“Is Wholesaling Ethical?” Idk… do you know what you’re doing?

[Alex Ficco]

This is a topic that has been discussed many times on the internet forums with varying opinions… is wholesaling ethical?

I’ve been on all sides of this equation. I’ve been a brand new wholesaler that didn’t know anything about real estate. I’ve been a Buyer that sources their own off market deals. I’ve been a Buyer that buys deals from wholesalers. And I’ve also been a Buyer that wholesales many deals a month with good systems and a process behind it.

In short… Yes, it is… IF the personal wholesaling knows what they are doing. It’s when you DON'T know what you’re doing that it's easy to get caught up in deals where things go south, you say the wrong things, and you can be seen as unethical… even if by accident. And even if you don’t know what you’re doing, I think there’s still a way to do it ethically, which I’ll go over towards the end.

First, one of the most important things you can do to keep things ethical is to NOT misrepresent to the Seller. Setting proper expectations is HUGE. Even if you don’t mean to, you just don't know what you don't know. There’s a few ways this happens.

There’s a ton of wholesale 101 material out there that teaches people to tell the Seller you’ll close in 7 days, brush over the due diligence period, and promise them this is a done deal if you just sign here.

In about 150 deals, I can count on one hand the amount of times that the Seller truly NEEDED to close in 7 days. It’s not a necessary pitch, and all you’re doing is setting yourself up for failure. Title work takes time. The Buyer is going to need to walk it. MOST transactions would be pretty tough to pull off in 7 days even with YOU closing it and controlling that end of things. This is a great way for the Seller to be pissed at you on day 7 when you’re not even close to the finish line.

Same goes for inspections. You’re buying a house... It's a totally reasonable ask to have the seller give you 2 weeks due diligence. So be very clear you’re going to do so and don’t promise them this is a done deal. All that does is cause the Seller to be confused or angry in 2 days when it's you on the phone asking them for access.

Another thing I see with new wholesalers taking it TOO far the other way and telling the Seller that they are going to find a Buyer for them and get them the highest price and this and that. I get it why - you have no intention of closing (and probably aren't able to) - but now you’re talking like you’re REPRESENTING the Seller and barking up the ‘practicing real estate without a license’ tree. There are ways to tell the Seller that YOU are not going to be the actual Buyer without crossing into that gray area.

Second, and similarly to NOT misrepresenting to the Seller, just being able to perform is huge. Just do what you say you’re going to do and all is well. Of course, this comes from volume, experience, and skillset.

When we put a deal in contract, it always starts with setting proper EXPECTATIONS up front (timelines, access, process, etc), it continues with KNOWING THE NUMBERS (ARV, a reasonable rehab amount, and a max offer that works for both parties), and it's followed up by the transaction running EXACTLY how we told the Seller it would.

In this scenario, does it matter if we buy the home and flip it ourselves OR wholesale itl to another Buyer (One that has been vetted, released their due diligence, and can perform/close on contractual timelines)?

In my opinion, NO. It doesn't. Because we are controlling the transaction all the way through closing with our systems, our escrow, our team, and making sure we are doing what the Seller agreed to up front.

So how did we get to this point? Point 3. Be a real Buyer. From being an actual Buyer that has flipped many many dozens of homes, we know what ARV is. We know what realistic rehab numbers are. We know what price us and any other investor in town is going to be able to purchase the home at.

Knowing the numbers like this is a big reason why we are able to perform. The likelihood of us having to bail on a deal is super low. Major inspection findings, a weird title issue, or something on the Seller’s end are really the only reasons. All that aside from being willing and able to purchase the property of course!

So when you’re brand new, how can you wholesale ethically without also practicing real estate without a license?

In my opinion, the best way is to do acquisitions for a legitimate Buyer that you know can buy at volume, at least until you learn enough.

I’m not saying go get a job. You can still do it all - produce the marketing, take the calls and appointments with the Sellers, get the contract, etc. - but if you have a good, trustworthy, Buyer to lean on before you put the deal in contract, you can be so much more certain in your numbers when meeting with the Seller, you can learn a ton about rehab and what the actual costs are to flip a house, and when you get an offer accepted, you basically already have the deal sold, short of those major findings during inspections.

I ended up doing this by accident when I was first starting out. I found a good Buyer that was easy to work with, I marketed for properties that their company would buy, and he was trustworthy enough that I wasn't worried about him going behind my back for a deal. I still do deals with him today.

Because of this, I could send him detailed info on the lead and what I thought ARV and rehab was. He'd look at it and give me the number. If I could get a purchase agreement, it really was just sending his project manager to walk through, and playing TC until closing.

Assuming you can find a Buyer in your local market like this, it’s a win-win-win for all parties. The Buyer is going to get someone to bring them more deals, the Seller is going to get a transaction that actually happens the way you promised up front, and you’ll get to learn the business while doing easy deals.

Will you leave money on the table doing this? Of course, but do you want to max out your assignment fee on every deal when you’re brand new or do you want to learn a thing or two about this business so maybe you can flip on your own someday?

Anyway, there’s my take on the question that’s been discussed a million times. Depends who you ask, but more than that, it depends how you do it. Hope this helps.