6 Ways Wholesalers Need to Change How They Do Business

Bottom feeders.

Bloodsuckers.

Greedy vampires.

Sound familiar?

Our friends in real estate often use these names to refer to us wholesalers—and you know what? In most cases, we deserve to be called such things.

I am going to tell you up front that a lot of what I am going to say today may come across as harsh, but my intention isn’t to bash anybody. As a man of faith, I have nothing but love for all people. But as an industry, we wholesalers have a lot we need to change.

The truth is there are several things I see people do in this business that justify the raunchy names we get, and today, it is my goal to shed light on the darkness, so that we as wholesalers can change.

In my day-to-day, I interact with a lot of different wholesalers, and I am on a lot of their “buyers” lists. So, I experience firsthand the best and worst of this industry.

In a past blog post, I highlighted why I love wholesaling as a real estate strategy, and in the feedback I got, a lot of people were elated to finally have a positive voice standing up for the honest side of this business.

But do you know why there is so much bad talk about us? It is because most wholesalers have terrible habits, and they are hurting the rest of us!

I’m sure you’ve heard the saying “A bad apple spoils the whole bunch,” and it really rings true.

The Top 6 Ways Wholesalers Need to Change, Right Now!

In the following sections, I am attempting to highlight the six major areas of change that need to occur in the actions and habits of the majority who call themselves wholesalers.

Ready? Let’s do it!

1. Wholesalers Need to Stop Selling Other People’s Deals at Different Prices

The other day, I was routinely sending out an email to a few of our buyers, marketing one of our current deals. One of the people I reached out to was an investor friend with whom I’ve done a lot of business over the years and knows me very well.

When I sent him the property, he messaged me back saying, “Brett, you’re the third person to bring me this exact deal, and each one has had it listed at a different price. Do you know what’s going on here?”

I quickly replied, “That’s really strange because I actually own the property, and I don’t know who else would be sending it to you.”

This happens all the time—and it is flat out illegal, too.

I don’t know exactly where people learn to do this kind of stuff (probably some guru teaches it). But a lot of people go around marketing other people’s deals, trying to sell them with a marked up price, and it’s not okay!

Now, understand that I’m not saying that someone working on your team can’t help you market, but it’s a totally different issue to have someone you’ve never met, with literally 0 percent interest in the deal whatsoever, steal it from you and try to sell it.

This is downright illegal! If you do this, stop it right now!

To put what’s happening here in the proper perspective, what these wholesalers are doing is the same as if my neighbor was selling their house with an agent for $100,000 and I just decided, “Hey I’m going to send this property out to a bunch of people asking $110,000 for it, without any real interest in it. But I’m going to pretend that I own it. Then if someone accepts it at my price, I’ll bring it back to my neighbors and offer to buy it at their price, profiting $10,000!”

According to the law, you cannot sell a house that isn’t yours, unless you have authority and permission to do so. It’s common sense, but a lot of wholesalers seem to have this idea that somehow the rules don’t apply to them, which leads to my next point:

2. Wholesalers Need to Start Playing by the Rules

Most wholesalers (like the one mentioned above) seem to believe that for whatever reason, the real estate customs, rules, and laws somehow don’t apply to them.

For one, a lot of them don’t actually get their licenses, because it creates a “liability” for them to abide by professional standards. But my question is, if your business is structured by profiting from the sale of real estate, why wouldn’t you get the legal credentials to do it properly?

A long time ago, I was taking my first real estate class. Upon telling my instructor that I was an investor, she was the first to try and convince me not to get my license. Her main point was that if I were to get it, by law I would have to disclose everything to all parties involved.

But here is my question: Why would I want to run the type of business where I didn’t want to disclose everything? Am I a fraud running some kind of scam? What exactly do I have to hide?

I’m the kind of guy who is going to disclose everything regardless of whether I hold my license or not, so I might as well utilize its benefits. If you’re running your business right, there shouldn’t be anything you don’t want to disclose.

Again, don’t misunderstand what I’m saying: You can be an ethical wholesaler without your license, but my question is, why would you go that route in the first place?

