Wholesaling Unethical? Why or why not?

[Jacob Fussell]

I’ve wanted to start a flipping business but I know that limiting myself to only flips locally won’t be as easy to scale unless I include wholesaling abroad. Although I struggle with starting because I’m unsure of whether or not it’s okay to get a lowball offer accepted and then try to find a buyer when the seller could’ve gone directly to a flipper. Open to hear everyone’s opinion

[James Wise]

Originally posted by @Jacob Fussell:

I’ve wanted to start a flipping business but I know that limiting myself to only flips locally won’t be as easy to scale unless I include wholesaling abroad. Although I struggle with starting because I’m unsure of whether or not it’s okay to get a lowball offer accepted and then try to find a buyer when the seller could’ve gone directly to a flipper. Open to hear everyone’s opinion

 Ethics aside, what you need to understand is that how wholesaling is taught or commonly practiced these days is not actually wholesaling. It's brokering real estate. A real estate license is required to broker real estate in most all 50 states. So it is actually illegal to "wholesale" as commonly practiced today.

[Jacob Fussell]

@James Wise

Okay so I’m talking about purchasing a property with a purchase and sale agreement and assigning it to a buyer for a fee. I was wondering if it’s unethical considering that the buyer could’ve bought it straight from the seller for more money.

[James Wise]

Originally posted by @Jacob Fussell:

@James Wise

Okay so I’m talking about purchasing a property with a purchase and sale agreement and assigning it to a buyer for a fee. I was wondering if it’s unethical considering that the buyer could’ve bought it straight from the seller for more money.

 Again, ethics aside, what that is, is brokering real estate. That activity requires a real estate license in most all 50 states.

[Jacob Fussell]

@James Wise

https://www.thanmerrill.com/wholesaling-laws/

[James Wise]

Originally posted by @Jacob Fussell:

@James Wise

https://www.thanmerrill.com/wholesaling-laws/

 lol, good luck out there brotha. You're gonna need it.

[Jay Hinrichs]

Originally posted by @Jacob Fussell:

@James Wise

https://www.thanmerrill.com/wh...

 its not Thans butt on the line  ..  LOL.  

[Don Konipol]

@Jacob Fussell

That information is just plain WRONG.

[David Ruhlman]

Hi Jacob,

Honest question you posted there. In regards to the flipper being able to go directly to the property owner without being charged a fee, yes they 100% could. But, the wholesaler is providing a service to the flipper that they are obviously willing to pay for. The flipper has their own business to run whether they are doing the flip themselves and run a construction company, or are doing whatever else they do to give themselves enough capital to be able to flip a house. Either way, the flipper is not wanting to pay for the marketing, do the cold calling, set the appointment with the seller, negotiate price. They just want to find a property and flip it. Could they do all of that themselves and pay less to buy the property directly from the seller? Yes. But they are willing to pay that assignment fee to not do that work. 

[Kathy Young]

@James Wise

Wholesaling in Alabama is not illegal, if done

properly.

[Daniel Smyth]

@Jacob Fussell

Wholesaling is what it is. You find a deal, mark up the price, and get a buyer.

It's a win-win!

This is how every grocery store and car dealer works, why not homes?

Realtors have pushed the issue to get laws restricting some wholesale sales without a license. If you do more than one a year, I propose getting a license and do one a month!

There are ways around licensing, and I am not worried about getting caught, but I can only see good and knowledge resulting from a license.

Just my thinking. If it's a business you want, do it right and that's one less worry to bite you in the end when you least expect or need it!

[James Wise]

Originally posted by @Kathy Young:

@James Wise

Wholesaling in Alabama is not illegal, if done

properly.

 Well sure. The act of wholesaling (buying low and selling high) is legal everywhere. Issue is what most people call "wholesaling" today is actually brokering real estate. If you're talking about the act of finding a buyer to buy a house that you've simply assigned a purchase agreement to with a fee in there that's just brokering real estate. You connected a buyer and seller together in exchange for a fee.

[Jacob Fussell]

@Daniel Smyth

I finished my prelicense education so is it best to finish that and then just work as an independent? Flipping contracts in Louisiana?

