11 Terrible Things That Real Estate Wholesalers Do
Real estate wholesalers have multiplied over the past decade or so. The concept has grown in popularity primarily among people seeking to get into real estate and get rich fast. Plenty of “gurus” teach and sell courses on how you can get into real estate without money, credit, or experience by wholesaling.
What these people teaching courses and selling the dream leave out is that you also don’t need morals to become a real estate wholesaler. In fact, it HELPS if you have no morals and you will likely be a more successful real estate wholesaler without them.
In this article we are going to discuss 11 horrific things that real estate wholesalers do on a regular basis. But first, let’s recap how real estate wholesalers operate.
Real Estate Wholesalers
Before getting into exact things that real estate wholesalers do, I want to explain the concept of wholesaling as it pertains to real estate. Real estate wholesaling is when someone posing as a buyer approaches you and offers to purchase your home.
Once you agree to sell your property to them, and sign the contract, they will then market that contract to end buyers in hopes to assign or “sell” the rights to the contract at a marked-up price.
Real Estate Wholesaler Example
For example, we have Walter the Wholesaler, Sam the Seller and Bob the Buyer.
Walter approaches Sam and offers to buy his house for $150,000. Sam agrees to this and signs the contract. Walter will then market that signed contract to many buyers in an attempt to sell it. In this case, Bob agrees to buy it at a price of $200,000. So , Walter assigns the contract to Bob and Bob then buys Sam’s house on the day of settlement for $150,000 with an additional $50,000 assignment fee going to Walter.
Does it sound crazy that Walter could get $50,000 for doing nothing more than introducing Bob and Sam? Yes, it does!
2 Minute Video Explaining Real Estate Wholesaling
For a more in-depth view of the real estate wholesaler business model, check out this article. The purpose here is to highlight and bring awareness to some specific things that real estate wholesalers do so that you can avoid them.
Let’s dive in!
1. Real Estate Wholesalers Will Cancel The Contract Right Before Closing
When a real estate wholesaler makes an offer on someone’s property, they usually have zero intentions or ability to close on it themselves. Like I mentioned, many people are lured into becoming real estate wholesalers because they want to get rich quick. These are generally not savvy professional investors with access to capital.
Using Wholesaler-Friendly Contracts
Therefore, wholesalers will simply make offers with the intention of finding an end buyer to assign the contract to. Once a seller signs the contract, they are legally bound to the terms of it and it is usually worded entirely in the wholesaler’s favor.
So, if the wholesaler has a clause in the contract for a 30-day inspection period, they can use that entire 30 days in order to find a buyer to assign the contract to. And typically they will have verbiage in the contract allowing them to cancel for any reason.
Here is a screenshot from this type of clause from a wholesaler contract. We have written other articles highlighting additional red flags to look out for when you get a contract as well.
This essentially allows the wholesaler to walk away from the contract with no legal consequences if they cannot find a buyer. Here are some reviews I found online for a prominent real estate wholesaler where people mention that this is what took place for them:
2. They Will Lie About “Contractors” And “Students” Coming To Look At The Home
The art of real estate wholesaling is being able to successfully sell someone the property without the seller knowing. Since the seller is under the impression that the wholesaler is purchasing their property (since that’s what they’ve falsely been told), they must be very sneaky about how they generate interest in the property among their list of buyers.
The Contractor Lie
If the wholesaler were truthful, they would tell the seller that they need to set up a few open houses so that potential buyers can come check it out and see if they are interested in purchasing it. Obviously, this would not go over well with the seller since they are under the impression that they are purchasing it, so real estate wholesalers will lie and say that they plan to have their contractors come inspect the property.
Since these properties that wholesalers target are sold “as is” they need to be renovated and fixed up, so having contractors come look at the property makes perfect sense. They will tell the seller that it is best that they leave during this time because it’ll be noisy and they don’t want to bother them.
The true reason they want the seller to leave is because they don’t plan on having contractors in the home, they plan on hosting a handful of potential buyers that are interested! Here is a review I found from a wholesaler where the seller specifically mentions this:
The Student Lie
Another common lie that wholesalers will tell sellers is that they mentor students and they would like to have the students come check out the property so that they can teach them about real estate investing.
These are not students at all, it is yet another ploy to get sellers to leave their house so that the wholesaler can host an open house for potential buyers.
3. They Will “Wholesale” Other Wholesalers’ Properties (Daisy Chain)
This has to be one of the more unbelievable things that real estate wholesalers do, but I see it all the time. If a wholesaler is on another wholesaler’s buyer list (the list of people that wholesalers market properties to) and they see a good deal, they will then put on offer on it to purchase it and then attempt to “sell” it to their list at an even higher price than the original wholesaler’s marked up price.
