Due Diligence on a wholesaler

[Carsten Mortensen]

I have bought all of my deals with an agent through the MLS. You see all the time that the best deals come off market, and wholesalers find the best deals. You also see a plethora of cautionary tales "Do your DD on a wholesaler" What does that mean to you, what are good questions to ask a wholesaler?

[Jonathan Greene]

The best deals definitely do not come from wholesalers, they come from relationships. Sometimes those relationships can be with someone who buys off-market, but the best wholesalers are not wholesalers to start with. They are local home buyers who are good at marketing and relationships and end up with overage that they can sell you.

Some questions to ask a wholesaler in today's market:

1. Is this being daisy-chained? (Does any other wholesaler have a stake in this sale as well as you?)

2. What spread are you looking to get? (They will never answer)

3. What do you have this locked up at? (They will never answer)

You also want to remember that if you, as a new investor, are seeing a wholesale deal come out via email, it's third servings. It's been sent to the VVIP first, then the VIP, and when there were no takers, it goes out to the mass email list.

[Carsten Mortensen]

Quote from @Jonathan Greene:

The best deals definitely do not come from wholesalers, they come from relationships. Sometimes those relationships can be with someone who buys off-market, but the best wholesalers are not wholesalers to start with. They are local home buyers who are good at marketing and relationships and end up with overage that they can sell you.

Some questions to ask a wholesaler in today's market:

1. Is this being daisy-chained? (Does any other wholesaler have a stake in this sale as well as you?)

2. What spread are you looking to get? (They will never answer)

3. What do you have this locked up at? (They will never answer)

You also want to remember that if you, as a new investor, are seeing a wholesale deal come out via email, it's third servings. It's been sent to the VVIP first, then the VIP, and when there were no takers, it goes out to the mass email list.

 Thanks for the response, I understand they won't probably be up front in their responses to your questions 2 and 3, but there is a reason you are asking. What kind of response are you looking for out of them?

[Jonathan Greene]

Quote from @Carsten Mortensen:

Quote from @Jonathan Greene:

The best deals definitely do not come from wholesalers, they come from relationships. Sometimes those relationships can be with someone who buys off-market, but the best wholesalers are not wholesalers to start with. They are local home buyers who are good at marketing and relationships and end up with overage that they can sell you.

Some questions to ask a wholesaler in today's market:

1. Is this being daisy-chained? (Does any other wholesaler have a stake in this sale as well as you?)

2. What spread are you looking to get? (They will never answer)

3. What do you have this locked up at? (They will never answer)

You also want to remember that if you, as a new investor, are seeing a wholesale deal come out via email, it's third servings. It's been sent to the VVIP first, then the VIP, and when there were no takers, it goes out to the mass email list.

 Thanks for the response, I understand they won't probably be up front in their responses to your questions 2 and 3, but there is a reason you are asking. What kind of response are you looking for out of them?

Yes, the reality is that this information should not be hidden. It makes for good relationship-building.

[Remington Lyman]

Quote from @Carsten Mortensen:

I have bought all of my deals with an agent through the MLS. You see all the time that the best deals come off market, and wholesalers find the best deals. You also see a plethora of cautionary tales "Do your DD on a wholesaler" What does that mean to you, what are good questions to ask a wholesaler?

Make sure to hire an attorney to review both the A to B contract and the B to C contract. Additionally, you should request a Real Property Disclosure (RPD) and a Lead-Based Paint (LBP) disclosure from the seller. Keep in mind that if issues arise and you decide to sue someone, it may be more challenging to take legal action against the wholesaler and hold them accountable for their actions. Wholesalers typically do not carry Errors and Omissions (E/O) insurance, so even if the court rules in your favor, they might not have the financial means to compensate you.

Furthermore, ensure that a reputable title company handles the transaction, as some companies may cut corners. It's important to have your attorney review the title commitment, as I've seen "wholesaler-friendly" title companies include various items in the title exceptions that could cause problems later on.

[Carsten Mortensen]

Quote from @Remington Lyman:

Quote from @Carsten Mortensen:

I have bought all of my deals with an agent through the MLS. You see all the time that the best deals come off market, and wholesalers find the best deals. You also see a plethora of cautionary tales "Do your DD on a wholesaler" What does that mean to you, what are good questions to ask a wholesaler?

Make sure to hire an attorney to review both the A to B contract and the B to C contract. Additionally, you should request a Real Property Disclosure (RPD) and a Lead-Based Paint (LBP) disclosure from the seller. Keep in mind that if issues arise and you decide to sue someone, it may be more challenging to take legal action against the wholesaler and hold them accountable for their actions. Wholesalers typically do not carry Errors and Omissions (E/O) insurance, so even if the court rules in your favor, they might not have the financial means to compensate you.

Furthermore, ensure that a reputable title company handles the transaction, as some companies may cut corners. It's important to have your attorney review the title commitment, as I've seen "wholesaler-friendly" title companies include various items in the title exceptions that could cause problems later on.

 This seems like great advice. I am actually buying in the northeast Ohio market. If you have a referral for a good attorney and/or title company I'd love to get in touch with them.

