wholesaler has told these people the a lot of these wholesalers don't tell them the the full story exactly what they're doing and you may end up messing up the whole deal by by spewing you know spewing off and saying whatever it is off the top of your head you got to be careful with that and we've had some situations where some people have said a little bit more than they should have at these walkthroughs so there's oftentimes going to be a lot of people you you can't let that discourage you you have to you know you you still have to look at it and it's still worth putting in an offer sometimes you you know even if you lose out on it I've had situations where I put offers in I lose out on it but then the original offer falls through and because of my relationship with the wholesaler the wholesaler comes back to me and says hey you know what the guy I was working with was just jerking my chain I want to work with you I know that your offer wasn't nearly as high as their offer but I know that you'll get the deal done and then in those cases I have gotten the deal done and so it's always worth it even if there's a ton of people to still look at it to still walk through to still see what you're dealing with and then usually you put an offer that's like a verbal offer so this is very different than for houses listed as a realtor I never ex talk I never talk in the world of verbal offers I mean I might text back and forth of the realtor and say hey my client is willing to do this but it's not nothing's been accepted until everything is in writing for wholesalers they operate a little bit more by the seat of their pants flying by the seat of their pants they they like to do a lot of things verbally and then ultimately they will put it in writing but if you're again a detailed person you will not be happy with the contract that they send I mean the wholesaler contracts that I've seen almost all of them are terrible I dealt with one recently that was one page hardly had any information on there I had to write some stuff in and it it was something else I I cannot believe you know in South Carolina you can write a real estate contract on a napkin you know it it just it has to be in writing but the actual verb verbiage of it you know isn't that important as long as a person doesn't take you to court but a lot of wholesalers they they don't have a lot of language on their on their contract that protects anyone and that's just unfortunately the way they do it I don't know why it's not beneficial for them I think that they want to keep things maybe simple for the seller you know not make it like a 13-page contractor that the seller has to look through and and start freaking out about if they just have a onepage contract and you have a seller that's wanting things to be quick and easy seller looks at that and says oh okay well this is simple this is exactly what I was hoping for so it's good from that standpoint I guess but really it's it's not good I would prefer you know at least a few pages it kind of spell things out most wholesalers they don't do that and you're not going to be able to get them to do that again if you're a very analytical engineer type of mind and you need to to see every all the terms spelled out in the contract working with a wholesaler probably isn't going to be the best arrangement for you you'll have to put down almost certainly a non-refundable earnest money deposit now this didn't used to be quite as much the case as it is now the the market has really shifted I guess because it's more of a sellers Market to make it more appealing and to be more careful to ensure that they don't have people just you know like I said jerking their chain a lot of wholesalers now are requiring several thousand doll of non-refundable earnest money some up to I've seen up to $5,000 non-refundable and that can be a tough thing to do but again you have to be decisive you have to know right away okay this is the property that I want for this price if I get it for this price then I'll put down the money right that's the way you have to be going into it you can't be wishy-washy if you're at all wishy-washy then don't even put in the offer to begin with because you don't want to be in a situation where you're disputing over non-refundable earnest money or earnest money that you had put in writing that was not refundable not a good situation to be in but you need to understand that pretty much all the wholesalers right now are requiring that that's pretty standard practice even though it's not standard practice for homes that are listed on the market in the MLS maybe that will shift maybe we'll start seeing more of a shift to that model If the sellers Market continues but up to this point we haven't not not with homes that are listed on the market by a realtor and of course you'll need to be able to come up with the money quickly a lot of wholesalers don't require you to to provide proof of funds although I always do that for my clients if they're submitting an offer to a wholesaler just to show that it's legitimate but a lot of wholesalers they aren't going to require that but they will want you to close very quickly they will expect that you're closing with cash now I did a wholesale deal recently that I purchased that there was a long enough period they the wholesaler had it under contract for about a month and so because of that that gave me enough time to secure financing on the property I could have bought it with cash if I needed to but I had enough time that I was able to go through a credit union that was able to to Finance the deal that's very very unusual usually the wholesalers want to close in 10 to 14 days likely not going to be enough time for you to secure any type of traditional financing of any sort and so you need to have the cash or be able to come up with a cash in order to do that quick closing and then you get to the closing table and here is probably the worst part of dealing with a wholesaler is you never know what you're going to deal with when you get to the closing table and often times there is closing table drama and the reason is because a lot of wholesalers are are again a bit Shady a bit Shifty perhaps greedy I don't want to judge but but I've seen this and there have been times and and I think I've referenced this in previous podcasts but where the wholesaler is actually making more money than the seller and the you know sometimes a wholesaler doesn't even show up to closing and it's just the seller and the buyer who have never met before the seller maybe doesn't even know that there is a different buyer than the wholesaler he's been dealing with and so here they get the settlement statement the seller looks at it and the seller says I'm selling this house to you for for 30 or $40,000 and you're buying it for 80 and the wholesaler is pocketing the difference and there have been deals that have fallen apart at the closing table thankfully none that I've been a part of but there I've heard plenty of stories of deals that have fallen apart at the closing table because the wholesaler was not upfront with the seller about that it can be irritating to the buyer I always encourage my buyer clients hey you're getting a deal on this right you didn't find this property the wholesaler found the property and