[David Ruhlman]

@james 

@James Wise So James honest question, if every wholesaler got a license and operated the same way that they do now you would be ok with that? If they just took the test and passed. 

[James Wise]

Originally posted by @David Ruhlman:

@james 

@James Wise So James honest question, if every wholesaler got a license and operated the same way that they do now you would be ok with that? If they just took the test and passed. 

 I don't write the revised code in any of the 50 states so I don't know why we'd be wondering what I am ok with.

In addition, what you are referring to is called a NET Listing. That is looked down upon in many states, with some outlawing it.

[David Ruhlman]

@James Wise but you are commenting with an opinion on right and wrong and what you think is acceptable or not so I assumed you had a solution on it since some home owners do own distressed properties that they prefer to sell in As Is condition which typically realtors do not want to sell due to them being lower dollar amount, and wholesalers do. So if you don't have a solution that is fine, I just thought you might since you had such a strong opinion on it. 

[James Wise]

Originally posted by @David Ruhlman:

@James Wise but you are commenting with an opinion on right and wrong and what you think is acceptable or not so I assumed you had a solution on it since some home owners do own distressed properties that they prefer to sell in As Is condition which typically realtors do not want to sell due to them being lower dollar amount, and wholesalers do. So if you don't have a solution that is fine, I just thought you might since you had such a strong opinion on it. 

The laws are pretty simple so I'm not seeing what you're getting so confused about and I have no idea what other "solution" would be beneficial to anyone.

• If you want to earn money assisting a seller in selling their property you need to be licensed to do so in all 50 states.
• If you want to buy a property then resell it later you do not need to be licensed to do so. In fact, you are probably better served not to be licensed so that you do not have an implied duty to not use your status as a licensee to take advantage of the seller or the general public by buying their property for less than it's FMV without disclosing what it's FMV really is.

[Todd Rasmussen]

@Jacob Fussell

Wholesaling, like any activity can be done ethically or unethically. The issue with wholesaling is there is no barrier to entry and it is touted as anyone can do it and a great way to start in real estate. Unfortunately, that means many of the people who pursue it are seeking shortcuts and don't bother to learn about flipping or buy and hold investing which is paramount for putting together the acquisition price. If you solely approach wholesaling with the mindset of, "What would someone pay me versus what can I pay for it?" you will end up screwing over little old ladies. For this reason, most aspiring/new wholesalers that I have known have profit that is directly proportional to seller ignorance. (There are plenty of end investors that would take advantage of that seller ignorance as well, which is why listing on the market with an agent is the best case scenario and offloading a property directly to a wholesaler or an end investor is the least preferred path for a seller.)

Following the law and acting ethically are not always the same action. For those who say wholesaling is legal, it is still definitely not practiced ethically by many, possibly most, wholesalers. Those who say it's illegal would agree.

Another thing often confused is that failure to enforce a law does not equal legality. There are plenty of illegal practices that are not pursued for a variety of reasons, mostly lack of resources. If your business model depends on whether or not the enforcing authority has the resources and political resolve to pursue and catch you, there is a chance you should be reconsidering your business model.

The fact that you are questioning the moral implications of this pursuit is a good indication of your integrity. Always lead with that.

[Russell Brazil]

Originally posted by @James Wise:

Originally posted by @David Ruhlman:

@james 

@James Wise So James honest question, if every wholesaler got a license and operated the same way that they do now you would be ok with that? If they just took the test and passed. 

 I don't write the revised code in any of the 50 states so I don't know why we'd be wondering what I am ok with.

In addition, what you are referring to is called a NET Listing. That is looked down upon in many states, with some outlawing it.

 Best I can tell, a net listing is only legal in Florida. I obviously dont know each state, but the only person Ive heard mention on BP that it was legal in their state was a Florida agent.

[James Wise]

Originally posted by @Russell Brazil:

Originally posted by @James Wise:

Originally posted by @David Ruhlman:

@james 

@James Wise So James honest question, if every wholesaler got a license and operated the same way that they do now you would be ok with that? If they just took the test and passed. 

 I don't write the revised code in any of the 50 states so I don't know why we'd be wondering what I am ok with.

