Who owns the deals? Who has the contracts? I get asked these questions almost every time a buyer contacts me to get information about properties that I market for sale.
I understand that buyers want to get the best deals at the lowest prices, that is not only good business, it is common sense, it is the ideal situation in real estate investing (and in any other business). But, part of the buying process is to analyze the deal to determine if it makes business sense, if it is profitable to the buyer.
Buyers have different objectives, different goals. Deals that are deemed profitable to one buyer, might not be profitable enough to another buyer. That is just human nature.
If a buyer analyzes a deal and determines that it makes business sense, that it yields enough profit to meet his/her goals, does it matter if the wholesaler who provided the deal owns it? If the buyer and the wholesaler have an established and trustworthy business relationship, why would the buyer be concerned about who owns the deal?
I understand, also, that buyers like to shop around to see who else has the same deal at a lower price. Hey, saving a buck or two can’t hurt, right? Well, buying from untrusted sources can be risky and can be expensive at the end.
Some buyers have also expressed concern about how much money wholesalers make on the deals, even if the deals have enough equity to meet the buyers’ profit goals. This puzzles me. Successful real estate wholesalers understand the nature of the business, they know that buyers take bigger risks and, hence, expect profits in proportion to their risks. Savvy wholesalers keep buyers in mind during the purchasing and marketing process. But buyers need to understand that wholesalers provide a service and that they are in this business to make a profit as well.
The fact is that wholesalers do not own all the properties that they advertise in their lists. Wholesalers get their deals from three different sources: homeowners, MLS , other wholesalers (co-wholesaling).
Let’s take a closer look at each of these sources:
Homeowners (natural persons, companies, banks, etc.) are the root source of all real estate deals. The wholesaler who negotiates the purchase of a property from a homeowner holds the contract to the deal (owns the deal). Buying from a wholesaler who holds the contract to a property is the ideal situation for a buyer, he/she is buying direct from the seller. Often, these deals are advertised as direct.
The MLS (multiple listing service) is a common source of deals. Some licensed real estate agents (listing agents) partner with wholesalers to assign exclusive rights to their unsold listings to be sold off-market, usually, at a discount from the listing prices.
In these cases, even if wholesalers advertise the deals as off-market, they will still show up in the MLS. Some clever buyers often try to bypass the wholesalers by contacting the listing agents directly, only to find out that the deals have been exclusively assigned to the wholesalers.
Co-wholesaling is the practice of partnering with other wholesalers to re-market their deals. The deals from the other wholesalers could be direct from homeowners, from listing agents or from other co-wholesalers. When buyers see the same deal in different wholesalers lists, someone is co-wholesaling the deal.
The fact is that buyers have no way of knowing who owns the deals that they receive from wholesalers. The deals can be sourced from any of the three entities just described. Some deals are direct, some others are not. Buyers could play detective and try to find out the owners of the deals, but by the time they find out the deals might not be available to them.
Savvy buyers establish business relationships with wholesalers who provide good service, experience and transparency in their deals. So, if buyers are satisfied with the wholesalers with whom they have an established and trustworthy business relationship and if their deals make business sense to the buyers, who cares who owns the deals?