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 @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.

Send me proof of funds and I will sell you a contract to purchase the Orange line for $100...

John - Can I buy the Orange line off of you for $50?

[John Nachtigall]

Originally posted by @James Wise:

Originally posted by @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.

Send me proof of funds and I will sell you a contract to purchase the Orange line for $100...

John - Can I buy the Orange line off of you for $50?

For sure.   

Its a funny story.  I was actually driving for apples, you know, just looking for run down apple trees, pies in the windows, all the usual signs.   Then a guy with a bag of oranges ran out in front of me and I hit him.   He seemed desperate for me to call 911 so I told him I can solve his problem if he considers signing a contract for his oranges with wrap around seller financing with a lease option.   He managed to sign before he passed out.   It was a win-win for everyone.

[James Wise]

Originally posted by @John Nachtigall:

Originally posted by @James Wise:

Originally posted by @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.

Send me proof of funds and I will sell you a contract to purchase the Orange line for $100...

John - Can I buy the Orange line off of you for $50?

For sure.   

Its a funny story.  I was actually driving for apples, you know, just looking for run down apple trees, pies in the windows, all the usual signs.   Then a guy with a bag of oranges ran out in front of me and I hit him.   He seemed desperate for me to call 911 so I told him I can solve his problem if he considers signing a contract for his oranges with wrap around seller financing with a lease option.   He managed to sign before he passed out.   It was a win-win for everyone.

 ☠🤣 #dead

[Brandon Sturgill]

This may be the most I have voted for @James Wise in any single thread in the last 6-years, lol. On point...cheers

[Travis Steinemann]

Hi @Jacob Fussell,

There is some very good insight on here from the brokers based on the legality or ethics of wholesaling. I will admit that I have wholesaled before, and probably poorly. I also got licensed and my wholesale activity has dropped off quite a bit, although I still do it from time to time. 

My opinion is that you have to be honest with the seller if you want to wholesale their deal. I will say what I do, but I don't go out of my local market of Baton Rouge. 

First, tell them what they should be able to get if they list it, and explain how commissions work with agents. Then, tell them that you run a flipping business (if you don't in their market, don't tell them that), and since you need to make a profit in your business and have rehab, holding costs, and closing costs twice, you can only offer $x amount. If you plan on wholesaling it, tell them that their property doesn't fit your investing criteria, but you have other investor friends who may be interested and if they are ok with it, you will get it under contract and see if any of them are interested in it. However if they are not interested in it, you will still have to buy it, since contractually you are obligated to. This also prevents you from getting bad deals under contract, and should solve your ethical dilemma. 

Another option if you want to market in other markets but can't physically flip in those markets is to find the top two or three flippers in that market and partner with them on deals. Work out a JV where if they close on a deal you bring them you get 10% (or whatever you negotiate) of their profit upon sale. If they make 50k on the flip, you get $5k which is a pretty average wholesale fee. Win, win, win!

Hope that helps, and good luck.

[Jonathan Julian]

@Jacob Fussell

To address the actual question as ethics you must not have found any fruitful deals yet. The seller is paying a fee to the whole saler for the service provided of finding a buyer. Regardless of the legal side of how these transactions occur, providing a service incurs a fee.

Any service rendered makes the exchange ethical. However taking an advantage of a seller through unethical practices disqualifies any ethical argument attributed to services rendered.

It's a matter of how you are doing business not the business you are in. There are fools who pay for any service the question of whether or not they are capable of providing the service for themselves becomes moot, because they are willing to pay before seeking a way themselves.

[Shiva Bhaskar]

I am not a wholesaler and have never wholesaled. I also have come across some good and some terrible wholesalers. Also, Setting aside the question of licensing and all that, you mentioned "try to find a buyer when the seller could’ve gone directly to a flipper."

The seller COULD have done that, sure. However, they didn't. Perhaps they didn't know the flipper. Maybe they were busy and didn't bother. Perhaps they never thought of it. Maybe negotiating with an aggressive investor is uncomfortable for them, and you put the at ease. 

Facilitating a transaction takes initiative and work, and there's nothing wrong with being compensated. I don't see the concept of wholesaling as unethical, though there are plenty of unethical wholesalers. The same is true of realtors and investors. 

[Michael Ablan]

@Jacob Fussell -  If you put a property under contract then you better have the means to close it.   It's not fair to drag a seller along for a few months and then walk from the deal because you never intended to buy it in the first place.

[Henry Lazerow]

Wholesaling isn't just unethical but it's ineffictive. My friends and I always joke about how many new wholesalers there are at meetups 99% of them fail. What's effective is selling get rich quick books to the wanna be wholesalers. The reason I say unethical is because you are bassically trying to mislead a seller the value of their property so they let you put it under contract with a chunk of equity. The rare times it works is with the elderly, mentally il due mostly to old age, etc. Brokerage it's a pre-set transparent commision typically 5-6% range where as wholesalers are shooting for 10-30% margins with zero transparency into their cut. There are some but not a lot of suckers out there that own property so it's hard to really scale this model with consistency. Much easier to have a good reputation as a realtor and get a steady flow of business. 

[Mindy Jensen]

Originally posted by @Jacob Fussell:

@James Wise

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

The nuances of this article can be lost. This article is saying that you have to have intent to purchase. What this means is that if you do not have the ability to purchase the property, you are not wholesaling it properly.

