What to look for in a wholesale deal

Question

Hi BP family!

I'm currently in talks with a wholesaler who has a MFH in Seattle for sale. As far as I understood, she bought the rights of sales and purchase agreement from the listing agent.

Looked up the history in zillow: two months on the market then one month off, now the wholesaler got the property (but the seller is still working with his agent.)

Yesterday the property poped up on the market and turned into pending. The wholesaler doesn't know why the listing agent listed a status update. This looks uncommon. Anything we can do to protect ourselves from unwanted complications?

Another question is that the wholesaler is not letting us review the purchse and sales agreement before signing her assignment agreement with a smallish (0.3%) EMD check paid to the order of her LLC instead of escrow. Is this common in a wholesale transaction?

A lot of these issues could be handled by having buyer's agent but the wholesaler is reluctant to work with one saying that she can help with all the processes.

I'm new to the game so I'm not even sure if I'm being overly cautious or overly careless. I'd appreciate any comments and thoughts.

Michael Haas · Answer

This one is plain and simple - do not write that check without assurances that the property is in fact under contract. That means talking to the listing agent, owner, and/or seeing the PSA. Scams are unfortunately relatively common in this type of transaction.

Best of luck!

Scott Anderson · Answer

Could be pending sale to the wholesaler. Went off market, wholesaler approached, still contracted through agent with ER though not on market anymore. Agent then gets contract signed between client and wholesaler. Everybody wins.

Wholesaler can get a contract to buy with the agent and be such a good deal they still can wholesale and be completely transparent about it too.

The wholesaler should show you the deal before you give them any money though. That’s just backwards and to me ridiculous.

Brian Pulaski · Answer

Wholesalers don’t sell properties... they assign their position in a Purchase and Sale agreement. Anyone who won’t show you the P&S that you are purchasing the rights to I would move on. That’s basically telling you to give them money before they show you the deal they have agreed to.

Charlie MacPherson · Answer

@Ji Choi Typical wholesaler / unlicensed broker garbage.

If the property is on the market (listed on MLS), it is a virtual certainty that the seller has an "Exclusive Right to Sell" contract with the listing agent's brokerage.  That means that the wholesaler has no right whatsoever to market the house - she's just trying to get in between you and the Realtor for a fee, which is illegal in almost every state.

Just for the record, no Realtor ever has the right to sell their listing contract to a wholesaler.  That contract is between the brokerage and the seller.  It would be an illegal contract and a dereliction of the agent's fiduciary duties which would land the Realtor in a world of hurt.  I don't suppose she showed you that contract, right?  Of course not.

Real estate licensing laws are put into place to protect people like you from people like her.

No surprise that the wholesaler doesn't know why the status changed to pending.  That's because she's an unlicensed scam artist who doesn't know the business.  The reason that it changed status is that the Realtor has an accepted offer on the property.

And of course she doesn't want you to deal with a legitimate buyer's broker.  If you do, he'll expose her scam for what it is and you'll ghost her.  Her insistence on getting your deposit without showing proof that she has the house under contract just confirms it.  An honest seller would have no problem showing proof.  A scam artist does.

Don't just walk away.  Find her business card and burn it.  Find her contact info in your phone and delete it.  And never, ever talk to this scammer again.

John Barrett · Answer

@Ji Choi I haven't worked with a wholesaler before so I can't speak to the process but I would be cautious if I were you.  This may all be on the up and up, but based on your description of the facts it seems a little strange.  Why don't you reach out to the listing agent and make sure the wholesaler you are working with does in fact have the subject property under contract?  My concern is that you are basically being asked to give money to the wholesaler without validating that they do in fact have the property under contract.

Best of luck,

John

What to look for in a wholesale deal

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