Who's buying wholesale properties without seeing the contract?

Question

My business partner and I have been trying all week to purchase our first investment property since 2005, and we have run into a strange problem: Wholesalers want to assign their contracts to us, but they don't want show us the original purchase contract they have with the seller for the property.  This is crazy to me.  I would never take over a contract that I can't view.  I can't verify that the Wholesaler even has the property under contract.  We've run into three properties like this in three different cities and states (Memphis TN, Atlanta GA and Pensacola FL).

Is this the norm?  Do investors purchase properties without first seeing the purchase contract the Wholesaler has with the seller?  How do you verify the Wholesaler even has the right to "sell" the property?  I offered to "buy" the contract from the Wholesaler for their assignment fee via an assignment agreement that had the original purchase contract as an attachment.  I recommended that we also amend the original purchase contract to remove them as the buyer and to put me as the buyer.  I offered to give them their assignment fee upfront (via escrow contingent upon the property passing my property inspection) before closing, and two of them refused.

What am I missing?

William Allen · Answer

@Michael Evans

I own the company that you were dealing with in Pensacola.  I think you need to tell the whole story here to really get the answer you want from this community.  If you ask questions without giving the details, of course you are going to get the answers you want and make the wholesalers look bad.

We have done over 100 transactions in the last year and I can't say I have ever had an issue with our buyers.  I'm sure that if you contact every single person who has completed a transaction with my company you will see that we do what we say we are going to do and provide a ton of value to those on our list.  You can find my company on the BBB and listen and read countless testimonials on my websites and youtube.  If you ask about the company in this community I would hope that some members who have worked with us before or had dealings with me would support us as well.

I am an active duty military member so the values of honesty, integrity and trust are rooted deep in me and I do my absolute best to instill it in those who work along side of me. I say all this to give you some context of the person you are calling out with this post.

Now, put yourself in my shoes and the shoes of the guy in my company you spoke to.  Someone you don't know, never worked with before, claiming to be a hard money lender, private lender, portfolio manager, etc..., calls you up and asks to see your contract with the seller and offers to remove our name from that contract and put theirs on it.  How would you react to that at first?  Keep in mind we get calls like this from people who went to the flavor of the month seminar last week on a daily basis! Also, you wanted to put a house under contract with us sight unseen and put a 14 day inspection period on it?  I'm sorry, we just don't do business that way.  If you are interested in one of our properties, you can come out and look at it, send someone to look at it, or waive your right to inspect the property.  There are just too many people we work with who buy from us who don't need all those contingencies.  They are cash buyers who come look at the house, bring their contractor if they need to, and pull the trigger then.  I have no problem with an inspection but go ahead and inspect it, then make your offer.  We will give you access to the house.

My business is structured around systems and processes that we have put in place to protect us and our clients (the sellers and end buyers).  We have all of their best interests at heart here as it does me no good to piss off a buyer and not have them come back and buy from us again.  Repeat clients and satisfied buyers and sellers is what is most important to me.

Frankly, I don't need to work with someone who is so demanding and can't be open to how we do business.  If we were ever to assign a contract to you, I would have no problem sharing that contract with you if you needed to see it.  However, everything in that contract is also in ours with even more protection.  Did you even ask to see our contract to see how we do business?  No.  You just can't call a wholesaler and demand to see the contract and make a ton of other stipulations before they even know who you are.  Not a successful one at least....

I have no idea what went down with the other two you tried to work with but I suggest you change your approach if you want to buy from any of them in the future.

I would love to hear from you directly if you want to talk more about this property you were interested in.  I am happy to cut out the middle man and speak to you directly about it and see if we can find a way for you to buy it that makes us both happy.  As I said before, I am interested in making relationships and lasting ones.  You can find my contact information below and reach out if you like.

John Thedford · Answer

You are trying to deal with mostly unlicensed brokers. No education, no licensing, no ability to file ethics complaints, etc. Why deal with fringe operators? And yes, there are tons of frauds trying to piggy back fees on contracts they don't own. Why give any of them the time of day. And as Aaron stated, there are probably lots of deals to be had in your back yard...and you are much closer making it easier to control them. Last but not least, many of these "deals" are not deals whatsoever. Unlicensed brokers can make any claim...and many often do. I suggest considering these ideas before you deal with any of them:

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.

Jeff B. · Answer

Is trusting oral statements rational today - - statements from an unlicensed broker who needs to keep the end seller and buyer anonymous?

Working with a licensed agent at least has a recourse via his license and the board of real estate.

To counter those issues, I would need documents to show me "I CAN TRUST YOU".

Matt Robinson · Answer

Michael, while everyone else is beating you up about not buying in your "own backyard", I completely understand your dilemma.  There are countless California investors who don't really have the means or desire to buy a $500,000, 3/1 with 1300 sq ft as a buy and hold or renovation as their first deal in 12 years...so they seek the more affordable areas in the midwest, southeast, etc.  It's definitely more difficult to manage a renovation or rental from a long distance, but it's easier than managing an expensive property that might sink you because it's way outside of your budget and/or comfort zone.  But talking about that puts me in a category with many people on BP which I'd rather not be in, which is answering a question you didn't ask.

