"Wholesaling" without morals in Indiana

[Stephen Barton]

Wholesaling definition according to the Oxford dictionary:

sell (goods) in large quantities at low prices to be retailed by others.

Back in 2014 when I started down the path of real estate investing I was taught one thing: buy a house at a low price, add my fee, and then sell that home to investors "off market". Doing this enables the investor who is the flipper or landlord to make the lion's share of the profits. After all, they are the ones that are forking over more time, money, and energy to see that deal to its fullest potential. A wholesaler is simply the deal finder and they should be compensated as such. Sometimes you do well on a deal and other times not so much. Again, we were always taught to leave room for the investor we are selling to. That way, they keep coming back for more. 

In Indiana, we are now officially (for the last two years now) in a seller's market. There are more buyers than there is product to feed the appetites of investors and normal homeowners. Wholesalers have now realized that they can simply list their (what used to be off-market deals) deals on the MLS. Most wholesalers I know around town have almost all exclusively went out and gotten their real estate license just for the purposes of again- maximizing profit by listing their deals on the MLS.

Let's put ethics and morals to the side for a minute. Although I think something should be said for the sort of person who has a real estate license to engage in this behavior. They are running a business. I get it. They have to make money. But at what cost? I have several clients that are currently looking for flips, and rentals. I see the tax records and it just blows me away on how much some wholesalers are making on each deal. Whatever happened to wholesalers just adding on a fee of say 5k to 10k per house depending on the price point? 

I have to be totally transparent here. This is not going to be easy for me to admit but as an investor I have worked as hard as I could to maximize profit on any particular deal. Now, what I see happening here in Indiana just disturbs me. Perhaps, it is an ethical issue I have now that I work specifically as an agent and no longer wholesale houses. I have shut that business down and refuse to do anything but get the absolute best price possible for a buyer or seller I represent as an agent. Maybe I am the dying investor whose head is stuck in the clouds. 

If you are an agent and you are wholesaling is it morally ok to get a seller down so much that you are making most of the profit? I see on some wholesale deals that the wholesalers are making almost as much as the flippers! I was even guilty of this a couple of rare occasions. Which is why I shut that business down. I could not stomach the figures in the end. I just don't want to be remembered as that person. I would rather be poor than have a reputation of someone who cared more about a profit and loss statement. Where do we draw the line? Who will be bold enough to change? Will it only continue to get worse? Is this what investing is all about? Just haggle with someone who is maybe retiring and needs to sell a house or maybe someone who inherited a house to the point where they barely walkway with any money? Is that ok? 

[Charlie MacPherson]

@Stephen Barton Your instincts are serving you well.  The fundamental problem with wholesaling is that the only way wholesalers make money is to steal equity from sellers.

Here's an real life example, where I saved my clients from an attempted $121,000 screwing at the hands of a wholesaler. https://www.biggerpockets.com/...

Yes, there are rare exceptions where a seller will knowingly and willingly leave thousands of dollars on the table, but those are exceedingly rare, but in general, wholesalers profit from sellers who are either ignorant of the true value of their property or are in such a distressed situation that they have to take a bad deal to get out of a jam.

Sellers do better by FAR when they put their property on the open market (MLS) and are represented by a competent Realtor. A good agent will expose the property to literally millions of potential buyers. A wholesaler will expose it to perhaps a couple of dozen on their "buyer's list".

Think of it this way.  Of the entire universe of potential buyers, only ONE buyer will be willing to offer the best combination of price and terms. 

Which do you suppose will have the better chance of finding them?  The wholesaler who gets it in front of a dozen buyers or the Realtor who gets it in front of millions?  And which seller do you think will do better - the seller dealing with a wholesaler who is only thinking of himself and his profit, or the seller dealing with a Realtor who is the seller's fiduciary and will negotiate on the seller's behalf?

Real estate license standard and laws are put in place to protect the public from unscrupulous operators like wholesalers and some states are starting to crack down on them - and I hope they do more.

You'll no doubt see lots of responses slinging a load of bull crap about how they're altruistically "helping the seller" to solve a problem - but we can all see the bull crap for what it is.  In reality, they're helping themselves to a chunk of equity that rightfully belongs to the seller.

Look at it this way.  If the wholesaler paid the seller true market value for the property, who are they going to assign the contract to?  And at what profit?  The short answer is that they're not.  There's no profit left and there's your proof.  Wholesalers either steal equity from the seller or there's no profit in it for them.

If you want to invest, do it the right way.  You can actually buy the property and then market it for resale. Or you can get get your real estate license and subject yourself to the state laws that are designed to protect the consumer.  Operate your business in a win-win fashion and everybody comes out ahead.

You don't have to screw people to make a living.