Is this "wholesale" deal a scam?

Question

I've never been involved with a wholesaler or "daisy chain" so not sure if I'm being overly cautious or overly optimistic....I need a little help....

Here's my question-  What can I do to confirm a wholesale deal is real and not a scam?  I've read posters say that I should demand to see the contract between them and the seller.

Below is the scenario....

The property came up on the Zillow with the only description being it's a "4 unit at $1m", which didn't match the actual listing price.  Agent doesn't have any reviews, info, etc.  So it already seemed a little scammy.  (also found out it's really only a 3 unit.)

I left a message with the listing agent, but received a call back from a construction company representing the property.  They didn't have any info on the property, but said they could get any info I needed.  They couldn't/wouldn't tell me their relationship with the seller, but when I asked if they were wholesaling the property they said yes.

They texted me the next day saying there would be 1 showing for the property and all buyers have to see it then.  I received a text the day of the showing saying not to ask any questions to the agent and to tell the tenants I was with the construction company if asked.  I was going to blow it off since it seemed scammy, but I made the time to go check it out.  I got there about 15 minutes late and they were already closing up the property.  The only thing that made it seem a little less scammy is the owners were there and I could over hear them talking about the property.  They were also the ones with the keys, answered/avoided a few questions, and let me into two of the units.  They couldn't get into the 3rd unit.

I looked up the tax records and there's 3 owners all with the same last name, so I think it may be an estate sale?  Possibly some drama involved.

Looking up the "construction" company they market "we buy houses" through their website . So I'm thinking best case scenario is the seller reached out to them wanting to avoid selling fees/hassles and they are just wholesaling or daisy chaining (not sure what that means) the property to make a quick buck.

Anyhow I reached out to them expressing interest.  I get a call requesting my terms, pushing for a quick close, and 10% deposit. The admin seems to be just going off a script and doesn't seem to know much about the process.

I get a call back from the owner of "construction company" wanting to confirm the details of the offer.  I talk with him for about an hour.  He's telling me my offer isn't the strongest because I want to do inspections.  Says a flipper will buy without because they are buying knowing they have to fully renovate and that's why it's a deal, it's based on ARV.  I think he's wanting to avoid a lot of back and forth with the seller over cosmetic or general issues.  I agree with him as it's priced under market.  I tell him I still want to do inspections for informational purposes and to know about bigger ticket items.  We agree on a 7 day inspection window and I can back out for oil tank, foundation or electrical issues over 50K.  I agree to put 7.5% down.

I get a call this morning from the admin saying they want to go forward.  I ask if the seller accepted the offer and she says they are the seller and is sending over a contract for me to sign and wants to know when i can sign and send the deposit.  I receive a "contract agreement to purchase real estate".  It's not dated, my name's not on it and the seller is listed as an unknown business name with t/a the company name I'm familiar with.  The first page is 13 points of fairly generic purchase agreement info and the agreed inspection terms.  The second page is there TD Bank info for wiring purposes.

So....saying all this "out loud" makes it seem like a scam, but I'm not familiar with this type of process and lean to being overly cautious/risk averse for the most part. I can see how they'd want to get this done as quickly as possible and with the least amount of friction given they probably don't have a strong relationship with the sellers.  They also could just be extremely amateur, which they are, but don't have bad intentions.

Either way I'm definitely not sending money directly to their bank account and will definitely have them fill in the basic info of the contract.

Nick C. · Answer

Not necessarily a scam but it should be treated as such until proven otherwise. They're obviously lying to the seller, and if your offer wasn't the strongest the "owner" of the "construction company" wouldn't have been on the phone with you for an hour and then accepted, he would have taken the strongest offer. Lie #2. It sounds like they're using a contract that they wrote, and one page won't cover all the numerous issues that can come up in a RE transaction.

But there are ways to protect yourself - the inspection is a good start, also get leases and estoppel letters if that 3rd unit is occupied. Have a title company or 3rd party hold the escrow deposit, and have your own title company do a title search. Make sure to read the contract word for word, watch out for weasel clauses, and make sure the signature is an actual signer for the "construction company". Seeing the contract between them and the seller would be nice, even if they cross out the purchase price so you don't know their spread, but many wholesalers will balk at this.

And with any wholesale transaction keep your fingers crossed!

Kyle J. · Answer

@Mark J.  It's a little hard to follow/understand everything you wrote, but I think I got the gist of it.  Here's a few of the red flags I see:

- The people you're dealing with (this middleman "construction" company) has a dishonest relationship with the seller, as evidenced by them telling you not to ask any questions during the viewing and actually telling you to lie about being with their company if asked who you were.

- Not being honest with you, as evidenced by their being reluctant to even disclose the most basic info (like their relationship with the seller).

- Them trying to rush you and get you to skip inspections.  Admittedly, it is common in wholesale deals to want a buyer who can do a quick close, and some are even willing to write offers not contingent on inspections (I have actually written all cash offers not contingent on inspections).  However, this is NOT for beginners and if you want an inspection then you should get one or walk away.  After all, you haven't even seen inside one of the three units and they're pressuring you to write an offer and put down a large chunk of money as a deposit!

