What's to prevent an investor from cutting out the wholesaler?

Question

I've just started to learn about wholesaling. So my first stupid question is..

Let's say you find a good deal and you market it to your buyers/investors mailing list.

A few investors look at the property , pass on it, and you're unable to complete the wholesale transaction.

Now that the investor knows where the property is, what's to prevent that investor from going behind your back and dealing with the owner directly and cutting out the wholesaler?

I mean now, all I need to do is approach the seller with whatever price the wholesaler negotiated and not have to pay a markup.

Bryan Noth · Answer

@Mike Franco most often the wholesaler already has it under contract to be legally sold to them, they just intend to transfer title to the end stage buyer for a fee. Some wholesalers try to sell you properties they do not have under contract or worse actually on the MLS, that's entirely different

Jay Hinrichs · Answer

yes its complaint driven.. one of my guys I do deals with here got turned in..  he had a house in contract and put a for sale sign in the yard before he owned it.. he was not intending to close just flip the deal and make a middle man fee.. the neighbor wanted the house Knew he did not own it and turned him in..  investigation proved out that my guy had a business or pattern of doing these deals and DRE hammered him.. Ergo we now do deals and close on them before we resell.  True wholesaling not selling real estate without a license..   And in IL they finally made it mandatory to have your real estate license to wholesale.. and Ohio can really get on the unlicensed wholesaler.. but its just like speeding.. done everyday but if your caught its going to cost you some money.

Jay Hinrichs · Answer

There is absolutely nothing wrong with making a back up offer  happens everyday in real estate.. the good wholesaler will close if like yoiu said deal is good enough.. but if they dont close the back up offer can go into first position and carry through very common part of real estate if your actually in the industry.

Jay Hinrichs · Answer

I got tired of the ( is it illegal or is it legal in Oregon back and forth)  So i got a wholesaler direct mail peice that was e mailed to me and sent it along to the state for clarification .   See below the response I got from the state.

""Hello Jay,

Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful.  Thanks!

The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction.  Addressing the problems is like trying to put out small individual fires in a forest that is burning.  The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.

Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.

Best regards,

Frances Hlawatsch | Financial Investigator

State of Oregon - Real Estate Agency"

They did open an investigation into this company and I see they are now licensed..  so who knows right.. But just today I got two e mails on wholesale deals from those I know that are not licensed..  But now that I know the rules I am not the wholesale police.

Same goes with those trying to rescue those in foreclosure there are very SERIOUS laws pertaining to this in Oregon but bozo's still try and do it with no clue they are subject to a felony .. They read a guru pitch  which might work in some other state ....

Steve Morris · Answer

Thank you for the education.

Maybe next letter I'll call the REA.

Of course, I tried that in WA when I turned in an OR broker for listing a Vancouver apt and not being licensed in WA.

Just got me a very nasty phone call and a few F-Us.

Steve Morris · Answer

Interesting, thanks for the education.  I guess the issue is charging a fee (the sale/paid spread) or dealing houses like inventory?

Sure doesn't stop them from sending me 5-6 letters a month or those day-glo signs on the side of the road.

Of course, the REA here is not real effective on enforcement without a complaint.

Jay Hinrichs · Answer

AS wholesaling is done or taught throughout the US.. its totally illegal in Oregon.. the RE commissioner will issue a cease and desist first time and really hammer you if your turned in a second time.. does not keep the practice from happening but.. if your one of those that gets somene pissed off and they go on line and file a simple complaint the state will follow up..  In Oregon just like SFR flippers 90% of them dont realize they need a developers license to flip even one house a year..  I got nailed on this one not once but twice.. now i have 3 developers licenses.. you need one for Each entity that is in title to the asset being flipped..  Bare land or timber land like I used to do is exempt..

I just went ahead and got my GC license since i already had the developers which requires bond and insurance.. test is dead simple for those that are real estate based its 90%  lien laws etc.. took me maybe 35 minutes..

Jonathan Greene · Answer

If you are unable to secure a buyer for the transaction that you put under contract, you didn't get your job done as a wholesaler. So if someone goes to them after, that's just part of the business. It means the wholesale price was too high which means it was either put under contract too high, the wholesaler was looking for too great a spread, or both. I wouldn't even consider it going behind or around their back because if the price was too high and the contract falls out, the property is fair game for all investors to make a better deal.

Steve Morris · Answer

"Now that the investor knows where the property is, what's to prevent that investor from going behind your back and dealing with the owner directly and cutting out the wholesaler?"

Broker apts and it happens with off-market deals.

I guess the only thing, as a wholesaler, is to get an accepted offer with an agreement not to market or accept back-up offers.

Am not a big advocate of wholesaling on ethical grounds, but it happens.

Will Fraser · Answer

@Mike Franco, the short answer is "nothing."

Nothing is going to stop this from happening except for the investor's vision -- it would be shortsighted for them to do this, but in the end it is possible and I'm sure it happens a lot.  If the wholesaler works to be excellent at what they do and deliver big value, the right investors will seek to honor that and not to betray that.

Be that guy, Mike!

What's to prevent an investor from cutting out the wholesaler?

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