Should You Use an Agent to Buy Wholesale Deal?

Question

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!

Eric F. · Answer

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....

John Thedford · Answer

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?

Mike Cumbie · Answer

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!

Anthony Angotti · Answer

@Tim Porsche

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!

Bud A. · Answer

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.

Mike Cumbie · Answer

"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?"

@Tim Porsche

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

Anthony Angotti · Answer

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.

Bud A. · Answer

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.

@Anthony Angotti

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?

Ian Walsh · Answer

Most of the time people don't use an agent for wholesale deals.  They go direct to the wholesaler.

Eric F. · Answer

@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.