It’s easy to let your home be sold for less than what it’s worth in a wholesale transaction, so today I want to talk about how you can avoid letting this happen to you.
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Today I want to talk about how to not let wholesalers sell your house for less than what it’s worth. In the real estate world, wholesaling is a very simple tactic that investors use. The way it works is the investor will approach the homeowner, offer them a certain price, put them under contract, and then immediately try and sell that property to another end user before they close on it. For example, let’s say an investor comes to you and says they’ll give you $200,000 for your property and you agree, even though it might not be what you wanted. The wholesaler then turns right around and markets that property for an increased price—maybe anywhere from $210,000 to $250,000, depending on what they think they can get. The way wholesalers make their money, you see, is through the difference in price between how much they offer you and how much they offer to sell it to somebody else. What’s the problem with this picture? First of all, these people do not represent you, and they typically aren’t licensed. If they are licensed, they have no fiduciary responsibility to you—the home seller—to get the most amount of money within the shortest amount of time with the least amount of hassle. Everything is designed to help them get the absolute best spread they can between the price they offer you and the price they get on the open market. Secondly, they typically don’t have the funds to actually close on the property if they can’t find another buyer. Oftentimes, they have zero intention of actually going through with the purchase if they can’t find another buyer. Third, they still have to find an end user, which isn’t guaranteed. These three drawbacks stand in stark contrast to what an actual real estate agent can do for you. How can you protect yourself from falling into one of these situations, then? There are four ways: In my experience, the typical homeowner doesn’t know the difference between someone who is going to actually buy their home and someone who is going to flip their contract like a wholesaler, so if you ever meet with someone like that, the first thing you want to do is ask, “Are you going to buy my home, or are you going to wholesale my home?” There are ways that you can verify this. If they say they are going to buy, then you want to see their name on the contract. If they’re a part of a company, you want to see that they have the ability to sign on behalf of that company.
If you’re ever approached by one of these people, please call us.
The second thing you can do is avoid signee contracts, which basically states in the buyer line that this person or company is going to purchase the contract...or whoever they assign it to. That’s a big red flag. The third thing you can do is verify their proof of funds or their ability to finance the property. If they say that they’re a cash buyer, you want to see a bank statement in their name or their company’s name with the amount of money that’s required to purchase that property. If they’re not getting funds from their bank, you’ll have to find out where they will get their money from. The fourth and last thing you can do to protect yourself is get a big earnest money deposit. To clarify, there’s nothing wrong with selling your house to an investor at a discounted wholesale price. There are plenty of people out there who buy properties and give the homeowners as much as they possibly can at wholesale prices. I happen to be one of them. There are also a lot of scammers out there, though, too, so you have to be careful. If you’re ever approached by one of these people and you want an opinion on what to do next, don’t hesitate give us a call. If you’re thinking about buying or selling a home, we’d also love it if you reached out to us. In any case, we’d be happy to help!