[Alfath Ahmed]

Quote from @Carsten Mortensen:

I have bought all of my deals with an agent through the MLS. You see all the time that the best deals come off market, and wholesalers find the best deals. You also see a plethora of cautionary tales "Do your DD on a wholesaler" What does that mean to you, what are good questions to ask a wholesaler?

The best way to buy a good deal from a wholesaler would be to pull your on comps or have a realtor pull them for you. Then I would have an inspection + sewer scope done on the property and have a contractor go through it. Make sure to collect the RPD and LBP from the sellers if possible. If you are buying turnkey, buy under-value compared to comps. If you are buying a BRRRR then make sure your rehab budget and ARV make sense and is accurate.

[Jay Hurst]

Quote from @Carsten Mortensen:

I have bought all of my deals with an agent through the MLS. You see all the time that the best deals come off market, and wholesalers find the best deals. You also see a plethora of cautionary tales "Do your DD on a wholesaler" What does that mean to you, what are good questions to ask a wholesaler?

 @Carsten Mortensen If you are buying a house of MLS what do you do? You find your own comps and come up with a scope of work with your GC if rehab. You do all of your own due diligence on what to offer based on the data. You do not simply take the seller's word for it right? The seller has a motivation to sell to you at the highest possible number so you do not simply take their word for the price etc.

There should be no difference from a wholesaler (that you do not have a long standing relationship with anyway). They want to sell you the house. So, why would you use their numbers without verifying yourself and doing your own due diligence? As a lender it is a big red flag for me when I ask a potential borrower what the ARV and rehab budget is and have them say "well, the wholesaler says xyz". I do not care what the wholesaler says, but what are the ACTUAL numbers.

[Remington Lyman]

Quote from @Carsten Mortensen:

Quote from @Remington Lyman:

Quote from @Carsten Mortensen:

I have bought all of my deals with an agent through the MLS. You see all the time that the best deals come off market, and wholesalers find the best deals. You also see a plethora of cautionary tales "Do your DD on a wholesaler" What does that mean to you, what are good questions to ask a wholesaler?

Make sure to hire an attorney to review both the A to B contract and the B to C contract. Additionally, you should request a Real Property Disclosure (RPD) and a Lead-Based Paint (LBP) disclosure from the seller. Keep in mind that if issues arise and you decide to sue someone, it may be more challenging to take legal action against the wholesaler and hold them accountable for their actions. Wholesalers typically do not carry Errors and Omissions (E/O) insurance, so even if the court rules in your favor, they might not have the financial means to compensate you.

Furthermore, ensure that a reputable title company handles the transaction, as some companies may cut corners. It's important to have your attorney review the title commitment, as I've seen "wholesaler-friendly" title companies include various items in the title exceptions that could cause problems later on.

 This seems like great advice. I am actually buying in the northeast Ohio market. If you have a referral for a good attorney and/or title company I'd love to get in touch with them.

 I will send you some referrals

[Alex Craig]

Most wholesellers I have some across are sketchy. Really, if the #'s work, then they work. The title company will make sure the title is clean. I once paid a $53,000 assignment fee; I can say, it was extremely upset when I got to the closing table, but even with that $53,000 assignment fee, I will still buying at at .40 on the dollar. I renovated the home and made $30,000 to a first time home buyer.  The real loser in the deal was the individual who gave his home way. Focus more on the #'s rather then the whoeseller and let the title company make sure the title is clean--which I would say 30% of the contracts we get from wholeseller die during title underwriting. 

[James Wise]

Quote from @Carsten Mortensen:

I have bought all of my deals with an agent through the MLS. You see all the time that the best deals come off market, and wholesalers find the best deals. You also see a plethora of cautionary tales "Do your DD on a wholesaler" What does that mean to you, what are good questions to ask a wholesaler?

 lol, no bro, the best deals do not come from wholesalers. What's being pitched as wholesaling is simply illegal real estate brokering. The model itself is dumb, illegal, and filled with nothing but idiots. So that's really all the due diligence you need to do.

[Steve K.]

Wholesale deals are not actually "off market". They are just a different market than the MLS. Most deals are still being marketed to multiple buyers. In fact many properties being shopped around by wholesalers are actually just expired MLS listings (properties that failed to sell on the MLS) or active MLS listings under contract by a wholesaler. True off market deals are ones that you find yourself, direct from the seller without a wholesaler or any other middle person involved.

But to answer your question on how to do DD on a wholesaler/ what to ask a wholesaler: You have to do your DD on the property itself. The wholesaler won't disclose any issues that the property has that could prevent them from getting paid. Always run your own numbers on everything, just like when buying on the MLS or directly from a seller. You have to do your own due diligence because once the deal closes, you're on your own.

[Nicholas L.]

@Carsten Mortensen

I think @Steve K. nailed it.  The answer is - you don't 'ask questions.'  In general, properties being wholesaled are distressed and being sold as is.  You should know from your own knowledge of the area and the property whether it's a good deal or not.  And then you just buy it, or you don't.