Should You Use an Agent to Buy Wholesale Deal?
Investor · Denver, PA · Member since 2015 · 193 posts · 55 votes
Hi All,
This is probably a dumb question, but when you buy a deal from a wholesaler, is it a good idea to work with an agent, or should you just work directly with the wholesaler? If so, is there a place I can find the details of exactly what I need to be doing to get from point A to point B (closing) safely and efficiently? The two properties I already have were bought off the MLS and I used an agent for both of those, so I don't have any experience buying wholesale yet. Any advice would be greatly appreciated.
Thanks!
Why do you feel like you need an agent? I guess you could use one but I don't see the value added. You have already identified the house, you can go look at it with the wholesaler, the price should mostly be agreed upon, you should be buying cash most likely so that removes a lot of complexity from the closing, and the deal should be open and shut. Make sure you get a clean title at closing and do an inspection. You're done. No agent required.
Most agents don't even understand the concept of wholesaling and will probably try to talk you out of it. Do you already have a deal identified you want to buy?
The whole point of wholesaling is to work directly with someone to streamline the acquisitions of properties at a good price. I probably would not wholesale a deal to someone working with an agent just because I see 30 headaches involved. Most agents do not understand the concept (NOTE: SOME DO, SAVE THE HIJACK) I sold a deal to someone with an agent one time and it wasn't that bad, but it was still annoying. We already agreed on the price and everything, the buyer already did an inspection, and then all of the sudden he has an agent AFTER we have done literally everything we had to do to wrap up the deal. The agent did not do anything to make the transaction easier but he charged the other guy 2% comission (I wouldn't pay it since we had agreed on the price cash, no agent commission).Most agents (NOT ALL) nitpick stuff because they need to look like they are adding value. I'm not going to war over a $1,000 dollar flooring allowance on a below market deal, my deal is already a deal and I can find another buyer in 24 hours, so I don't deal with that crap. In the above deal the agent tried to nitpick a few things but I shut it down. The house was fully rehabbed, almost everything was new, and we had already agreed on the price, done an inspection (where everything was fine), and at that point the deal was a deal. I told him no on 3 nitpicking requests and the deal closed as agreed upon. I feel like if he was there from day one the agent would have made me back out of the deal over something stupid.
Note: I actually liked this agent and if I ever want to list a house in his area I am going to use him, but still....
Why do you feel like you need an agent? I guess you could use one but I don't see the value added. You have already identified the house, you can go look at it with the wholesaler, the price should mostly be agreed upon, you should be buying cash most likely so that removes a lot of complexity from the closing, and the deal should be open and shut. Make sure you get a clean title at closing and do an inspection. You're done. No agent required.
Most agents don't even understand the concept of wholesaling and will probably try to talk you out of it. Do you already have a deal identified you want to buy?
The whole point of wholesaling is to work directly with someone to streamline the acquisitions of properties at a good price. I probably would not wholesale a deal to someone working with an agent just because I see 30 headaches involved. Most agents do not understand the concept (NOTE: SOME DO, SAVE THE HIJACK) I sold a deal to someone with an agent one time and it wasn't that bad, but it was still annoying. We already agreed on the price and everything, the buyer already did an inspection, and then all of the sudden he has an agent AFTER we have done literally everything we had to do to wrap up the deal. The agent did not do anything to make the transaction easier but he charged the other guy 2% comission (I wouldn't pay it since we had agreed on the price cash, no agent commission).Most agents (NOT ALL) nitpick stuff because they need to look like they are adding value. I'm not going to war over a $1,000 dollar flooring allowance on a below market deal, my deal is already a deal and I can find another buyer in 24 hours, so I don't deal with that crap. In the above deal the agent tried to nitpick a few things but I shut it down. The house was fully rehabbed, almost everything was new, and we had already agreed on the price, done an inspection (where everything was fine), and at that point the deal was a deal. I told him no on 3 nitpicking requests and the deal closed as agreed upon. I feel like if he was there from day one the agent would have made me back out of the deal over something stupid.
Note: I actually liked this agent and if I ever want to list a house in his area I am going to use him, but still....
@Eric F. Thanks for the reply! I guess I'm just a little bit nervous because I've never done a purchase where the behind the scenes things weren't handled by someone else, so if I do this I want to make sure I don't forget anything. I'm probably over complicating it though. Exactly what steps do I need to take to make sure the title is clean?
