Can I trust other players in the real estate game?

Question

I am talking to individuals in my area who are investors and buy properties. I mentioned that I am starting out in the business myself and would need someone to sell contracts to. These individuals said that they would take contracts from me if they are good deals.

Should I be worried that they could scalp my contract from my by going around me, contacting the seller and negotiating a better deal after they let the contract expire? Is this something that I should be worried about? does this type of activity happen in the space?

How can I protect my interests in this matter? What can I do to ensure that I don't get scammed by another investor when I am just trying to do my deals?

Will Barnard · Answer

If you have a property under contract, nobody can circumvent you or steal your deal, the only way that could happen is if your contract expires in which case, you no longer have any control over the deal. If it is actually a deal, then you should have no problem selling it to any number of your vetted all cash buyers (you need to have buyers in place first before you go locking deals). Others will argue against that advice claiming once you find a good deal, buyers are easy to get, however, there is down side doing it that way and no legit downside doing it with buyers in advance. With having vetted buyers, you should know their criteria and as such, search for properties that meet those criteria, that places you in a much stronger negotiating position with potential sellers when you know you have a buyer or multiple buyers that will fit in this box. Additionally, and probably most importantly, if you don't have vetted buyers in advance and you market the property on FB or other online or direct sources, you are marketing a property without a license which is against the law in just about every state if not all by now. You must have a real estate license to publicly market a property you do not own title to. Also don't listen to those who will tell you that you are marketing a contract and not a property either, that is simply not true and in a court of law, good luck arguing that.

To properly and legally wholesale, you need to know your market, build a qualified and vetted all cash buyers list, build a marketing plan to attract and receive qualified seller leads, and know how to negotiate and properly contract the deal. Without a license, you are not permitted to publically market the property so you either need to get a license, close on the deal with cash or borrowed funds and resale right after (double close), or properly set it up with a set buyer in place. The last of these options has several options. If you are searching for one or two specific buyers, you can prearrange to make offers in a new entity or trust and name the buyer as a member/owner of the entity (or trustee or beneficiary of a trust). Then at closing and in escrow, you simply have that buyer pay you your fee in escrow for the rights to buy you out of the entity or trust. No public marketing to violate the laws, no worry about locating the buyer before your contract expires, etc.

I have posted many times on BP how to properly structure wholesale deals, try and search to find them or search through my specific posts (although they are over 15k).

David Ramirez · Answer

Having an abundance mentality can be helpful in this situation. If the other party can help you dispose of the deal, that's great, and there's no need to worry too much. However, if you want to make sure the owner doesn't sell the house without your knowledge, you can file a memorandum with your title company. To do this, your contract must include a provision allowing you to file a memorandum.

Matthew Kwan · Answer

As always trust no one and do your due diligence. You could always try create a legal contract between yourself and the investor and add certain clauses or liens that prevents the buyer from scalping you. @Carlos Valencia @Albert Bui

Matthew Paul · Answer

If the contract expires , its not your deal anymore .  And if you cant sell it while its in contract , then the numbers dont work .

Shaun Martin · Answer

Can you trust other players: Unfortunately there are lots of people out there willing to get ahead to your detriment. That said this business is a lot easier to navigate if you have people you can trust. Trust for information, helping sell (and buy) deals, take on projects, expand horizons, etc. These relationships will take time. You can't force them.

Stealing Your Deal?: LIke previously said. If they deal is a deal you should be able to get it sold. I am presented many "deals" where the perosn with the contract has signed it based on ARV x 0.70. Many times this is not a deal. If the ARV is 300,000 and the rehab is 200,000 - is paying 210K a deal??? While that is an exaggerated calculation - hopefully you see my point.

Is your contract legit? Contract law is strong in the U.S. If you have a legit contract you can enforce it. Sometimes it may not be worth your time but you have the opportunity. I am surprised no-one has said it yet - but spend an hour or 2 and sit down with a local real estate attorney. Before booking time be sure to ask qualifying questions regarding their knowledge.

The information you get from this will be priceless.

I did this myself a number of years back. Lucky for me he let me record the entire conversation. I refer back to it all the time.

I am happy to share the audio file with you. Just message me. The attorney is a Colorado-based attorney. However much of the information is true for many parts of the country.

SUMMARY: Don't waste energy worrying about people stealing the deal. If you come across a scoundrel (which will happen) just learn from the experience. Hopefully it doesn't happen much to you.

For the record - I have never had anyone steal a deal while under contract. Like previously said - if it falls out of contract then it's no longer your deal.

Bud Gaffney · Answer

@Doug Eric No.

Lydia R. · Answer

Unfortunately there are some people in this business who dont play fair. When money is on the line there are those who will engage in unscrupulous behavior. And when you tell people you are brand new you are kind of painting a big target on yourself. Most of the people who have personally shared stories of being conned, taken advantage of, or having a deal stolen have all been newbies. There is much more to be worried about beyond just having deals stolen. I've seen wholesalers with on-market deals under contract get undercut by an investor who decided to call the listing agent and make them aware the person their seller is under contract with is actually a wholesaler who does not have the means to close the deal. Naturally the deal implodes and the investor is able to scoop up the property at the same price and avoid paying the wholesale fee. This is why I never wholesale listed properties.

But to answer your question, there is no foolproof method of protection other than buying the house before you resell it. But there are some best practices that will minimize your risk of having a deal stolen.

1. Dont share the address with anyone until you have the property under contract.

2. Vet the buyers on your list that you will be sending the deal out to.

3. If you are going to advertise the deal in a public place like FB Marketplace or in FB real estate groups then make sure you ask questions to those who express interest. Are they a wholesaler? What type of financing will they be using to close the deal? etc.

4. Dont accept JV offers. Find your own buyer.

5. Have good rapport with the seller. If the seller only went with your offer because you made the highest bid (first make sure that your numbers check out and the deal is a real deal. A wholesale offer should never be the highest offer a seller gets. ) then you do have to worry about them being swayed by more money. If I sense a seller is wanting to back out of a deal I remind them we have a legally binding agreement that has consequences if breached.

These things will help reduce the risk of losing a deal, but like I said, there is nothing you can do to protect yourself 100% except to purchase your deals before reselling them. I dont know if thats a feasible option for you and I certainly wouldnt recommend it to a newbie because if you over pay then you're stuck.

The motto that has always helped me is 'trust but verify'

Corby Goade · Answer

Trust, maybe not, but it doesn't matter if you have a solid contract.

This is one of the first things I ask when I see a deal from a newbie- what's the address? I understand the trepidation, but if you can't share the address with me, where do we go from there? Make sure you build excellent rapport with your sellers, use a solid contract and negotiate good deals.

If you start worrying too much and operating with that scarcity mindset, you'll never get any traction.

Best of luck!

Marc Maitre · Answer

Take it from a guy who got played multiple times now; know it's part of the game. What I would say is this. Make sure your vetting process is critical. Don't let them off the hook. I realize with some investors when you start asking questions like how fast you can close, can you show proof you're an actual buyer, etc., they get funny like they wouldn't have to do the same if they were a realtor. Because we want to move fast, we don't always vet buyers thoroughly, but we should. Secondly, for good deals, I would place a memorandum on the property so other buyers/sellers can't go behind your back. All I can see is to keep a positive mindset. You attract what you think about, so stop thinking everybody is out to get you, lol

Doug Eric Gueirn · Answer

That's a great idea

Can I trust other players in the real estate game?

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