How flippers can ruin a wholesale market and deal

[Jason Timmerman]

I just had a real frustrating incident occur.  First of all, I think some flippers do not understand the purpose of wholesaling or wholesalers.  I have run into a bunch of flippers in New Jersey, North Carolina and elsewhere who don't really understand the merits of wholesaling and think they can cut out the middlemen.  You can't.  Or you shouldn't be trying at the very least.  Let the wholesalers find the motivated sellers and everyone in the industry is happy. 

I just had a perfect case of a flipper sabotaging a deal and potentially ruining a market. I had a wholesale deal, elderly homeowner, wife passed away, very motivated to sell. I reached him through my direct mailing marketing efforts. ARV was $240k, house needed about $20k worth of work. I convinced the owner to sell for $90k. Jackpot right? Well in my area some flippers are trying to direct mail the market as well thinking they can cut out the wholesalers and get a steal on the property. I was going to have the property at $90k, assign it to a flipper for about $110-115k, they would sell it for $240k, and everyone would make a ton of money on the deal.

Instead, the seller gets another mailing after I already sent him an electronic contract to docusign, so on the verge of getting the deal.  He calls the number on the mailer and off the bat, the flipper offers him $125k without even asking if there were any other offers.  They could have gone through me and gotten the deal for $10-15k less than their initial offer.  Homeowner calls me back telling him he got a higher offer.  I got pissed and initiated a bidding war with no intention of buying just to raise the price on the a-hole messing into my turf.  The flipper eventually bought the place for $149k and is now on a razor thin margin. 

So think about it, $90k for a property, assigns for $110k, sells for $240k.  I get $20k, the end buyer makes at least $60k, the seller gets the $90k that he was initially happy with, THAT's the wholesale process. 

Instead, I get nothing, the flipper will make around $15k and the homeowner gets $149k, nearly $60K MORE than he was willing to sell for a week earlier. Also, the market impact is tremendous. These homes have been going for a song. Now, agents are gonna be all over it and the pre-sale values are going to skyrocket and there's a risk that homeowners in the area are going to get savvy to the trends. It can potentially ruin the market. So flippers, stay on the MLS, work with wholesalers and stay away from direct to owner marketing you are going to ruin this perfect little industry we have created for one another.