Personally, I like having my license, because it influences me to act professionally and creates a sense of accountability. I have to abide by the code of ethics as a broker, and that makes me a better wholesaler. Most wholesalers don’t think that way, though, and it’s a shame.

For a lot of people in this business, it almost seems like it’s a game to see who can cut the most corners, take advantage of the most legal loopholes possible, and exploit the most people.

But again, my question is why?

The rules and laws are in place to protect all the parties involved. Why not simply do things the legit way? I guarantee you that in the long run, playing by the book will sustain your business and make you more successful.

Trust me! I’ve been in this business long enough to see the ones that last.

3. Wholesalers Need to Stop Putting Down $0 Earnest Money

The next area that needs to change in our industry is our practice when it comes to earnest money.

A lot of gurus will teach wholesalers to put down as little earnest money down as possible so that if you end up backing out of the deal, you’ll lose as little money as possible. To be frank, I think this is a horrible way to do business.

My company does its best to live by the golden rule: “Treat others as you want to be treated.” If I were selling my personal residence, I would not want to sell to someone who wouldn’t put down any earnest money. And for some reason, wholesalers think that the custom of earnest money doesn’t apply to them, and they always seem to try and get around it.

For example, the other day I had a gentlemen make me an offer by a random text message (which was kind of weird in the first place because I didn’t know him from Adam, but we’ll save that for another day). The property he was interested in was already pending, but I told him I had several other properties and asked him what exactly he was looking for. So, he told me, and I had a property that matched his criteria.

He went and checked it out, and he then texted, “Hey. I can buy the property at X amount.” I ran some numbers and replied, “You know, I think I can make that work. I’ll go ahead and get a purchase agreement written up and send it to you. But because we haven’t met or done business before, I’m expecting a $1,000 earnest money deposit on this house.”

He texted back saying, “Um, I’m a wholesaler, so I don’t submit any earnest money. What we do is we tie up your property for 30 days, and then if we don’t sell it, we walk away no questions asked, and no one is hurt.” I guess that was his idea of a good deal for me… and obviously he had my best interest at heart—NOT!

This really struck a chord with me, because he honestly thought that since he was a wholesaler, the normal real estate customs did not apply to him. I mean, the guy thought what he was offering was totally rational!

But think about it: If I went through the MLS on an offer for an REO (or any house for that matter), the offer got accepted, and the agent was asking for my earnest money deposit, and I said something like, “No, wait, wait, wait, I don’t need to give any earnest money; I’m a wholesaler,” what do you think the real estate agent would do?

They would think I was crazy and tell me to get lost!

The fact is I think earnest money is a good way to do fair business. If you’re going to tie up someone’s property for 30 days, you should have some risk invested. Those who try to wholesale properties without it become known as “that wholesaler” who always backs out of deals, has horrible properties, and is generally a headache for everybody to handle.

Now, do I always spend a lot of money on earnest money? No!

Sometimes I’m buying a $3,000 property and only put down a $100 deposit. But typically, I put down around $500, because it gives me something invested in the deal—and that’s the least amount I would want if I were on the other side of the transaction. Again, I want to be held accountable and be known to do right by people. And I think earnest money is one of the ways to achieve that.

4. Wholesalers Need to Stop Acting Greedy!

You know, it’s crazy, but going back to my story about the guys who were illegally trying to shop my properties, I’ve had people I don’t even know try to mark up my properties by $20,000. This was also on top of my wholesale fee, and it made the deal look ridiculous!

The way a lot of wholesalers mark up their prices is sickening.

I always tell new aspiring wholesalers that I mentor to ask themselves, “If you were a fix and flipper or a buy and hold investor, would you buy the deal you’re trying to sell right now?”

And that’s the key in this business: You have to put yourself in the other person’s shoes. Can you almost guarantee that investors will make a profit on the properties that you’re selling to them? If the answer is no, why the heck are you sending them a bad deal?

It’s the number one way to ruin your credibility!

The next time you send them a deal, you’ve now been labeled a bad wholesaler and a waste of time. What’s even worse, though, is that the vast majority of those “bad” deals could have actually been great ones if the wholesaler would have been willing to profit less from it.