In addition, what you are referring to is called a NET Listing. That is looked down upon in many states, with some outlawing it.

 Best I can tell, a net listing is only legal in Florida. I obviously dont know each state, but the only person Ive heard mention on BP that it was legal in their state was a Florida agent.

I'm fairly confident that it's technically legal in Ohio but my understanding is the Division will scrutinize the heck out of you and require a ridiculous amount of disclosures to ensure you make it clear to the seller that you are going to make a whole bunch of money off of them.

Like you literally need to have them sign a document that says something to the effect of my commission will be anything I can sell your house for over $100k. I believe that I can sell your house for $150k. Then of course anyone who reads that won't want to do a net listing anymore because well it's just dumb.  

Then....

For the small amount of people who do agree to those terms you run into their family coming after you. In real estate school they tell students about a story that involved a situation like that with a little old lady and her son hammered the crap out of the agent down the road. Think he ended up losing his license.

[John Nachtigall]

Originally posted by @Daniel Smyth:

@Jacob Fussell

Wholesaling is what it is. You find a deal, mark up the price, and get a buyer.

It's a win-win!

This is how every grocery store and car dealer works, why not homes?

Realtors have pushed the issue to get laws restricting some wholesale sales without a license. If you do more than one a year, I propose getting a license and do one a month!

There are ways around licensing, and I am not worried about getting caught, but I can only see good and knowledge resulting from a license.

Just my thinking. If it's a business you want, do it right and that's one less worry to bite you in the end when you least expect or need it!

It is not at all how grocery stores or car dealers work.   The last time I was at a grocery store I did not buy an interest in the contract to purchase an orange.   I bought the orange, which had been bought by the store, who had bought it from a dealer, who bought it from a grower.  

I have yet to see a wholesaler advertise the contract not the house.   "For sale, a 10 page contract with excellent font on 10 pound paper, $5000 or best offer"

And that is not even getting into the really despicable behavior like not having an ability to close but signing the contract anyway or purposely taking advantage of confused/uneducated sellers.  

Is it possible to legally and ethically wholesale a house, I suppose, but it is rare enough that no one feels bad painting the entire practice with a broad brush of illegal and unethical.  

[John Nachtigall]

Originally posted by @David Ruhlman:

@James Wise but you are commenting with an opinion on right and wrong and what you think is acceptable or not so I assumed you had a solution on it since some home owners do own distressed properties that they prefer to sell in As Is condition which typically realtors do not want to sell due to them being lower dollar amount, and wholesalers do. So if you don't have a solution that is fine, I just thought you might since you had such a strong opinion on it. 

Nothing prevents owners from selling as-is on the MLS right now. And even if they could not, that does not excuse unethical or illegal behavior. Lots of people want to buy drugs also, just because there is a demand does not make it ok.

[James Wise]

Originally posted by @John Nachtigall:

Originally posted by @Daniel Smyth:

@Jacob Fussell

Wholesaling is what it is. You find a deal, mark up the price, and get a buyer.

It's a win-win!

This is how every grocery store and car dealer works, why not homes?

Realtors have pushed the issue to get laws restricting some wholesale sales without a license. If you do more than one a year, I propose getting a license and do one a month!

There are ways around licensing, and I am not worried about getting caught, but I can only see good and knowledge resulting from a license.

Just my thinking. If it's a business you want, do it right and that's one less worry to bite you in the end when you least expect or need it!

It is not at all how grocery stores or car dealers work.   The last time I was at a grocery store I did not buy an interest in the contract to purchase an orange.   I bought the orange, which had been bought by the store, who had bought it from a dealer, who bought it from a grower.  

I have yet to see a wholesaler advertise the contract not the house.   "For sale, a 10 page contract with excellent font on 10 pound paper, $5000 or best offer"

And that is not even getting into the really despicable behavior like not having an ability to close but signing the contract anyway or purposely taking advantage of confused/uneducated sellers.  

Is it possible to legally and ethically wholesale a house, I suppose, but it is rare enough that no one feels bad painting the entire practice with a broad brush of illegal and unethical.  

"I did not buy an interest in the contract to purchase an orange. I bought the orange"

That's gotta be the best line I've seen on this site in years, lol.