there's value to that the the property that I just purchased that I referenced that I bought from a wholesaler and I financed the wholesaler these are cheap properties all right and the wholesaler made over $30,000 on it and you know what some people would be like man that that's insulting to me that he made $30,000 on that that's such a huge percentage of of my purchase price but you know I didn't bat an ey because he brought me a good deal and I was happy with that I couldn't have found that deal on my own I I didn't have the relationship with the seller that he had and you know what it it's worth the $30,000 in my opinion he he brought value to the table he made the deal happen and you know what it it is what it is do I wish that I had saved that $30,000 absolutely but at the end of the deal I didn't know that seller I didn't find that property and if $330,000 is is what that wholesaler makes in order to provide that value I think that it's worth it that's just my opinion but there is frequently closing table drama when there's a wholesaler involved the the good wholesalers they'll all sit in the same room kind of like a realtor with Theo with the seller with the buyer and make sure that everything goes smoothly but I've seen seen it done a whole lot of different ways I've seen it where the wholesaler doesn't show up at all and it's just a seller and the buyer and then the wholesaler collects his check later I've seen it where the the wholesaler and the seller go into one room and then the buyer goes to another room or where they each sign their documents at different times there's all sorts of ways that they do it and no matter how you skin the cat it it's it's going to feel a little bit Shady it's going to be a little bit awkward but this is just the way it is and and unfortunately this is usually the time when the seller realizes that they made a mistake that they probably should have just listed it with a realtor but it's too late at that point they could technically back out but then they know that there's going to be a much longer process for them waiting for their money there's you know obviously the possibility of litigation if the wholesaler or and or the buyer were to were to try to come after them so it it's usually at that point not worth it for the seller and so the wholesaler is willing to kind of take the risk at the closing table that that that you know it might actually fall apart because by that point by the time it gets there the wholesaler is in the the position of power at that point and the buyer is as well and the seller if the seller doesn't like what he sees there's not a whole lot that he can do at that point but there are deals that are out there I I because I've connected and I've networked with a lot of wholesalers around here I'm seeing deals every week that are decent deals that are good every now and then I'll see a deal that's great that's the one one that I purchased recently I've helped some of my clients purchase ones that are great just depending on on what type of properties they're looking for and so these wholesalers that are out there they can do a good job a lot of them don't fully understand what the market is like they think that they're presenting you a good deal when they're really not and I'll I'll have that happen where a wholesaler will text me about a deal that's out there and then he'll keep texting me about it you know I'll get a text a couple days later and then a couple days after that it's very clear that nobody is interested in this property because it's not a good deal shouldn't even be wasting his time should just pass it off to a realtor and have the realtor list it but that's the way the market is right now everyone is trying to get their hands in the cookie jar wholesalers if the deal is remotely good they're trying to get someone to to buy it get someone to snag on it and every now and then I see one that really fits the profile for what my sellers are looking for and I present that to them at that time and then we kind of take it from there there me as a realtor I still can can handle the whole process from start to finish if there's a wholesaler involved I can still represent the buyer we have to negotiate with the wholesaler whether my commission is going to be paid by the buyer at closing whether that's going to come out of the the wholesalers commission obviously it's a lot less interesting of an offer to the wholesaler if if if the buyer is expecting him to pay my commission I have some clients that when they flip houses they use me as their listing agent and so if there's a situation where there's a really competitive wholesale opportunity out there there's a lot of competition other people wanting the property there are some situations where I'm okay with just kind of connecting the buyer with the wholesaler maybe I'll just submit the verbal offer to the wholesaler and then if it's accepted then I just connect the buyer and the wholesaler and I don't do anything as a realtor because I know that on the back end I'm going to get a commission when my client then flips that house and sells it so there are some Creative Solutions like that in order to ensure that someone gets the property that that you get the property if you're looking to buy it even with me involved as a realtor I I just have to be careful because if I do my job as a realtor I have to be compensated for it because my firm has to be compensated because they are the ones that are insuring me in case I get sued so there's a lot of different things involved like that so at the end of the day I either have to fully represent as a realtor and be fully compensated or not represent at all for all of my clients that use me I'm always happy to give free advice I have to give free advice all the time and I do that frequently for a lot of my clients in these situations so all of that to say if you're looking at investment properties I will obviously look for you and get you set up on an automatic C the MLS for what's actually on the market but I'll also be scouring what's off market and when there are off Market opportunities I will always present those to you if they fit your criteria because I want to make sure that my clients have all the properties available for them to on their own and maybe none of the wholesale opportunities are good ones for them but every now and then one of them works out it's not very often but it happens from time to time and I feel like with my network that I'm able to provide as many of those wholesale opportunities as are pretty much out there and also because I have relationships with the wholesalers I can kind of tell my clients okay this guy's a little bit shadier than the other guy this guy does it well this guy doesn't umI know this guy he owes me a favor etc etc there's a lot of of of things that are kind of going on in the background with the whole sale deal as well that I can for sure assist with that's all for today's episode obviously if you have any questions let me know if you're interested in investing in real estate if you're just getting into it or if you've been in in it for a while but you need a realtor I'm your guy give me a shout all my contact information is in the show notes love you guys stay safe and enjoy the nice cool weather outside [Music]