I’ve run into a lot of wholesalers who set minimums. For example, they say they have to make at least $10,000, or they won’t unload the property. But for me, if I can sell a property the same day or within the first week, I’m happy with making anything. It’s typical for us to do deals where we only make about $3,000-$3,600, and it’s those deals that feed my family!

Now, do we ever make $10,000 or $15,000 on one deal? Definitely! But we only make that if it’s an incredible deal, and our investor buyers can still make great money from it, as well. It always needs to be a win-win for us and our buyers. Otherwise, we aren’t doing our job right.

Do not be greedy! Analyze your deal and assess, “Is this a $3,000 or a $10,000 deal?” Make sure there is enough margin for your investor buyers, and you’ll be good to go!

5. Wholesalers Need to Keep Their Buyers in Mind

Again, you must keep your buyers in mind. Yes, my horse has died, I’ve taken out a bat, and I’m beating the crap out of that sucker!

I’ve heard a lot of investors say, “I have a list of a ton of different wholesalers, but I’ve never bought anything they’ve shown me because the deals are simply not good!”

Wholesalers listen up: If the deal is so good that it is almost hard for you to sell it, then you know you’re at the right price. If it’s such a good deal that it’s tempting you to keep it and either flip or hold yourself, then you know you’re selling the deal at the right price.

If you send a deal out, and 10 different investors call you right away to see the property, don’t feel like you under-priced the property. This is a good problem to have, and investors will start to notice you and your deals.

Your investor buyers don’t want your leftovers! People want amazingly good deals, so you need to be the guy who is known to have them.

6. Wholesalers Need to Keep Their Word

Finally, I want to address something that I believe is the most crucial on this list.

A lot of people think that the only strategy wholesalers use is to get properties under contract and then try and flip that contract by assigning it. I want you to know that is not the only way there is to do it.

My company doesn’t do that at all, and there is a reason for it. What we essentially do is buy the properties outright, meaning we close and actually hold title before we ever sell it to someone else (even though it may be just a few minutes sometimes). I am not saying that you can’t or shouldn’t assign the contract if that is the option is available, but you need to think of what would be best for the “motivated seller.”

The problem is that most wholesalers get a property under contract with the intention of assigning it, but when they can’t find a buyer, they just back out and leave the seller with nothing. If my company is going to tell a seller that we are buying their house, then you better believe that we are following through (unless something very unusual happens).

There is integrity in being a person of your word. Your word is sacred and should be protected. I want to challenge every wholesaler out there to step up their game. People need us to be leaders of integrity, and our industry needs to change.

I know sometimes that doing things the right way isn’t the most convenient; sometimes it’s easy just to fudge a little here or there in order for things to get done in the short-term, but if you continue, everything will end in ruin. I promise you.

In order to actually have the capacity to buy the property outright, you may need to partner with someone, find a transactional lender, or use private money. In the short-term, you probably won’t make as much as you would if you did it the other way. However, if you establish yourself as the guy or gal with great deals, as the guy or gal who is dependable, always does right by people, and isn’t greedy, then very quickly people will be coming to you over your competition.

And you’ll be so busy that you won’t know what to do with yourself!

In closing, I want to be very clear: I love wholesaling, and I love wholesalers. And honestly, that’s the very reason why I wrote this post. I know a lot of what I said may have come across as harsh, but I only spoke the way I did because I wanted to get your attention.

From the response I received on the other post I referenced earlier, I’m well aware that these are the same complaints other investors have against us wholesalers—and these things need to stop.

Our reputation needs to change.

If you are involved in wholesaling in any capacity, I want you to ask yourself, “Do I want to be one of the 90 percent of wholesalers who deserve labels like the ones written in this article, or do I want to be a part of the other 10 percent who are truly an asset to every investor they come across?”

When people hear the word “wholesaler,” it’s my desire for them to think of us as professional deal finders, who they know they can trust.

It’s time for us to raise our bar. It’s time for us to stand up.

What would you add to this list? How can wholesalers start to repair their reputations?

Let’s talk in the comment section below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.