As far as your question is concerned, you are not crazy to request a copy of the contract.  I have purchased dozens of homes from wholesalers, and I would NEVER agree to an assignment unless I knew WHAT was being assigned to me.  The contract that you are accepting to be completely bound to could have no inspection period, a huge additional EMD coming due...and a million other things.  If that won't show it to you...tell them thanks but no thanks.

Best of luck on your next deal.

Aaron Mazzrillo · Answer

I think you're missing the big picture. You are in Lancaster, CA - a place where, I don't know, off the top of my head 6 close friends are CRUSHING it buying property and flipping for big checks or holding them for great cash flow, but you're dealing with idiots 3,000 miles away.

Try looking in your own backyard before you look on the other side of the country.

Cody Montgomery · Answer

@John Thedford My wholesale contacts say  “$2,500 Non refundable (certified funds) deposit locks this deal up.” What can I offer as an alternative or should they just accept their assignment fee and hope I close the deal? Thanks in advance...

William Allen · Answer

No problem Michael, this is a relationship business all the way.  I'm sorry we didn't earn your business the first time we spoke, certainly a lost opportunity on our part it sounds like.  My post was not meant to put you on blast here in the community at all and I'm sorry it came across that way.  It's easy to take things out of the intended context when written here on the internet, in texts or emails.  I wish you the best of luck in your future endeavors and if you ever want to speak to me directly, all my contact information is on here.

Rick Pozos · Answer

OK, no more fighting. Both of you had a bad experience. Its over.

Now, as mentioned somewhere above, there has to be some trust or else no one will ever do a deal anywhere. When you are from out of town, it is hard to get something under contract as an assignment with 7 day option period. You have to have a local partner who can look at it. I would never give someone 7 days option when I only had 20 something days left on the contract. AFTER I close on the property that will be a different story. Assignment contract with a short timeline is tough.

Now that I really think about it, I have not ever seen the contract before signing an assignment. BUT I KNOW the person who is going to wholesale me the property and TRUST them. They tell me the details of who pays for what and we go forward. They will usually tell me, "I have it under contract for 32k, I am paying all closing costs, will you pay 36k plus all closing costs?" But again, these are people that know me and I know them. Same thing when I am on the other side, I let the buyer know what the terms are of MY agreement (I have never shown my contract to anyone before signing) and ask if they are ok with those terms. THEN we sit down and sign the assignment and I show them that what I said is in fact true.

Maybe you should go down to Florida and make the connections and the trust before trying to do things online. Thats what I would do.

Lets all play nice!!!

Michael Evans · Answer

@William Allen So let me set the record straight, since you have some misinformation.  I offered to purchase the property through an assignment agreement as long as the original purchase contract was attached to the assignment agreement.  I don't know how things are done in Florida, but there is no way I would every sign to take over a contract that I never laid eyes on.  I don't know you and I don't know your company.  I have no proof that you even have the property under contract.  Another wholesale company I interacted with this week had no problem including the original purchase contract with the assumption agreement, so why does your company have a problem with it?  I can't steal the contract or the property from you.  If you have investors who are willing to take over a contract without seeing it, then more power to you.

I explained to your employee that we were new to the Florida market and that we had not established local team in this market yet.  Therefore we would need 7-10 days to identify a licensed property inspector and schedule to have the inspection completed.  7-10 days, not 14 days, so please get your facts straight if you're going to try to put someone on blast.  Your employee stated that we could have an inspector come by and inspect the property without signing the assignment agreement. I told him that would put us at risk of spending money for an inspection report and then having the contract sold to someone else.  I was willing to consider that risk (small dollar amount) and discuss it with my business partner, but since your company refuses to provide proof of the original sales contract, the deal was dead.

I want to tell you how unprofessional it is for you to try to put me on blast on BiggerPockets.  I didn't call out your company in my post, but you can be rest assured that you will never have to worry about my company or any of our associated companies doing business with Blackjack Real Estate.  You claim to have values of honesty, integrity and trust, but they sure aren't reflected in your post.  I don't need your properties and you don't need my money.  There are many wholesalers out there who know how to conduct business in a professional manner, so I won't miss not doing business you.  And likewise, there are many investors who evidently don't care about how they conduct business and will assume a contract from a company they have never done business with without ever seeing the purchase contract.  You continue to work with them.

Stay Blessed!

Wayne Brooks · Answer

Do you need o see the contract you are being assigned.....of course.  But, it just gets assigned to you....there is no "amending the contract to make you the buyer"....that's the whole purpose of the assignment.

Who's buying wholesale properties without seeing the contract?

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