This is called daisy chaining and can sometimes lead to 3 or 4 wholesalers in between the seller and the buyer. Here is an illustration of this:
In this example the seller agrees to sell their property for $150,000. Wholesaler 1 then marks up the price to $175,000 and sells the contract to Wholesaler 2. They then mark it up to $180,000 and sell to Wholesaler 3, and then Wholesaler 3 marks it up to $183,000 before selling it to the ACTUAL buyer.
This is pure insanity!!
4. Real Estate Wholesalers Will Steal Each Other’s Deals
Here is a YouTube video about a wholesaler who gets a property under contract with a seller, and then another wholesaler steals it from her by going behind her back directly to the seller. Wholesalers clearly have no problem eating their own! I feel slightly bad, but not too bad because she is a wholesaler herself and I think this is a bad business practice.
It is comical to me how the title of the video is “FAKE Cash Buyer Stole My Wholesale Real Estate Deal.” She is calling someone else a fake cash buyer when this is exactly what wholesalers do for a living and it is what she does. Talk about having zero self-awareness…
5. They Will Have Settlement Companies Help Them Lie To People
A common strategy for wholesalers is to attempt to hide the assignment fee from the seller (and sometimes the buyer too). The assignment fee is the mark-up from the amount the seller is paid for their home, and what the end buyer pays. So, from our earlier example, if a wholesaler goes under contract at a price of $150,000 and assigns it to someone for $200,000 then their assignment fee was $50,000.
Sellers tend to get upset when they realize this is the case that the wholesaler simply pawned off their property to someone who was willing to pay more. It generally doesn’t happen until the settlement when the seller reviews the settlement statement.
A way that real estate wholesalers can avoid this headache of dealing with angry sellers at the closing table is by having the settlement company hide their assignment fee so that the seller doesn’t see it, and therefore does not get upset. Just do a Google search for “Hide assignment fee” and you’ll find plenty of articles and videos about how to do this.
6. They Will Put All Of The Risk On The Seller And None On Themselves
From start to finish, there will generally be very little risk they take on in the transaction. This is intentional and for good reason. Since a real estate wholesaler has no intention, and in a lot of cases no ability, to purchase a property, they need to ensure they are protected and have plenty of “outs.”
Insanely Low EMD’s
These cleverly worded contracts allow wholesalers to escape with zero consequences whenever they would like. One example of how a wholesaler takes on very little risk is by writing an earnest money deposit (EMD) for $100 or less. To put that in perspective, whenever I used to purchase a property we consistently wrote EMD’s that were $5,000 or even $10,000.
An EMD shows the seller that you are serious about purchasing their property, because if you fail to perform then the seller would get to keep it. So, whenever I wrote a $5,000 EMD, I had 5,000 reasons to perform and ensure that I purchased the seller’s property!
Here is an article where a guru that teaches about wholesaling talks about the EMD’s they use. Here is the excerpt, “The main reason people think wholesaling is for beginners is because you do not have to bring a lot of money into the deal to make it work. In fact, the majority of wholesales that my organization does are $10 earnest money and $20-$30 to record the document. We have done plenty of wholesale deals for under $50 with net profits of $40,000 – $70,000.”
$10 as an EMD is laughable and should not be taken seriously at all.
They Can Cancel The Contract Whenever They Want For Any Reason
Another way that wholesalers place all of the risk on the seller is by having a clause allowing them to cancel the contract at any time and for any reason up until the day before settlement. During this time they are attempting to find a buyer to assign the contract to but if they cannot, then the seller will bear the brunt of this.
The seller is the one paying the mortgage, utilities, taxes, insurance, etc. and this all must be paid while the wholesaler strings them along attempting to find a buyer. Not to mention the fact that while they are under contract the seller cannot accept a better offer from someone.
7. Real Estate Wholesalers Admit They Provide Very Little Value
If you operate a business where you openly admit you don’t provide any value and that there is not much benefit to going with you, let me suggest that you should probably find a different line of work where you DO provide value.
Here is an example of a wholesaler admitting they don’t provide much value:
Because real estate wholesalers provide little to no value, they must rely on invasive marketing tactics in order to reach people at high volumes. Some of these include targeted texting, aggressive mailers and obnoxious robo-voicemails they leave for people all the time even after being instructed to remove them from their marketing list.
