All Forum Posts by: Charlie MacPherson

I did this when I was a Realtor in Massachusetts because we found the ONLY home that my buyer client could afford.  

This has the possibility of going VERY, VERY wrong if the buyer doesn't move out on schedule.  You could even be looking at having to evict.

That means that you need an attorney to draft a "Use and Occupancy" agreement.  You should charge an above-market rent for the agreed upon period.  On the very next day, the rent should go up a LOT.  Maybe double.  The idea is to make it hurt if the seller stays beyond the agreed upon term.

You also need a holdback of funds sufficient to pay for that rent, an eviction and clean out.

You might be better off getting them another place to rent for a short term.  If they overstay, it's not your problem.

In the case where I had to do this, the seller agreed to be out in 2 weeks.  As I recall, they left in 4 weeks - and the place was left in a mess (the seller was a borderline hoarder).

Ultimately, we burned through the entire holdback and had to pay for cleaning.  But we got them out. 

Just remember, this can go VERY, VERY wrong.

Please allow me to second @Theresa Harris recommendation.  You need time to absorb and cope with a loss of this magnitude.  In times of grief, decision making can be badly impaired, so if it's possible, try putting the decision off for several months or more.

There is no schedule for grief.  We all process it differently, so if you feel ready sooner, go for it.  But don't be afraid to take extra time if your head isn't really clear.

I'm very sorry for your loss and will pray for God's healing comfort for you.

Your local laws may vary, so reading the actual real estate laws will be crucial.

First, what you have been doing so far very likely falls under the definition of brokering real estate without a license, so you might want to rethink that.  Florida has been cracking down on this.  @John Thedford has written a lot about this and has been turning wholesalers in to the state.  You might want to search the archives for him.

Second, yes, you probably will have to disclose to a potential seller that you are a real estate agent.  That's true in every state I know of.

Third, any compensation you receive once licensed will have to run through your broker.

Fourth, your broker may tell you that you cannot continue that work, but have an open, honest conversation with them to be sure you're operating above board.  Your broker will also tell you exactly what you have to disclose.

Unlicensed wholesaling is illegal in many (I think most) states, so liability can present itself in several ways.

1. Breaking the law itself.  In some states it's a felony.  In others there are fines.  Here in Maine, the penalty is a $2,000 fine plus forfeiture of all profits made on the deal.

2. You are likely signing a contract to buy a property when you have no intention to do so (both the money and the intent).  That constitutes a tort called "fraud in the inducement" for which you can be sued.

3. If a family member finds out that you skimmed a big fee (especially if it's larger than a typical real estate commission), they may sue.

4.  If unlicensed wholesaling is illegal where you do it, then your contract is null and void at its inception because it was formed for an illegal purpose.  It's void the second that you write it.

I hope that helps to steer you away from this underbelly of the real estate world.

Good luck!

I just saw this article https://www.foxbusiness.com/ec... and wondered whether it's typical news media hyperbole, but maybe it's not

They predicting a 20% decline in housing prices in this economy by 2023.  If that's true, those who bought homes in the last several months when the market was white hot might find themselves upside down.

In fact, they say that the housing recession is here: "Painfully high inflation and rising borrowing costs have proven to be a lethal combination for the housing market, forcing potential buyers to pull back on spending. Many experts – including Shepherdson – agree the housing market is now experiencing a recession."

Good luck to all with the oncoming market changes!

You're right to be concerned as FHA has an entire "occupancy fraud" division.

If I were in your shoes, I'd start by creating a paper trail of the events that lead to this situation and then contact the lender for advice.  I do believe that there are exceptions for real life circumstances, but in my unqualified opinion, being honest and proactive is the best course of action.

That's been a hot topic and let me say that as a FORMER Realtor, I have no dog in this hunt.  I've moved on to much greener pastures.

In the two states where I was licensed (Mass and Maine), you absolutely need a real estate license to do anything that causes the ownership of a property to transfer if you do not already own it and you're getting some sort of benefit from it.  Normally that's money, but could be anything of value like another property, a pickup truck, etc. 

This even includes marketing (talking about, advertising, promoting) a property that you have under contract and you'll find that most states have very similar regulations.

I've done my homework on this.  I have talked to both MA and ME State Boards of Registration in Real Estate directly and also confirmed this with attorneys who are familiar with those laws.

There are some very limited exception like being an employee of the seller (as in commercial real estate), some kinds of trustees and the executor of an estate.

One of the most common retorts I hear is "I'm not marketing a property.  I'm only marketing my position in the contract." 

However, if you dig in and actually read the state laws line by line, you'll find that excuse won't work.  It's covered under the definition of activities that require a license.  For reference, the Massachusetts regulations are here: https://malegislature.gov/Laws... 

States are starting to crack down.   Oklahoma enacted the Predatory Real Estate Wholesaler Act in 2021. https://oklahoma.gov/orec/reso...

