How People Wholesaling Houses Hurt Sellers

It would be unfair to say that all people wholesaling houses hurt sellers. But for each legitimate wholesaler there are at least two more who are cutting corners, chasing a quick buck, and building a business rooted in unforthcoming practices.

What’s in it for you:

1. The typical outcome of closing with a home wholesaler
2. Specific ways real estate wholesalers can hurt homeowners
3. How you can tell if you’re working with someone who is wholesaling houses

Typical real estate wholesaling situation

Let’s play out a scenario for how people wholesaling houses hurt sellers: Jill wants to sell her home. Unexpectedly, Jack calls Jill to say he’s interested in buying her home and asks if Jill would consider selling it directly to him. Jill wants to move near her daughter, so she says ‘yes, I’m interested in selling my home’. After seeing the house, Jack asks Jill what she wants. She tells Jack $250,000. On the spot, real estate wholesaler Jack agrees to buy it for that amount.

Jack and Jill sign a contract that allows Jack to assign the contract to another person. He tells Jill this is so he can have a friend or family member buy the home if he cannot get a mortgage. Jill agrees. Jack also explains that friends will be coming by to take pictures and that his family might also visit (it’s really contractors or real homebuyers). Jill starts working with a realtor to find a new home near her daughter and begins the process to qualify for a new home mortgage.

Unknown to Jill, Jack starts marketing Jill’s property; he blasts social media forums and emails his buyers list saying he has a property under contract and will sell the contract for $300,000. Sam agrees with Jack to buy Jill’s home for that amount. Later that day, Jack calls Jill to explain that his friends, one of whom is a foundation expert, noticed there’s significant structural work needed, and it will cost $25,000 to repair so he can only pay Jill $225,000. Jill reluctantly agrees because she’s already found a new home and has been approved for a mortgage.

Closing with a real estate wholesaler scenario 1

Closing day arrives, Jill goes to the title company and is greeted by a room full of people. She quickly learns that Jack decided not to buy her home, but Sam is instead, and Jack is there to collect a check made out to him for $75,000. Jill is enraged but there’s nothing she can do; she signed a contract which could be assigned to someone else.

Closing with a house wholesaler scenario 2

Closing day arrives, Jill goes to the title company and is informed that Jack is not coming. She calls Jack, who she now suspects is a real estate wholesaler, and Jack tells her that he cannot buy her home because he was unable to secure financing (meaning he couldn’t find a real buyer). Jill is enraged but there is nothing she can do. The contract on her new home falls through, she loses her earnest money, and she must start the mortgage process over again, including paying its application fees.

The cost to sellers from people wholesaling houses

Every year thousands of properties are sold off market with a good chunk by people who are known as wholesalers. In 2021 alone, nearly 649,000 properties were sold off-market with an average wholesale fee approaching $19,600. That’s nearly $13 billion in equity being stripped from the hands of homeowners and being placed into the pockets of real estate wholesalers.

Specific ways real estate wholesalers have harmed homeowners
1. Puts homeowner’s livelihood in jeopardy: When they can’t find a real homebuyer, people wholesaling houses can hurt sellers by putting people’s livelihood at stake. Good Vibes Homebuyers regularly receives calls from homeowners saying that their house was packed, they were ready to move, and were heading to the closing table when the title company informed them that the “buyer” was not going to close on their home.

We recommend vetting all potential homebuyers by verifying if their BBB accredited, checking the activity, or lack thereof, of their social media profiles, and researching their current real estate holdings (if they don’t currently own real estate, this is a giant red flag).

2. Buyout fees: When a real estate wholesaler cannot find a real buyer, it can force homeowners into having to wait for the contract to expire and/or into having to pay a buyout fee.

We recommend not signing a contract whereby sellers must pay a buyout fee and to limit the closing deadline to no more than 30 calendar days.

3. Contingencies: Real estate contracts regularly include a contingency that allows real estate wholesalers to end a contract and receive a refund of their earnest money.

If homeowners authorize such a contingency, we recommend limiting it to no more than 5 calendar days. This reduces a real estate wholesaler’s time for trying to find a real homebuyer and it reduces your risk to only 5 days.

4. Unrealistic sale price: People wholesaling houses can hurt sellers when they put homes under contract for more than their market value. When home wholesalers do this, it limits the number of potential real buyers and can even eliminate them altogether. This sets unrealistic expectations that can complicate the success of the home sale.

We recommend that you require buyers to provide a comparable sales report to ensure that the price they’ve offered you is substantiated by real market data. 

5. No laws that protect sellers: Real estate wholesalers have no licensing requirements or regulating board of ethics. This means, for example, that when people wholesaling houses misrepresent how much a house is worth there is no accountability or recourse for sellers.

Before signing a contract to sell your home, we recommend asking the buyer for proof of funds and for a list of homes they’ve recently bought. Legitimate homebuyers are willing to provide both.

6. Outrageous fees. An uneven amount of equity can be taken from and can hurt sellers in the form of extreme wholesaler fees. Any real estate wholesaler fee that is greater than $5,000-$10,000 is likely out of line with the value added by a person wholesaling houses.

How can I tell if I’m dealing with people wholesaling houses?

It would be unfair to say that all people wholesaling houses hurt sellers. Legitimate real estate wholesalers exist and can add real value to sellers. But, not surprising, the predominant opinion is that people wholesaling houses hurt sellers because they have been known to misrepresent facts and rarely ‘practice’ their ‘trade’ with the sellers' best interest in mind.

Here are a few tips to ensure you don’t get hurt by people wholesaling houses:
1. Avoid lengthy contract periods. Any real buyer can close in 20 days (about 3 weeks). With a clean property title, Good Vibes Homebuyers can close in 5 days (with our sell your mortgage solution, we can close the next business day).

2. Request a copy of their two most recent monthly bank statements. Any real homebuyer should have more cash than what “they are paying” for your home.

3. Avoid signing real estate contracts that allow assignment. If presented with an assignable contract, any real buyer will gladly remove it (if assignable, the contract will say something like, “seller agrees to sell 123 Main St to buyer (and/or assigns)”.

4. Request the addresses of the buyer’s real estate holdings. Any real buyer will have at least one investment property.

5. Avoid renegotiating. Any real homebuyer fully understands how to evaluate the cost of home repairs so their first offer should rarely change. If it does, real buyers should be able to clearly communicate and substantiate with data the reasons for the change.

FAQ’s - How people wholesaling houses can hurt sellers

1. Do people wholesaling houses have any licensing requirements?
People who wholesale houses do not have any licensing or educational requirements.

2. Can I end my contract with people wholesaling houses?
It depends. If you’re dealing with one of the few wholesalers who actually adds real value, they’ll likely let you out of your contract, although it’s usually at their sole discretion. If dealing with a dishonest wholesaler, your only hope is that they can’t find a real buyer and the contract expires.

3. How can people wholesaling houses help sellers?
When homes can’t be sold on the MLS, people wholesaling houses can help sellers by supplying access to their network of real homebuyers. Real estate wholesalers can also help homeowners who want a cash sale or don’t want to pay realtor commissions.

4. What types of homes do people wholesaling houses typically target?
Almost all are off market and commonly include distressed and abandoned homes, pre-foreclosure homes, and properties owned by the recently deceased.

Avoid real estate wholesalers with Good Vibes Homebuyers

Since 2019, 76% of our closings are the result of failed contracts with real estate wholesalers and iBuyers. Because we focus on big volume, not big profit, we're able to offer you at least 5% more than any other real homebuyer. So cut out the middleman and see your preliminary offers now! It’s time for you to thrive with Good Vibes Homebuyers!