Just completed my first wholesale deal, against my will.

[Matt C.]

After 4 months of yellow letters, climbing the learning curve and finally getting serious about finding deals, I made contact with a motivated seller holding a distressed property. He was an accidental landlord for the last 10 years. The house needs foundation repair, probably the expensive variety, and a cosmetic update. The owner had tried to sell it in the past and both deals fell through at inspection because of the foundation. So, he was excited to find someone willing to buy the place “as is”. Of course, I was pricing the foundation repair into my offer. The owner and I signed a contract at $235,000 with my estimate of an ARV at $325,000. I think I could get a higher resell than that, maybe $350,000.

The property is currently rented. The property manager is a local realtor. The owner and I did not include her in the negations, neither of us wanted to pay her a commission. The house wasn’t listed for sale or rent when I contact the owner. The realtor just wasn’t in on the deal. Her property management agreement called for her to get a 5% commission even if she didn’t bring the buyer. The 5% is a sales coordination fee. For the Texas people, it is section 11, H, (3) of the current Texas Association of Realtors: Residential Leasing and Property Management Agreement. The fees are “due at the time such services are rendered and payable upon Owner’s receipt of Broker’s invoice.” As such, I am not sure how she would have charged the 5% when her assistant called the tenants to set up a time for me to do an inspection. That would have been her total involvement in the transaction.

When she found out the owner and I had a contract, she called the owner threating to sue him and said my contract was not valid. Mind you, she had not seen my contract and it was valid. At this point, I already had a title commitment from the title company. She and I never spoke. She did go out and find another buyer, who was offering $265,000. I don’t really see how the $265,000 buyer is going to make it work, as a flip anyway. It might work as a rental. FYI, it is currently rented at $1,850 a month. That is a low but I don’t think you will get $2,650 a month. She told the owner she would do the $265,000 deal for 3%. Her services were worth 3% when found a buyer but when she did nothing she was worth 5%. Clearly, she has the owner’s best interest in mind. To the Realtor’s out there: is soliciting another buyer and directing someone to back out of an existing contract ethical?

The owner came to me and asked if I would cancel my contract for $3,000. He and I had built some rapport. I had always been sincere and honest when dealing with him. The $235,000 price was his price, not mine. I had always presented myself as someone that could help the owner sell his troublesome property. He was glad to have a buyer. We talked openly that I was going to renovated it and sell it for a profit. He was and still is fine with this. I reminded him that I was not the one putting him in a stressful situation. His realtor was the one maneuvering around to make sure she got a commission. It wasn’t enough for her that she had managed his property for 10 years making a 10% fee. She asked him why he was going to offer me anything. It is like she really believed my contract was not valid. After some back and forth, I told the owner I would take $6,000 to cancel my contract. The money has to be paid when I cancelled the contract, not at the other closing. I explained to the owner that this is a respectable “wholesale fee”. I had to explain whole selling to the owner and show him that I was leaving profit from a flip on the table. Unfortunately, he had to come out of his pocket to pay me $6,000, with the promise that another contract at $265,000 was coming soon. I reminded the owner that the realtor and I were using him as a proxy to argue over who would get some profit out of the sale of his house. I apologized and reminded him that I had made a compromise to allow him to get the better deal and not have to pay the egregious 5% commission that was now attached to our deal. The realtor never offered anything in the way of a compromise, at least nothing that would affect her commission.

So, I wholesaled a property against my will, sort of. I would like to know what my fellow bigger pocketeers think about this story. Did I handle it well? Is the realtor out of line?