Here's a good article from an Arkansas attorney.  He explains this very thoroughly - and points out that unlicensed real estate brokering is a Class D felony in that state. https://www.davisfirmpllc.com/...  He emphasizes that the legal way to wholesale is by actually buying the property first - commonly called a "double close".  Once you own a property, there are few restrictions on selling it yourself.  One state (WA?  OR?) has a limit on the number of transactions per year you can do without a license, but I don't know of others.

The reason states are cracking down is that wholesaling is at it's core nearly always unethical.  The wholesaler makes his fee from people that are either in such a bad situation that they'll sell their home for a dirt cheap price so they can get out of whatever jam they're in - or they're badly misinformed about the value of their home. 

License laws are put in place to protect consumers (not generally knowledgeable in real estate matters) against being taken advantage of by people who can are.  If a real estate agent violates these laws, he can be subject to large fines, have his license suspended or even revoked permanently.  Wholesalers have no such regulators monitoring their actions and so consumers are left unprotected.

Here's an example.  I personally saved a young (and admittedly gullible) couple from taking a wholesaler's offer.  He bamboozled them (outright lied) into thinking that their house was undesirable and seriously low balled them.  I actually sold their house for $122,000 more than the garbage offer he made.

In every single case, a seller would come out ahead (and often in the tens of thousands ahead) by putting his property on the open market with a strong Realtor - even if the property is badly distressed.  There is literally nothing that a wholesaler can do that a competent Realtor cannot, including finding a buyer who is "all cash, quick close".

There is an entire industry built up around teaching people to wholesale illegally.  Books, videos, workshops and seminars that are run by gurus who make outsized claims like "I will teach you to be rich".

Of course, if they actually had the secret sauce to untold riches, they'd be doing what they teach instead of hawking seminars - and if they really made all the money they'll ever need and only wanted to share their secrets out of the kindness of their hearts, why isn't the seminar free?

Not only is the first seminar not free (cheap, but not free), it's has very little of the content you went for and is always a pitch for a more expensive seminar. 

The follow up seminar is - you guessed it - a pitch for a far more expensive training program.  Some of these are well into 5 figures.  These guys are famous for coaching people to open multiple credit cards and then maxing them out to pay for the $50,000 coaching.  They're snakes.

My advice is to read the state laws so you'll know what they actually say - and ignore the hucksters who want to drag you into the orbit of their get-rich-easy guru programs. 

Instead, maybe get a real estate license and work in the field.  In the two states where I was licensed, the tests were astonishingly easy.  The barriers to entry are ridiculously low - which explains the large number of knuckleheads with a real estate license.

Best of luck!

Quote from @Michael Carbonare:

How is a text or call to a homeowner who is advertising their property for sale considered an unsolicited contact?

Calling a FSBO wasn't the original question - it was "text blasting".

I cited some very solid sources above that are worth reading. 

You're getting set up by a wholesaler.  These people need to by well under market value so that they can assign the contract to a real end buyer - with a very healthy markup.  This, of course, is illegal in many states as he's practicing real estate brokering without the required license.

I'd look out for a few things.  First, is your property under priced?  He might think it's worth more than you're asking and that he can mark it up to true market value to assign the contract and make his cut.  I'd rather see YOU make that money.

Or he's low balling in hopes that you don't know the true market value.  Wholesalers thrive on the ignorant and desperate.

Next, the contract, which is of course one-sided in his favor. Just because he presents a contract doesn't mean that the terms can't be negotiated.

In my opinion, you should tighten the contract so that you're in a stronger position.  Make a good chunk of his EMD non-refundable.  Make closing dates hard (no extensions) and fast with EMD at stake if he defaults.  And make sure the EMD is enough to make it hurt if he fails to perform.

My bet is that when faced with someone who is on to his scheme and not willing to get hosed, he'll bail out.

The very best move is to get with a strong Realtor in your area.  You'll get better comps so you'll be confident in your pricing while exposing your property to the entire market with a proper marketing plan. 

Contrary to popular opinion, Zillow isn't all that there is to the market.  A good MLS listing with professional photos (sorry - yours are not great) will get you the highest offer that the market will support - not a lowball from a wholesaler that's looking to steal your equity.

Good luck with it!

Former Realtor here.  I've moved on to MUCH greener pastures.

From my experience, most investors - even my target of the "fix & flip" crowd will run you ragged, going from one mold-infested wreck to another.  My hope was always to get paid on both the purchase of the crappy property and on the sale when the rehab was done.

That sounds good if you say it fast.  In reality, many most never pulled the trigger, so were an utter waste of time and gas.  One in particular bought a house to rehab and let the carpenter (!!!) pick the floor plan.  The result was so bad that we could not sell it in a white-hot seller's market.  Sadly, it went to foreclosure and the seller took a serious beating on it.

If you want to impress the Realtor, show that you're serious.  Open your contact with them by showing both your pre-approval and proof of funds.  Include a resume of real estate projects completed.

By the way, @James Wise absolutely nailed it in his first post above.  Read that post and then read it again.  I share his opinion that OOS investors are a waste of time and money.  

He's on the right track by getting payment up front.  That filters out the chest-thumpers and windbags by getting immediate skin in the game.