[Jay Hinrichs]

Originally posted by @David Ruhlman:

@James Wise but you are commenting with an opinion on right and wrong and what you think is acceptable or not so I assumed you had a solution on it since some home owners do own distressed properties that they prefer to sell in As Is condition which typically realtors do not want to sell due to them being lower dollar amount, and wholesalers do. So if you don't have a solution that is fine, I just thought you might since you had such a strong opinion on it. 

U do what I have done for over 4k transactions you close on it like a big boy or girl and then resell what you own. that is wholesaling. 

laws are the laws  people break them everyday we all know that.. folks are asking is assigning contracts ( which is what they are actually talking about NOT wholesaling) and is it legal or ethical.. legal and ethical are not the same either something can be legal but no ethical LOL

[Jay Hinrichs]

Originally posted by @James Wise:

Originally posted by @Russell Brazil:

Originally posted by @James Wise:

Originally posted by @David Ruhlman:

@james 

@James Wise So James honest question, if every wholesaler got a license and operated the same way that they do now you would be ok with that? If they just took the test and passed. 

 I don't write the revised code in any of the 50 states so I don't know why we'd be wondering what I am ok with.

In addition, what you are referring to is called a NET Listing. That is looked down upon in many states, with some outlawing it.

 Best I can tell, a net listing is only legal in Florida. I obviously dont know each state, but the only person Ive heard mention on BP that it was legal in their state was a Florida agent.

I'm fairly confident that it's technically legal in Ohio but my understanding is the Division will scrutinize the heck out of you and require a ridiculous amount of disclosures to ensure you make it clear to the seller that you are going to make a whole bunch of money off of them.

Like you literally need to have them sign a document that says something to the effect of my commission will be anything I can sell your house for over $100k. I believe that I can sell your house for $150k. Then of course anyone who reads that won't want to do a net listing anymore because well it's just dumb.  

Then....

For the small amount of people who do agree to those terms you run into their family coming after you. In real estate school they tell students about a story that involved a situation like that with a little old lady and her son hammered the crap out of the agent down the road. Think he ended up losing his license.

How I personally handled the net listing type arrangements in my day when i made broker commission was simple.. I just set a dollar amount.

for instance I had a builder that needed to sell 22 duplexs like tomorrow the bank was all over him.. He wanted at the time 200k per duplex ( they are worth double that today thank you LOL)  I set my fee at 30k per duplex.. and listed them for 235k each with some wiggle room.. Ran and fly buy program kind of like what turnkey folks do today.. and sold them all in one weekend.  All legal and some pretty nice commission income.  Along with my Dual Agent disclosures since I kept all the commish. 

[Jay Hinrichs]

Originally posted by @James Wise:

Originally posted by @John Nachtigall:

Originally posted by @Daniel Smyth:

@Jacob Fussell

Wholesaling is what it is. You find a deal, mark up the price, and get a buyer.

It's a win-win!

This is how every grocery store and car dealer works, why not homes?

Realtors have pushed the issue to get laws restricting some wholesale sales without a license. If you do more than one a year, I propose getting a license and do one a month!

There are ways around licensing, and I am not worried about getting caught, but I can only see good and knowledge resulting from a license.

Just my thinking. If it's a business you want, do it right and that's one less worry to bite you in the end when you least expect or need it!

It is not at all how grocery stores or car dealers work.   The last time I was at a grocery store I did not buy an interest in the contract to purchase an orange.   I bought the orange, which had been bought by the store, who had bought it from a dealer, who bought it from a grower.  

I have yet to see a wholesaler advertise the contract not the house.   "For sale, a 10 page contract with excellent font on 10 pound paper, $5000 or best offer"

And that is not even getting into the really despicable behavior like not having an ability to close but signing the contract anyway or purposely taking advantage of confused/uneducated sellers.  

Is it possible to legally and ethically wholesale a house, I suppose, but it is rare enough that no one feels bad painting the entire practice with a broad brush of illegal and unethical.  

that line is worth stealing  LOL

"I did not buy an interest in the contract to purchase an orange. I bought the orange"

That's gotta be the best line I've seen on this site in years, lol.