8. They Will Lure “Wannabe” Wholesalers In By Hosting Get-Rich-Quick Seminars
Real estate wholesaling is definitely a shady industry. Wholesalers deceptively convince people to “sell” their home to them and then try to flip the contract to someone else at a higher price without the seller knowing. The only people worse than these are the people who TEACH others how to do it and try to make money doing it.
If you do a Google search for “real estate wholesaling” you will find plenty of content that teaches the practice of wholesaling. A lot of these places will try to upsell you on buying a course or attending an event to learn the “TRUE SECRETS.”
The lure of getting rich attracts many less than ethical characters and because there is zero regulation in this space, it is the reason so many sellers get taken advantage of. Jeff Bezos (founder of Amazon) has a quote where he says, “seek instant gratification – or the elusive promise of it – and chances are you’ll find a crowd there ahead of you.”
This quote perfectly sums up the wholesaler mindset. They are focused on getting rich quick from assignment fees they make and it is a crowded space where lots of others are looking to do the same thing.
9. Real Estate Wholesalers Will Exploit Death To Make A Profit
Real estate wholesalers will do some pretty annoying marketing tactics, and most of it falls in the category of just that, annoying. But there is one thing that wholesalers will do that falls in the “thoughtless” category and borders on the “evil” category.
This is when wholesalers target people who have recently lost loved ones in order to make a profit.
Here is an article that explains in detail how to generate leads by targeting people who are going through the probate process. It’s pretty incredible that someone would aggressively target people in this position and be able to sleep at night, but it clearly happens as you can see below:
10. They Will Brag About The Money They Make
Real estate wholesalers have been known to flaunt the money they make from assignment fees. A common thing you’ll see is when wholesalers post pictures of the check they receive after a transaction closes. Here are some examples I found online of this occurring:
The brag of all brags however happens in this article and pertains to the check above for $75,000. To summarize it, the wholesaler explains how he made $75,000 from this transaction. And the hilarious thing to me is that his main picture for the article is a woman who appears to have just robbed a bank. See below:
That picture pretty much sums up exactly what wholesalers do.
11. Real Estate Wholesalers Will Manipulate The Elderly
Our final wholesaler story involves someone manipulating an elderly woman who was almost 80 years old. They convinced her to sell her property for $95,000 and ended up wholesaling it to an investor for $130,000. Here is the news article detailing this story.
The wholesaler involved here apparently befriended the seller and eventually convinced her to “sell” her home to them. When the news organization asked to interview her, she declined, understandably. Rehashing something like this would not be a fun thing to do. The $35,000 that the wholesaler made should have been in her pocket and unfortunately it is not.
The moral of the story here is that people looking to sell their property as is should be extremely cautious. There are many wolves in sheep’s clothes out there and it can be disastrous if you run into one. I found a forum where someone posted about real estate wholesalers and I think it perfectly sums up how things currently are and how more and more people are getting into this.
Current State Of Real Estate Wholesaling
The first forum screenshot says, “The issue is there’s tons of unethical & uneducated wholesalers in the market doing full 30 day or longer periods not to do their due diligence, but just to market the property for potential buyers, then they just walk away [at] the last minute before closing because they can’t find a buyer & don’t have 2 cents to their names to ever close or get funding.
They outbid all the legitimate wholesalers & investors offering too much and could never find a buyer at their prices. I receive 100’s of emails a month from wholesalers with overpriced deals. Especially the “virtual” wholesalers who have never been to the property, and base their numbers off Zillow’s inflated estimates.
I recently purchased a property from a homeowner who had went through multiple bad experiences. One where wholesalers kept extending closing dates for over 90 days and still just walked away. The homeowners kept extending because the wholesalers convenced them they would be able to close in a few more weeks. They almost lost the home over it. All because the wholesalers offered too much and couldn’t find a buyer.”
The second forum screenshot above is this contributor replying to someone and he says:
“Yes, it’s getting out of control throughout the nation. Way too many gurus teaching newbies unethical & shady tactics. I get contacted multiple times a day by wholesalers with deals priced way too high because they offer whatever it takes to get it under contract with zero intent or ability to ever close. If they can’t ‘broker a deal’ they will just walk away leaving the homeowners in [an] even worse position.
Then you have all the daisy chainers who don’t even have the property under contract. It makes it harder for the rest of us legitimate investors to do deals. There are some well intended, and ethical wholesalers out there, but the bad ones are starting to far outweigh the good ones.”
Suffice it to say that I am not the only one that has serious disdain for real estate wholesalers. I agree with everything this guy says, except for one thing…he says there are some ethical wholesalers out there but I have yet to come across one!