Why do I hate dealing with wholesalers?

[Eddie Ziv]

Lets be honest here. I don't like the wholesaling business. At least a certain segment of that business. There is nothing productive, or creative about taking a property, turning it around and selling it as it is for a profit. Having said that, I'm not completely against it either. In the land of "making a buck" it is understandable. We are,after all, a nation of cottage industries.

A recent even just cemented my opnion on wholesaling. Since I'm not here to ruin anybody's business, I will keep the names and addresses concealed.

I recently announced going to Birmingham, AL for another properties expedition (Formal announcement to come soon...) and I called all wholesaler who have properties in Birmingham to send me their list for consideration. I have buyers who could be interested.

I was contacted by one person who did send me a list, so I went over it and one property in particular caught my eye. Its address seemed really familiar. The asking price was closed to $40,000 which is way higher that what REOs or HUD is selling in that area. Much higher.

I went back and realize why this address was so familiar. Several months ago, that property was on the MLS and I actually made an offer on it. It was listed at first at $17,000. I made an offer on it for $12,000 which was rejected. Two weeks later, I noticed that the price had dropped to $10,500. I called my agent and asked him to put an offer for the asking price. He dug further and found out that the property was put up with a known internet auction house. I asked him to bid on it for that amount. He did and the bid was accepted. Contract was sent, which I signed it and then.... Silence. I didn't hear anything. My agent could not get the selling agent at all. Suddenly he gets an e-mail from the auction house telling him that the seller pulled the property out of the auction to bulk it with other properties and to be sold to a wholesaler.
They claimed that the biding was not binding.

Now, this property was not changed or improved since transacting to the wholesaler (In a matter of fact, every time I drive by it, I see a hand-written sign on it saying: "Rent this property with option to buy" ). I have no idea how they even get to that number that is closed to $40,000.

I don't mind wholesalers making a buck and some of you may say, Hey, this is a free market, nobody force you to buy it. True. However, the only thing that bugs me is, that this is preying on the innocents and those who are not really familiar with that particular market. Since it is not advertised to the public (It is not listed with any agent) I assume that this is aimed at other wholesaler or people like me.

[Jon Holdman]

In the product world, wholesaling is buying in large quantities then retailing in small quantities. The closest thing in real estate would be someone who buys in bulk (builder closeouts, condo projects, bulk REO) and then sells individual properties.

Most wholesaling, though, refers to someone who buys an individual property then resells it. In reality, its no different than brokering. You find a property for sale, find a buyer and connect the two, taking a fee. Brokering, plain and simple. Yes, I know the mechanics are different, but that's mostly to deal with the fact its unlicensed brokering. I don't mean that in a pejoritive way, just a fact. If you're licensed, you have one method for collecting a fee for connecting a buyer and a seller. If you unlicensed, you have another set of methods, and those methods are collectively called wholesaling.

If the deal is OK, I don't have a problem.

I do think its pretty silly that some would be wholesalers offer a property that's on the MLS at a price higher than its listed on the MLS. Duh? Or, offer another wholesalers deal at a marked up price.