anyone heard of this?is it innovative? and is it legal? gimme ur 2cents

[Account Closed]

Sorry if this doesn't make sense as I'am still trying to wrap my head around this. 

a house goes into pre-foreclosure, probate, etc(motivated to sell) and is met by a real estate investor. Investor gives the homeowner 5000$ and agrees to pay homeowner more money after the "auctioning" of the house. Lets say an additional 12,000$ after another sale of the house to another investor. Investor gets the homeowner to agree to a contract with the investor. Investor explains that they will basically "auction" off the house to the highest bidder and give another payout up to 12,000$ to the homeowner, Depending on the final sale of the price. 

So this is what I see: 

Wholesaler gives an earnest money deposit of 5K directly to homeowner. Then lets the homeowner know that they in turn are going to sell the house to the highest bidder of cash investors they know that would want the house. Then tells them they will give them an additional 12k after they close on the house(promissory note of 12k, with lets say a 60 day contract, plenty of time to shop the deal. And a 60 day inspection.) 

Now I am assuming the first contract was 5k above the payoff amount including back payments, lawyers fees, etc. And written as an earnest money deposit made to the homeowner. Lets say the investor and homeowner agrees to an additional payment of up to 12K depending on the final winning bid. Write out a promissory note for 12k, again I'm assuming here. And then when there is an investor willing to pay a certain amount write out another purchase contract between the original investor and the investor willing to pay the highest amount for it. ( if they can't get a high enough bid, re-negotiate the promissory note and have title amend the contract to new agreed upon price as a last ditch effort) 

Because the wholesale deal is a double close with a quit claim deed, no one knows what the prices were so no one is the wiser, kind of thing. As long as the homeowner gets their 12k payout on the promissory note. the investor is able to tell the homeowner we received the highest bid and will close on this day.( And if the homeowner asks what the investor made, investor can say a small enough amount for the homeowner to be ok with or what ever the moral compass is of that individual. ) Wholesaler collects the difference between the prices. 

This way of wholesaling is combining wholetaling in a sense, as long as your buyers list is big enough to support it i guess. Your getting the highest bidder to agree to pay cash for the property. You have the homeowner on your side, depending on the words you used, homeowner thinks your going to get the highest price for them. (again, moral compass kind of thing) You really don't have to worry about other investors because of the 5k hook you sunk into the homeowner. You dont have to list it on the MLS and pay fees. You're getting the highest price, depending on how big your buyers list is. Or just call around to previous cash prices on houses and pitch the deal that way. You kind of limit the investors who need to go to see the house with todays apps and technology and reserve making house trips for final bids kind of thing.

I filled a lot of this in, like calling the 5k an earnest money deposit and the 12k a promissory note, bc i think that would be the likeliest thing that the investor would call it if anything came out. In writing this i think i answered my own questions about this and it may end up falling into a moral thing for investors. Currently I am against this bc i sense the investors using this are leading the owner to believe they have the owners best interest and will get the best price for them. Why cover up the prices? why do a double close and not an assignment if the homeowner is on board with what you've said. 

Just like with other strategies i hear of, I'm going to come up with ways to overcome them while I'm with the homeowner making my own pitch for the lowest price. 

I would love bigger pockets to put your feed back on here and thoughts about it. I believe I'm going to have a hard time overcoming this strategy if faced by another investor making a pitch on the same house. Maybe this will become just another tool in the tool belt, it may be too soon to tell. I hope this generates a lot of feed back and leave your opinion of it. Thanks for reading if you made it this far.