Seller flipped a switch on me and now I am confused

Wholesaling
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Seller flipped a switch on me and now I am confused

Mala S.
Investor · Jersey City, NJ · Member since 2013 · 129 posts · 122 votes

I am trying to get started in real estate investing and sent out a direct mail campaign last week in search of motivated sellers. My hope was to invest in at least one of these properties and potentially wholesale any other deals I may come across through my marketing.

But now, one of my not-so-motivated/ motivated sellers offered to pay me a finder's fee if I can find a buyer for their property at fair market value.
(the seller is sick of dealing with RE agents and offered me half a typical RE commission).

I have a great rapport with the seller and am happy to help them out, and wouldn't mind the extra cash. I also think this could be a good learning experience.

So will I ruin my rep as a wholesaler if I start marketing a property at fair market value? I feel like I have a conflict of interest here...

Has this happened to any other wholesalers out there? Has a seller ever offered to pay you a finders fee to get a full priced buyer for their property?
How do licensed real estate agents feel about this?

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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
13y

There is a huge difference between wholesaling and selling a property for a seller. In the later, you are technically acting as an agent and without a license, breaking the law. In the wholesale arrangement, you become an equitable interest holder in the property, thus, you have every legal right to sell your contract, or re-sell the home.

Wholesaling in NY or any other state for tht matter is not illegal, what becomes illegal is using some illegal technique to wholesale. The wholesaling in of itself is not illegal. Similar to driving, it is not illegal to drive, but it is illegal to go above the speed limit.

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  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    13y

    Mala,

    On the surface what you are proposing is illegal. In most states you need to have a license to represent 3rd parties.

    Having said that, you can do this if you are a principal in the deal. If you have an assignable contract for the property then you can assign just like any other wholesale deal. Be careful! There is not going to be any equity, unlike a wholesale deal. If you find a buyer and they back out, you will still be liable for specific performance with no options since there won't be an equity spread...

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    13y

    Being non licensed, you'll be violating laws by collecting a commission/referral fee for finding them a buyer. Also if they tried the traditional agent route, and it didn't sell, it's priced too high.

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  • Mike Berlay
    Ogden, UT · Member since 2009 · 76 posts · 7 votes
    13y

    Ben Leybovich
    Mala S.
    this way dealing with investor as 3rd party also illegal? Can any provide source for that, every time I here about "IN SOME STATES", how I can check my state? And how to do wholesale in NY if it is illegal?

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    There is a huge difference between wholesaling and selling a property for a seller. In the later, you are technically acting as an agent and without a license, breaking the law. In the wholesale arrangement, you become an equitable interest holder in the property, thus, you have every legal right to sell your contract, or re-sell the home.

    Wholesaling in NY or any other state for tht matter is not illegal, what becomes illegal is using some illegal technique to wholesale. The wholesaling in of itself is not illegal. Similar to driving, it is not illegal to drive, but it is illegal to go above the speed limit.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    13y

    Wholesaling, where you actually take title and double close, or when you assign a contract that you are a priniple in, is not illegal. Collecting a finders fee/referral fee/commission based on the sale of a property is a violation of licensing laws.

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    So, to help you in this current example, simply tell your seller you agree to do so, however, to be able to do it legally and ethically, you will require another a purchase contract that is assignable or better yet, an option contract which you should record with the county recorders office. This gives you equitable interest in the property and the right to list the property and sell the property. Assuming you find a buyer for the price you need, that buyer is buying from you and at the same time, you would exercise your purchase option. Your purchase option amount should be less than the purchase price of your buyer, with you keeping the spread in between.

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  • Mala S.
    OP
    Investor · Jersey City, NJ · Member since 2013 · 129 posts · 122 votes
    13y

    Omg, I'm glad I asked the question! The thought that this might be illegal crossed my mind but I figured the seller knew enough to know not to propose something illegal!

    So, it seems like my only route is to get an assignable contract on the property.

    But Ben Leybovich, I don't understand when you say:
    "Be careful! There is not going to be any equity, unlike a wholesale deal. If you find a buyer and they back out, you will still be liable for specific performance with no options since there won't be an equity spread..."
    ??Ben, can you please explain this to me, I am a newbie...??

    Btw, Wayne Brooks, I agree that her asking price is too high, proven by the fact that it didn't sell when previously listed and bc the numbers wouldn't work for me/any investor. But I am hopeful that I can bring the seller down to earth with time. Maybe I am wasting time with this situation (and probably with others I have been talking to as well), but since I am new to this, I'm happy to hustle a little extra for little or no return. If nothing else I will learn something...

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    13y

    You are not going to ruin your reputation as a wholesaler on one retail deal. You will be wasting your time. No investor is going to pay retail. Marketing to retail buyers is difficult for a wholesaler.

    And few homeowner buyers will want to do an assignment. They will not understand it and that could make it a red flag for them and a deal killer.

    Good luck - Ned

    2Reply
  • Blair Halver
    Real Estate Entrepreneur · Winston-Salem, NC · Member since 2008 · 101 posts · 40 votes
    13y

    I'm with Ned Carey. Most likely a waste of time. Sorry!