- It sounds like you have not even seen the purchase agreement.  I know you have seen A purchase agreement (likely just an assignment contract), but it doesn't sound like you have seen the most important one, which is the the purchase agreement between the wholesaler and the seller that this wholesaler intends to assign to you.  (If they're still making changes to it, then it's not the original purchase agreement. It's the assignment contract that you're seeing.)  You need to demand to see the original purchase contract if you intend to go through with this.  Don't fall for any BS about how they can't show it to you, or they don't want you to see the original purchase price.  That's a bunch of baloney.  They'd be assigning this original purchase contract to you, and you'd be agreeing to the terms/conditions in it.  You need to know what the heck you're agreeing to.

- The wiring instructions directly to their bank account is a big no-no.  You don't ever wire money directly to a seller, and certainly not to a wholesaler.  It only goes to a title/escrow company (or whatever neutral third party will be handling your escrow/closing), but never to a party directly involved in the sale.  Otherwise, if things go bad, you'll never see that money again.

I could go on, but I think you get the point.  None of these things necessarily mean it's a scam, per se.  There's enough red flags though that you should think twice about doing business with these people.  They're either inexperienced, incompetent, or maybe they are scammers.  But do you really want to risk your hard earned money to find out which of those they are?

I'd be willing to bet if you go through with this you will lose money and you'll be back on here asking us for advice on how to recover it.  I'd rather you walk away now and not have to make that second post.

Lynnette E. · Answer

Definitely  use an escrow account with a company you know for money and get title insurance.

Shannon Oakley · Answer

@Mark J. Hi! Really wanted to reply to this as I’m a wholesaler in Virginia, and I personally see a lot of red flags here. However, you could be working with someone who is wholesaling for the first time and had no idea what they are doing.

1. As a wholesaler it is very important to do your due diligence and get as much information on the property as possible and/or lot before presenting it to an investor. You want to make sure the contract/assignment you are selling underprice is ready to go or as close to it when selling. Being extreme transparent with investors is key as it builds trust.

2. Wholesaling can be nerve wrecking as sometimes agents don’t understand what we do and won’t submit our offers to sellers, or cash investors are hard to find. There is so much more than getting a contract involved there is much footwork and understanding the legal documents presented. Maybe they didn’t understand how to fill it out.

3. It could be a team of wholesalers as sometimes we work together on deals. If so, there is still a professional way to present this.

4. Contingencies are important when providing and signing a purchase agreement! If there isn’t a contingency that benefits you add it in additional terms and number it! Cross out and initial terms you don’t agree with also! Sounds like this place may need to be brought up to code, or maybe has something else, outstanding taxes, liens, maybe the building has to be reassessed by a surveyor and approved by the city I mean there’s so much!!!!

5. In closing please trust your gut, especially when it’s a still voice. It never lies! If it looks sketchy it might be! People who are confident in their properties don’t mind 10 day contingencies as that’s standard! And make sure your contingencies start from your acceptance date when the offer is signed by seller!!!! If other investors are interested, they will still be around. I hope I could help!!!!

Shannon

Shannon Oakley · Answer

@Mark J. And another thing!!!! Never wire money to a wholesaler that’s the biggest RED FLAG!!!! Title company or escrow should be presented in the contract! Name, address, and of course the amount in escrow!

Steve Morris · Answer

Yeaaaaah, the non-refundable money up front sank it for me.

Mark J. · Answer

@Kyle J.  Yeah, I was in a rush writing and afterwards realized how jumbled it sounded..thanks for making i through!

Appreciate the advice and your take on the situation- sounds like you're really familiar with the process.  Yeah, they don't seem very forthcoming, which is an immediate red flag and good to know all my other concerns are valid and not the norm.

I'm going to ask to see the contract between them and the seller and try to get a better idea of the relationship.  Also definitely not wiring that kind of money, or any money, directly to them- I have a hard time sending 1K to a legit agent with a standard, signed contract!  I can't tell if they're just really amateur, brazen or actually hiding something, but 100% agree it's better to be on the cautious side.  If I do go through with it and get scammed you won't be hearing from me again as I won't even have the funds to pay for the internet service to come on here anymore:)I would imagine they will have a "good" reason they can't share the contract. Will see what they say tomorrow and follow up.

Mark J. · Answer

@Nick C. Thanks for taking the time to read my jumble and the sound advice!

Agree, that it may not be an actual scam, but something doesn't seem right.  I think the property is actually for sale, but worried about possible complications "under the covers".

As recommended I'm going to ask to see their contract with the seller and also let them know I want to have the deposit held by my attorney's office or title company of my choice.  If they balk at these things I will probably walk.  Given how cagey they've been regarding their role in the deal and unwillingness to explain their relationship with the seller I don't think they will share.

I'm not sure who would fork over that type of money without more facts, though an experienced flipper that knew what they were doing could probably make a decent profit, but even so seems risky.

Is this "wholesale" deal a scam?

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