I would like to get conventional financing on this...it is a very light rehab, not a lot of work required, and it is definitely habitable. I plan to live in it for a year and rehab it as I live there. I'd like to lock in a 30 year fixed rate now before rates go up, if indeed they do go up as everyone seems to be expecting. Also it will save me 3+ points to do it this way instead of hard money, plus a lot of interest charges obviously. Would you see using conventional financing as a possible issue or are most wholesalers okay with it?
Also in your experience, generally how willing are wholesalers to negotiate price and terms. Would I be amiss asking them to just cover half of the closing costs for instance?
I'm still not sure if I'll buy the deal or not, but I have a lot of faith in the wholesaler as they have many, many rental units of their own, and have been doing rehabs for a long time and have a very good name around here, so I expect the deal will be a good one. I still obviously need to get all of the details though and see it first, have it inspected, etc.
Here is my take:
BEFORE you deal with any unlicensed broker consider these ideas:
1. Always require WRITTEN comps that can be substantiated
2. Always require WRITTEN bids from LICENSED contractors
3, Always require WRITTEN comps to substantiate ARV
4. NEVER pay a non-refundable fee
5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.
6. Always demand to see a copy of their contract.
Remember, these are middlemen trying to play RE agent without a license. Make sure they provide GOOD comps. Make sure if they are representing an ARV value make them provide ARV comps. If they make claims about rehab costs, make them provide WRITTEN bids from contractors. They are brokering real estate so make them PROVIDE good quality information like you could get from a licensed broker. Many of these unlicensed brokers simply make up figures that sound good but cannot back them up.
Unlicensed brokers generally have no insurance. From personal experience most just pull their ARV out of thin air. Lets see: claim it costs x and it will sell for y. If someone uses an agent, an agent won't provide or should NOT provide the BS an unlicensed broker does. They should not or do not provide rehab figures (to protect themselves). They should tell a prospective buyer to get their own bids. They can provide comps in some situations on an updated unit vs an original unit. Agents have something to lose, can be fined, and have their license suspended or revoked. Unlicensed brokers, acting as fringe operators skirting the laws have nothing to lose. They are acting as an agent without the laws, ethics requirements, education, and insurance that are vital IMO.
It is quite possible you might find many of their representations are not true. An agent can and should provide good guidance. They are accountable and could be sued and/or lose their license. What do these unlicensed brokers have to lose?
Hi @Tim Porsche,
I always recommend that people that have not bought and sold some property use an agent. Their job is to look out for you. At least for your first few transactions. I would never recommend someone who has no idea how to swim just jump into the deep end of a pool and rely on the good nature of other swimmers to take care of them. The wholesalers job by nature is to get him\her self as much money out of the transaction as they can, period. I am not saying there is anything wrong with that, I just wouldn't send you to them expecting to get "a fair shake" until there is a relationship.
Now once you have bought and sold a few go ahead and pick up those tasks if you want (provided you feel comfortable). Make sure you keep our hit times though, they are important. Ever seen a deal under contract, had the buyer miss a response deadline by a day, lose their 5K EMD and have the seller sell it cash in the same time frame to someone else for more money? That was the buyer having no representation and a better deal coming in after attorney approvals.
Good luck with your business!
Wholesales are usually cash since the houses need work which would cause problems getting traditional financing. Also, there is a time issue and getting conventional financing can screw that up. Most wholesalers would not be OK with their buyer getting a bank loan. It is more of a time and risk of not getting approved issue than anything else.
The reason you can buy a wholesale deal for below market is because of two things. Cash and quick. If you have to get a bank loan both of those are gone. And if you involve and agent to boot why would the wholesaler even want to sell it to you? He may as well list it on the MLS at that point.
Closing costs on a wholesale cash deal usually are not very much since there are no financing fees and stuff like that. I think usually we each pay our side of the closing costs. I now offer to split the title search if my buyer does it and there is a problem. If it is clean they pay it at closing.
@Mike Cumbie "The wholesalers job by nature is to get him\her self as much money out of the transaction as they can, period. I am not saying there is anything wrong with that, I just wouldn't send you to them expecting to get "a fair shake" until there is a relationship.
Sure, for the ones who show up, send out 2 crappy deals to a 300 person e-mail distribution, and then disappear. A long term wholesaler's goal is to make sure his buyer makes money too.
