When a seller gets upset about you wholesaling...?

Question

We had a home that we put under contract to buy. Looked like a great flip. Our contractors walk through gave us estimates. All looked a-ok. We ended up finding more issues than we were comfortable working with and another investor suggested we wholesale it. So we took his advice. Buyer lined up closing lined up. Everything is good.

Seller calls because she saw our ad online (Zillow I believe). She feels upset that we were making X amount more than we paid them and felt like they got cheated.

When we put in an offer/negotiate with a seller we explain that we will either flip, convert to a rental, or pass it on to another investor for a profit. But that anyway the cookie crumbles I will make money on the home. I do this for a business.

Have you ever had this happen?

I explained the issues to the seller and why we decided to pass it onto another investor. She has actually asked that we teach her and her son what we know. She also has me looking for a home for her daughter. She understood and was grateful. I explained that I have never not closed and wasn't going to change that now. Complete 180 in her feelings/emotions back to loving us.

Ryan Billingsley · Answer

@Nicole Carter   The values of a property are subject to how much one is willing to pay for it.  Most sellers have emotional attachment to their property.  Depending on the condition of the house, a property worth 100k can be purchased for 20k.  People often think that their property is worth more than it really is, but what most property owners fail to account for is the amount of repairs the property requires to bring it up to top dollar (ARV).  That is where the investor comes in with his rehab estimate.  I always agree with the seller, yes your property is worth around X.  But if we were to pay you X, we would still have to spend Y to repair it to get the X price when we sell it.  I then would explain we do this to make a living.  I would then explain what the average investor would want to pay to make this a worth while project.  I will use the 70% rule.  I would explain that a typical investor will take the ARV and subtract 30% for profit, then subtract rehab cost, closing cost, and other misc. fees to account for.  I believe educating the seller is the most important part of negotiating.  Once the seller understands that, then you can ask them what they would be willing to accept for their house considering what it needs to bring it back to life.

Michael Purcell · Answer

I don't think you can go wrong with full disclosure and that seems to be the consensus from everyone's comments above. This is not something that I've dealt with but something that I hope I would be able to handle the way  Ryan Dossey  has! Nice job giving REI a good name!

You mentioned that your seller may have found your ad on Zillow, what kind of success have you seen from online advertising and what channels/sites have proven most effective? At getting leads or buyers, not angering sellers :)

Jacob Michaels · Answer

Ryan Dossey Congrats on turning a sticky situation into a win-win!

Those can be tough conversations, but I agree, when you tell the seller that you are fully intentional on closing the deal and getting them the full amount you both agreed to, they usually feel more comfortable.

Ryan Dossey · Answer

@Caressa T.  Thank you very much!

Caressa T. · Answer

Enjoy reading your post. I always learn a thing or two!

Ryan Dossey · Answer

Thank you for the kind words @Michael Purcell . It definitely took some self control to not get defensive. In sales you want to...

Agree with the concerns

Isolate the frustration

Overcome it

Look at postlets.com. We have used that in combination with CraigsList successfully.

Nicole Carter · Answer

Hi Ryan,

I am fastidiously educating myself regarding wholesaleing and I appreciate your post as well as the responses from the community.

My question for the community is: in your experience can you describe the sellers knowledge of their property's value?  With so much technology it would stand to seem they would have a sense of the values.

Thank you all

Jacob Michaels · Answer

Two of my first deals under contract I had made the rookie mistake of putting the property out on Craigslist with the address. I had lots of people I didn't know apparently visiting the houses, knocking on the doors, and telling the tenants the houses were for sale (the tenants were unaware ) and they wanted to talk about buying it! Even though I specifically stated the houses have tenants in them and not to disturb them.

Anyway--- rookie mistake--- and the seller heard about it and called me up and was furious and said the deals were off the table and he had sold one house already (what?!?). I explained that I am an investor and I am in the business of making a profit, whether that's fix/flipping, fix/renting, or simply selling the house to someone else. According to our agreement I could market the property, and I was doing that to establish market pricing so that we could figure out the best way forward.

I was very respectful and friendly, in spite of the situation, and the seller eventually calmed down and I salvaged the relationship and respect between us. I even negotiated the deals down further over time!

Ultimately, these deals didn't close due to my being too conservative on them, but it showed me how important it is to stay respectful and friendly, even when it seems like the sellers are trying to back out and screw me :)

Ryan Dossey · Answer

Jason we clearly explain that upfront and have provisions allowing us to assign, market, and show in our comtract. I may add that to my contract as I like that. We operate our business at the highest level of integrity.

When a seller gets upset about you wholesaling...?

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