    1Reply
  • Aaron Mazzrillo
    Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    13y

    Sounds like a lot of work for very little pay. I'd tell him to call a real estate agent. Keep fishing for a truly motivated seller willing to slice you off some equity for your troubles.

    2Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Over marketed property at a inflated price will not sell unless the seller comes down and the market catches up closer to their price.

    The question you have to ask yourself as an investor is " How much time and energy and resources will I have to use to try and find a buyer at an almost market price for a property? "

    How much spread will you have for the time invested?? The time spent on that you could probably do 5 times more business with your specific business model. The seller is really grasping at straws and price is not set in reality.

    You will get offers all the time for business of varying models. For instance an investor could contact me from out of state wanting to buy a 50,000 house for 800 rent.

    At the end of the day it is not what I do. First it is only a 1,500 check for a ton of time. Second my main focus is triple net leasing and apartment buildings. Third you have to define and stick to what your business model is. Fourth I do not play in that space or have the network there so I tell them of others who do that type of thing.

    As soon as you try to become all things to all people in the sake of making a buck you lose focus and traction of what you are specifically trying to do.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Agree with last 3 posters above Aaron, Blair, and Ned.

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  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    13y

    I'm still a bit confused about wholesaling, but you say you're just starting, so make sure every deal you do builds the reputation you actually want to have. If you have a good rapport with this seller, this might be the moment to point out that "fair market value" could be much less than what he thinks it is. After all, it is only worth what someone is willing to pay for it. If you have interested parties at any price, it would now be a great time to bring your offer to him and explain that if he's really motivated to sell, you have a genuine buyer at x price. If you don't have a buyer, maybe tell him you'll keep his offer in mind if you run into anyone who would be interested at his price, but it's unlikely as you work mainly with investors who are in business to make a profit, not owner occupants. He may rethink his position, especially if the home needs work.

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  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    13y

    Mala S. If you were to run this deal as a wholesale (which is the only option for you since you need to be a principal), you will need to sign a purchase/sale contract as "You or assigns". This gives you the right to assign the contract to anther buyer at a higher price than yours, which is how you make $$ in wholesale.

    Now - safety in a transaction such as this is the equity position. If you need to get out, you must be able to lower your asking price.

    Since your seller wants market, there will not be this margin, so if your assignee backs out you will necessarily be on the hook for the contract that you signed with the seller.

    DO NOT DO THIS UNTIL YOU HAVE MORE KNOWLEDGE! :)

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  • Tom Goans
    Real Estate Investor · Englewood, CO · Member since 2013 · 988 posts · 258 votes
    13y

    I agree with Ben: DO NOT DO THIS UNTIL YOU HAVE MORE KNOWLEDGE.

    There are numerous possible legal and financial issues. More importantly, as mentioned, a lot of work for little or no money. You will be doing the seller a favor by recommending listing the property with a real estate agent who will put the property on the MLS. You can then go find something worth your time that does not include possible perial. K.I.S.S.

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  • Mala S.
    OP
    Investor · Jersey City, NJ · Member since 2013 · 129 posts · 122 votes
    13y

    Thanks everyone for all the great advice and knowledge!
    I'm so glad I could reach out to this community for help.

    I do think the seller would be willing to agree to an assignable contract.
    The main issue is getting her down on the price.

    I agree that this will most likely be a waste of time...

    That being said, Ben Leybovich, it was my understanding that I could have a "subject to partner approval" clause in the contract that could allow me to get out of the contract (say within 30 days) if I am unable to find a buyer. This way I would not be "on the hook" for the property if I can't find a buyer. BTW, I ABSOLUTELY WOULD NOT tie up the property in contract if I am unable to get the seller to agree to a well below market price that would be attractive to an investor. I WANT TO SELL the property, not tie it up and waste my time and the seller's.

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  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    13y

    The gurus will tell you it's easy - just load the contract up with out clauses. It ain't that easy because your reputation is everything...

    1Reply
  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    Mala S. another thing to think about here is the sell side of the deal. If you are marketing for retail buyers they will be buying with conventional financing most likely, banks don't like to see assignments on homes they are closing. So you may do all of this and get to the end and have a bank that doesn't like the deal and your buyer is out on the financing contingency.

    This is another reason why most wholesalers only deal with cash and HM.

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  • Mala S.
    OP
    Investor · Jersey City, NJ · Member since 2013 · 129 posts · 122 votes
    13y

    Matt Devincenzo GREAT POINT.

    Ok, I'm convinced this is a waste of time.

    Thanks for all the feedback. I'm learning a bit more every day...

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    13y
    Originally posted by Mala S.:

    That being said, Ben Leybovich, it was my understanding that I could have a "subject to partner approval" clause in the contract that could allow me to get out of the contract (say within 30 days) if I am unable to find a buyer.

    That is what we call Guru Gobbledygook. If you don't actually have a partner that would be known as dealing in bad faith.

    Ben Leybovich said

    Baltimore City has a population of about 400,000. You'd be surprised how many times I run into the same investors over and over. Ben is right people notice your reputation.

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