Regarding @John Thedford
"BEFORE you deal with any unlicensed broker consider these ideas:
1. Always require WRITTEN comps that can be substantiated
2. Always require WRITTEN bids from LICENSED contractors
3, Always require WRITTEN comps to substantiate ARV
4. NEVER pay a non-refundable fee
5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.
6. Always demand to see a copy of their contract."
I get what he is saying (and don't disagree) but for 1-3 DO IT YOURSELF! The wholesaler will provide comps and rehab estimates, but do it yourself too. Trust but verify as we in the CPA business (that I quit) say. If you are getting an assignment of course see a copy of their contract, but if it is a double close I don't see why you need to. There are some wholesalers I know who I trust and don't even need to check their comps, and some I would spend 200 hours checking the info they provide before I trusted it. Until you know who is who redo it all yourself.
PS I would also say double check an agent's comps and repair estimates too. This is your business, double check everything. The agent won't pay the 10k overage on repairs or hand you back 20k if the comps were too high any quicker than the wholesaler would. Always do independent research.
Hi @Eric F.,
Sorry if you take offence to what I wrote. I have no idea who the wholesaler he is looking to work with is. I have no idea if this person is going to try and rake him over the coals. I have no clue if it is an ethical dealer or not. Which is why I was recommending he get someone looking out for him. You may recommend he just trust fall into this guys arms because you share a title and that's fine.
Lots of good information, thanks! I see what you're saying about them wanting cash. I do have a relationship with a hard money lender, so if I would put down 25% of my own money, and finance the rest with hard money to close the deal, could I then refinance with a traditional mortgage right away? Or would I need to keep the hard money loan for a certain period of time?
Alternately, would a wholesaler likely be okay with conventional financing if I offer to pay their holding costs for a month or two until closing happens? Like I said the house only needs a light rehab, and is completely habitable, so qualifying for a conventional mortgage should not be an issue.
As far as checking the contract they have in place with the seller, is this something I should have a lawyer do or is this something you can do yourself?
An agent should be able to back up everything. We see agents get sued all the time. Most have E&O. Unlicensed brokers? What do they have to lose. And the comment that an agent cannot help a seller if the place is in disrepair is again not true. Unlicensed brokers always try to make the case why they are valuable, yet they skirt laws. If the states felt this was a service, would they not license them? It is common to see lots of properties go to highest and best. This helps the seller. Slicing off thousands of dollars and pushing a deal out helps who? Who is served? Is that a public service? No way. Furthermore, many many unlicensed brokers make lots of outrageous claims to value. Some I truthfully have laughed at. Who holds these frauds accountable? Who hold the frauds accountable that put properties under contract under the guise of purchasing them...but without any intention? Isn't that FRAUD? This is how many of them work. Don't judge what I am saying--read the posts on BP that back this up--and then you decide. IMO, most are pretty sleazy...and definitely not to be trusted. I just mailed off a complaint on one of these frauds today. Laws mean nothing..it is ONLY about the dollar.
@Mike Cumbie "You may recommend he just trust fall into this guys arms because you share a title and that's fine."
In the same post where I recommended he pull all the comps himself and do a repair estimate himself instead of trusting the wholesaler? Is that the post I said trust fall into the guy's arms?
I understand you are trying to make it work with conventional financing, but from the wholesaler's perspective why would he agree to all that when he could (hypothetically) wholesale it to someone else and not have to hold it for 2 months. At that point he may as well rehab it himself. You're asking him to find the money to close and hold it for 2 months. It is one thing to get the money for 48 hours to double close, but to tie up money for 2 months is a lot to ask most wholesalers. I wouldn't do it. If I was holding it for 2 months myself I'd do the rehab work and sell it retail.
As for the cash out refi, I don't know. It is difficult for me since I don't have a W-2 job, but you might be able to do it much easier, especially since you are going to occupy it.
Agents generally DO NOT give repair estimates. The should encourage their buyer to get their own. But unlicensed brokers often give an ARV figure...and many have a disclaimer that their figures are not to be trusted:) LOL--and do your own due diligence. That is probably the ONLY thing many of them tell the truth about! If a customer asked me what a property may bring, I can search the MLS and attempt to find rehabbed properties that are similar. These can be guidance for a buyer. An agent MUST be careful about his representations. Unlicensed brokers have nothing to lose.