This is a HUGE issue with how wholesaling is currently being taught online. Get it under contract and assign the contract is fine - as long as you are able to purchase the property if you cannot find someone to assign the contract to.

[Nolan Ring]

@Jacob Fussell It just depends how you do it, there are a ton of ways to justify wholesaling if done properly

[Robert LaPrelle]

Am I wrong, or do most of the differences of opinion here come down to differing definitions of what "wholesaling" actually means? I recently bailed out a friend by getting a contract on his house, doing $25,000 worth of work to it, and then selling the contract for a profit. I certainly hope that no one would accuse me of doing anything illegal or immoral. On the flip side, it seems like there are a lot of "wholesalers" who are just trying to get around normal licensing requirements, in some cases with the specific intention of exploitation.

If you're upfront with both the buyer and seller and you actually intend to follow through on the purchase whether or not you can assign it, then I think it can be a useful way to structure a deal and there's nothing wrong with it.

[Duncan Hayes]

No, wholesaling is NOT illegal or unethical. There’s a couple ways to do this:

1. Find a property and get an agreement with seller for you to purchase. Then after getting that agreement you sell the contract, aka your “equitable interest.”

You are not brokering real estate, you’re selling a contract to purchase something you don’t want to purchase anymore. What some would say makes this route unethical is the fact that the wholesaler probably doesn’t have the funds to close the deal themselves if necessary. How do you cure this problem? Simple, you make relationships with Hard Money Lenders who can back you in the event you cannot sell the contract & need to close on the property yourself.

2. ABC Transactions, aka “double closing.” In this instance you have transactional funding lined up. They will loan you the money to purchase from seller, (A to B part of the transaction). Same day, or next day, your buyer purchases from you (B to C part of the transaction). Your buyer’s money would cover the transactional funding, and you keep the difference.

Double closing is your work around to license requirements, since you are actually closing on the property. Your name goes on the HUD, etc.

When assigning contracts it doesn’t happen like that, and your only record of being in the transaction is when your assignment fee is logged in the closing docs.

Do what you want to do, make money, treat your sellers/buyers right, and make strong relationships. You’ll be fine. I’ve wholesaled properties in multiple states across the nation, never ran into ANY legal issues.

[Jesse LeBlanc]

always have your buyer first!  Know what they want, then find it and get it at a lower price than what your buyer is willing to pay for it.  Boom, you'll never have a problem that way.  meanwhile, be transparent with your seller letting them know who you are, who your buyer is and how it's solving their problem.  Then you get paid for solving their problem and bringing a good deal to the table for your buyer.

[Ethan Sharrett]

Good post and replies!

So studying homes, comparables, and neighborhoods to determine for each property a price that would make a profitable flip is what I'm doing right now in #richmond #virginia. I'm studying and haven't made one happen yet. But that is soon, and I'm driven by integrity and ethics, so the seller feels great, and the buyer does too, and I get fees...until I finish fixing my credit and can plunk down my own money.

For the case of the flipper going right to the seller its a legit hang-up in a vacuum...but it seems to me that IF I determined for example that a $70k purchase and $40k repairs would result in a $180k value, and I can present that data to an interested flipper, they could go straight to the seller and cut me out. But. Then they know I would not send them any more potential deals. Because it does take a lot of time to analyze significant data and then contact enough potential sellers that one of them would find these "low" offers something they'd see an advantage in (Save the trouble of listing it, tours, inspections, closing hassles, have the cash in a week, etc.) 

[Solicitation Removed by Moderators]

-ES

[Will Barnard]

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. 

Clearly you have not been speaking to quality realtors. Most quality agents WILL love the opportunity to list a fixer upper. They have a much higher chance of double or triple ending the commissions with such a listing. Find a rehabber to double end it and perhaps get the re-list on the backend. This statement that homeowners prefer to sell their "in need of repairs" homes to wholesalers over real estate agents is hilarious (and not accurate).

[Damian Lopez]

@Don Konipol hello, I'm extremely new and just wanted some advice on where to begin. I'm new to the business and just want to know where to start. I want to wholesale or flip. Have no cash flow, or experience from El Paso Texas would really appreciate some insight. I want to get my first deal to just get my ball rolling and see the process. I'm better hands on, and really wanting change my life

[Will Barnard]

Originally posted by @Damian Lopez:

@Don Konipol hello, I'm extremely new and just wanted some advice on where to begin. I'm new to the business and just want to know where to start. I want to wholesale or flip. Have no cash flow, or experience from El Paso Texas would really appreciate some insight. I want to get my first deal to just get my ball rolling and see the process. I'm better hands on, and really wanting change my life

First step is to start researching and educating yourself on the strategy of your choosing. Nobody is going to give you a step by step playbook from start to finish. You need to put in the effort to get your ball rolling. If you are a hands on learner, I suggest going to work for a developer or contractor that works with developers so you can gain hands on experience. You should also be looking into speaking with lenders for capital, agents for deal flow and listing your flips, and researching your market to lean all you can about it. 

[Bob Norton]

@Jacob Fussell If you get your real estate license in Louisiana, you will have to be sponsored by a broker and cannot be "independent" as you mentioned.  Some brokers, as we've seen above, don't understand wholesaling, so they will not allow their agents to wholesale properties.  You will want to find an investor friendly broker that understands the process.  Or, you can study wholesaling and do that without a license.