If you read my previous email, or if you’ve seen some of the others I’ve written regarding wholesaling, you may have noticed a theme regarding individuals who make offers to buy properties without the intent, capacity or ability to buy the property. Instead, they are merely trying to put something under contract or “tie it up” in an effort to shop the contract to someone else and collect an assignment fee. This activity is often referred to as “wholesaling.” In my opinion, legitimate wholesaling is buying for a cheaper cash price and reselling at a higher retail price after you have added some value, such as by cleaning out a hoarder house, painting and installing new carpet, landscaping, or similar minor improvements such as these that can make a big difference in the perception of the property and house.
If a person enters into a contract without the actual intent, capacity and ability to perform, I submit to you that they are either engaged in a fraudulent activity, or it is not a valid contract. If I could stand behind the shoulder of any prospective seller receiving an offer, I would want to whisper in their ear, “Trust, but verify.” Verify that the buyer has the intent and capacity to perform. In the current competitive market, this means buyers may want to present their offers with documentation supporting their ability to perform. This will distinguish them from the wholesalers who are running around trying to tie up a bunch of properties in hopes of finding someone who will pay them more money to have the contract assigned to them.
Do I believe that wholesaling is illegal? No. Do I believe wholesaling renders a valuable service? On occasion, yes. Are there way too many people trying to wholesale the wrong way? Absolutely! That’s what has me concerned.
If you are a seller, ask for documentation to prove the buyer is legitimate, and include in your counter offer a clause requiring the buyer to actually perform, such as a statement saying the contract is not assignable. If you are the buyer, put some extra effort into your offer and attach some supplemental documentation showing you have the ability to perform according to the terms of your offer. That is something that may distinguish you from the rest of the crowd. Standing out is a good thing, because there is always room at the top.