3 Ways To Avoid The Scam Of Virtual Real Estate Wholesaling
Virtual real estate wholesaling is something that exploded in popularity due to the Covid lockdowns. The “make money from home” gimmick used to con people has been around for a while, but this space apparently got much more attention once a national quarantine was put in place.
Advertisers that pitch virtual real estate wholesaling combine wholesaling (which is already a slimy tactic) with the “make money at home” schtick (which can also be a shady industry). In this article we will explain this trend that is growing in popularity and show why it should be avoided.
What Is Real Estate Wholesaling?
This article is focused on the concept of virtual real estate wholesaling, but before getting into that, let’s quickly go over what real estate wholesaling is. If you want an in-depth look at wholesaling, check out this article.
The concept of real estate wholesaling is to pose as a property investor, and market to sellers that you will buy their house for cash. Once a seller agrees to this and signs the contract, it is then on the wholesaler to find a buyer to assign the contract to. Here is a simple illustration and video explaining this:
A big problem with real estate wholesaling is that in a lot of cases, the wholesaler is unable to find a buyer to assign the contract to, so they will cancel the contract since they never had any intention of buying it themselves.
This can and certainly does put sellers in a very vulnerable position, especially if they were behind on their mortgage and were counting on the settlement to take place.
What Is Virtual Real Estate Wholesaling?
Now that we’ve briefly touched on wholesaling in general, let’s get into virtual real estate wholesaling. It is essentially the same thing, except done….wait for it, wait for it….. virtually.
According to this article (from someone who is pro-wholesaling) you should check out virtual real estate wholesaling “if you fancy cashing big checks from your pajamas at home.” Does this sound like anything a legitimate business would say?
Why Virtual Real Estate Wholesaling Is Attractive
Virtual real estate wholesaling can be appealing to people for a few reasons. The first is that it can be done virtually at home, which is what a lot of people (especially post-pandemic) are in favor of these days.
The second reason is because it can be scaled beyond where you live. In the same article I mentioned above, the wholesaler who wrote it talks about how he has completed “dozens of real estate deals in over ten states across the country.”
That amount of reach would not be possible unless it were done virtually. Traveling between 10 states to buy properties is unfeasible for most people and logistically would not work.
How Virtual Real Estate Wholesaling Negatively Impacts Sellers
Sellers that are looking to sell their property quickly, as is can be attracted to the advertisements of virtual wholesalers. On the surface, the idea of having someone make you an offer over the phone, and where nothing has to be done in person seems pretty nice. Especially when selling a house is typically a very complex process.
But, this is rarely what happens. We have someone we know that used to work for a large wholesaler who shifted to doing most of their deals virtually. He explained to me exactly how it worked and as someone who is fairly knowledgeable about real estate wholesaling, I was shocked when he explained the tactics they used.
They Cast Very Wide Nets And Make False Promises
The first thing he explained is how these virtual real estate wholesalers would cast a very wide net and try to “lock up” anyone they could without doing much research on the property. What this means is that they would make offers and have sellers sign the contract so that the deal was “locked up” and no one else could buy it.
Sellers would explain the condition of the property and even send pictures in a lot of cases, however the wholesaler would not inspect it for themselves. So, once they begin advertising the deal to their buyer’s list, they would find out in a lot of cases that the price agreed upon is too high and that there is no buyer they can assign the contract to.
From here, when they found themselves in this situation (which was more times than not) they would then ask the seller to take a decreased sales price so that they would be able to assign the contract.
They would not tell the seller they were looking to assign the contract however, they would simply state that their “contractors” examined the property and found that the property was in worse condition than the seller had led them to believe and this is why they need to lower the price or cancel the contract (remember that wholesalers use cleverly worded contracts allowing them to cancel at any time for any reason).
I was told that in a lot of cases, even after renegotiating a lower sales price with the seller, they would still not be able to find a buyer to assign the contract to, and would have to cancel the deal. This can be devastating for a seller.
Here is a snippet from the same article I mentioned earlier where the person who wrote the article is showing people exactly how to begin with this practice. They specifically advise to make sure there is a contingency period to cancel or renegotiate the contract.
Imagine someone facing foreclosure or anyone with a sudden life event happening where they need to sell a property quickly. Dragging them through the mud like this can lead to a horrible outcome and should certainly be illegal.
How To Avoid Virtual Real Estate Wholesalers
As evidenced here, avoiding the practice of virtual real estate wholesaling (and wholesaling in general) is vitally important for anyone looking to sell their house to an investor directly. Real investors who are serious either live locally or have someone on their team that is local so that they can quickly go look at a property.
Anyone who strictly does everything virtually is either not a serious buyer, or they are a wholesaler. Both should be avoided obviously.
This article goes in-depth on contracts that wholesalers use, so check that out if you have recently received an offer from an investor and want to make sure they are legitimate. In addition to that, here are some ways to spot a virtual wholesaler:
- They advertise how they buy houses nationally or across multiple markets – this is not necessarily a guaranteed way to spot a wholesaler, but this is what a lot of virtual wholesalers will do. They will attempt to blanket several markets and advertise there aggressively.
- They got in touch with you by texting – this is a very popular strategy for wholesalers and many of the larger operations who virtually wholesale properties will employ teams of people whose sole responsibility is to mass text groups of people all day long.
- They never set a time to come visit the property in person – this is the biggest way to spot a virtual wholesaler. If they don’t attempt to ever come take a look at the property then you are likely a pawn on their chessboard and if they cannot find a buyer to assign the contract to (after you sign it) they will either renegotiate or cancel the deal entirely.
Avoiding real estate wholesalers in general is very important, when you add the fact that they are attempting to do it virtually, it makes it even more unlikely you will ever be able to sell your home.
We recommend finding a legitimate investor that is local and experienced. You will not be dragged through the mud working with someone like that, and a good outcome is far more likely than working with a wholesaler.
If you’d like to skip the hassle of doing this yourself, check out Home Sale Solutions. We are an experienced cash home buyer in the Northern Virginia area. Reach out with any questions as well and we wish you the best of luck!