I recently recorded this video about how you as a seller LOSE when you sell your home to a wholesaler. Specifically, you lose money. Sometimes lots of it.
What a wholesaler does is they make you a “cash” offer on your home, but they never intend to actually buy your home. They intend to flip the contract to some other buyer for more.
And if they offer you $500,000 and then assign the contract to a buyer for $550,000, then you just left $50,000 on the table. I think that $50,000 should have been yours, don’t you?
If you’re sold on that idea, then read on for five ways to spot a wholesale offer and protect your investment.
Five Ways to Spot a Wholesale Offer (And Maximize Your Profit)
1. The Buyer’s Name: Generally speaking, an offer from a wholesaler will be in a company name or LLC, not a person’s name. It pays to do a quick Google search of the buyer’s name to see if any notes about wholesaling pop up. Some common ones in Austin are Networth, New Western Aquisitions, and House Max. That is by no means an exhaustive list, and the wholesalers are getting smarter about disguising their names.
Also important, most legitimate investors also make offers under LLC names, so this isn’t a sure-fire way to uncover a wholesaler.
2. Just Ask: Another tactic is simply to ask. “Are you planning to wholesale my property, or assign this contract?” Sometimes they’ll honestly answer the question. Sometimes they’ll dodge it. If you get a convoluted explanation about how they need to run the deal by their board of investors… it’s probably a wholesaler.
In fact, the more questions you ask, the more likely you are to flesh out a legitimate offer versus a wholesaler. A few sample questions that can help are…
-How many homes in Austin are you currently building? Can I drive by one of your homes?
-Where are your investors located? (If they say something vague like “Oh, all over. We have investors all over.” Then they’re a wholesaler.)
-What is your role in the transaction? (You want to know if you’re talking to the actual buyer, or some 23-year-old salesperson who says their role is “acquisitions.” If you’re talking to a bro who does “acquisitions” you’re almost certainly talking to a wholesaler.)
-What does the buyer plan to do with the property? (An actual buyer will have some idea. A wholesaler won’t have any plans, because they’re just flipping it anyway.)
3. They seem disinterested in details: If you’re dealing with someone who comes in fast, and is surprisingly willing to sign a big, cash contract without knowing much of anything about your home, that’s one red flag. A legitimate buyer will usually want to know a few things before they sign on the dotted line. A wholesaler doesn’t care, because they aren’t actually buying your home.
4. A longer option period and longer closing for a cash deal: A wholesaler will want a longer option period, like 10-14 days, and a longer close than most cash buyers, say 30-45 days. A more normal contract might be a 7 day option and 2 or 3 week close for cash. The reason the wholesaler wants a long option is because they will use the option period to find another buyer. If they fail to secure another buyer during option, they’ll terminate their contract with you. And they want a long close to give the other buyer time to get their ducks in a row. So if you have a “cash” offer on the table with a longer option period and closing date, ask why. Keep your ears open for fishy explanations.
5. Hire an agent who knows how to spot wholesalers: This is maybe the most maddening part of this whole thing for me. Wholesalers make offers on LISTED PROPERTIES. That means you can list with an agent on the MLS and then get a “cash” offer from a wholesaler. If you accept it, then that wholesaler turns around and sells your property for more to someone else.
Wasn’t that your agent’s job? Isn’t that why you’re paying them 6% or more of your sales price? To get you the most value? But every day in this market, agents unknowingly counsel their clients to accept these “great cash offers” from wholesalers, offer that in reality lose you tens of thousands of dollars. If you’re a seller, and you are listed with an agent, and you sign a contract for $500,000, only to find out the wholesaler got some buyer to pay $550,000, wouldn’t you be pissed? I would be.
And I know it’s happening because I have my feet in two worlds. I am an agent, and I look at MLS every day. My husband is a developer, and occasionally (begrudgingly) buys properties from wholesalers. Half the crap wholesalers email us as “exclusive off market opportunities” was on the MLS!
And most home owners have no idea it’s happening. Until it’s too late. Until they’ve lost tens of thousands of dollars of value.
That so many real estate agents in Austin are failing to protect their sellers from wholesalers, I find shameful. It’s an embarrassment to our industry that an unlicensed and unscrupulous wholesaler can sometimes get more for your home than your agent! So before you list your home in Central Austin, ask your agent how they plan to vet buyers before you accept offers.
In summary: If you have a home in Central Austin that needs renovations, take these five steps to vet your buyer. Maximize your value by selling directly to a buyer, not a wholesaler. I believe that you as a home owner deserve to maximize the value in your home sale, and selling to a wholesaler is a sure way to lose money.
Want to talk about what your home in Central Austin is worth today to a legitimate buyer? Send me an email at firstname.lastname@example.org or schedule a call with me here.