I think if he felt comfortable running his own comps, getting repair estimates and negotiating price then he would not be asking the question.
@Eric F. I do have a good W-2 job, plenty of income and good credit so I don't think I'd have trouble getting a traditional mortgage (I currently have two properties already with 30 year fixed mortgages). I guess my question was more about the hard money lender, and whether or not they want to see you hold the hard money loan for a certain amount of time before paying it off. From what you're saying it sounds like that would be the best route to take...buy with hard money, then refinance as soon as I can into a 30 year fixed.
The ARV isn't as important to me because I'm not planning on rehabbing and selling, but just putting it under conventional financing as soon as possible, THEN doing the light rehab while I live in it for a year, and then renting it out. So the monthly rent estimate is what I'd be looking at the most. As I said I trust this wholesaler. They have a very good name around here, and actually run the local landlord group in this area. So it's not like this is some shady person I've never met before.
@John Thedford I've had seller agent's tell me "it needs about 15k of work" when I have looked at houses in bad condition (one "15k of work" needed 2 HVAC units and a roof, that is 15k before I open the front door lol). Some agent estimates are as off as the worst wholesaler estimates I have seen. Maybe you don't give estimates, and I get that, but I have had agents give me terrible repair estimates.
@Mike Cumbie What does that have to do with you saying I said totally trust the wholesaler when I said the exact opposite?
I can't @ in an edit
Tim "From what you're saying it sounds like that would be the best route to take...buy with hard money, then refinance as soon as I can into a 30 year fixed."
I had a hard money loan get paid back in 13 days when I was expecting 6 months. Every since then I put "must pay a minimum of 3 months interest." What you do is between you and your lender of course.
"As far as checking the contract they have in place with the seller, is this something I should have a lawyer do or is this something you can do yourself?"
I recommend an attorney to cover you personally. I of course do not know your level of familiarity with PA Real Estate law so I could be incorrect
If you are local and have bought real estate before then using an agent offers less advantages. I agree somewhat with @John Thedford in that wholesalers provide a service, but they also have a number of inherent risks. If you find a reputable wholesaler that is doing things legally and is interested in building a relationship with you (so that they can do more deals with you) then you may be okay. Not all wholesalers are just greedy snakes looking to steal your money.
I also agree somewhat with @Eric F. in that it doesn't matter who tells you something (agent, wholesaler, etc.) ALWAYS trust but verify.
If you are out of state or newer then using an agent even for a wholesale deal has a lot of advantages.
Basically if the wholesaler has a good track record, is offering you a good deal that you've vetted, and you have reasonable experience then sure go at it without an agent. If not then using an agent to help will benefit you. Just know that in a lot of these cases YOU will very possibly have to pay the agent commission since the seller will likely not do so. You'll also need to pay the wholesale fee to get their option contract out of the way. In many cases the deals still work out if it was a good deal in the first place.
Best of luck to you!
I apparently missed this thread by 6 months, but better late than never. I'm in the same boat and looking to buy rental property through wholesalers.
Thank you for the information. Could you expand on your comment about "If you are out of state or newer then using an agent even for a wholesale deal has a lot of advantages."
Why is using a real estate agent in this scenario have advantages? Wouldn't the same considerations be true (trust but verify, deal with reputed wholesalers, etc., etc.) whether you do local deals or out of state deals?
Hi @Bud A.
If you are willing to travel to view the property and do everything that you would if you were local during the purchase period then you wouldn't need an agent. If you are buying remote and you don't plan to take the time to travel and everything then you are just trusting a wholesaler at his word, so it becomes difficult to trust but verify.
If you have an agent for a remote purchase then you have someone that can check up on the property, take pictures for you, do a ton of the legwork for you, and make sure that everything is still being transferred correctly per the state requirements. That's worth a couple thousand dollars that you would pay them in my opinion because for you to travel to the property and do all of that work would still be reasonably costly and unless you know all of the transfer requirements and local contractors and everything then you are leaning on a local network that you don't otherwise have as well.
Thanks @Anthony Angotti, I understand now. If you are large enough and have lots of deals, I agree it makes sense to hire somebody as your "boots on the ground." I'm starting out new, and plan to visit any properties I buy in person. But at some point it may make sense to hire somebody to do that for you, so that you can focus on important things.