Is Wholesale Real Estate Reliable?

INDIANAPOLIS — Real estate professionals are cautioning Hoosiers who are receiving unsolicited calls and text messages from individuals offering to purchase homes in central Indiana.

Todd Cook, a licensed real estate agent at Keller Williams, reveals that he is increasingly hearing from individuals who are receiving such offers even though their homes are not listed for sale. The individuals making the calls and sending text messages often refer to themselves as “acquisition specialists” and guarantee a quick transaction that will save homeowners money.

“You won’t have to pay any realtors, commissions, or any other costs to convince you to accept the offer,” Cook states. “The real concern here is that people are being misled and getting involved in something without realizing it, all under the guise of saving money on commissions.”

While the practice of real estate wholesaling is legal, Cook warns that it can be deceptive, especially as wholesalers have become more aggressive in contacting homeowners in the current housing market.

In many cases, the wholesaler convinces the homeowner to sign a purchase agreement with an offer that is typically below market value. However, the wholesaler has no intention of actually purchasing the home. During the contract’s outlined time period, the wholesaler searches for someone else who will buy the home for a higher price than they agreed to pay the homeowner.

“The majority of these people mistakenly believe that they have sold their house,” Cook explains. “When in reality, this person is looking for a third party to buy it.”

Contracts like these often give the wholesaler the right to assign the transaction to a third party. Homeowners who think they are saving money on a realtor commission, which is typically around 6%, later discover that the wholesaler is charging them an “assignment fee” ranging in the tens of thousands of dollars.

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“What they don’t realize is that this person is charging a $25,000 or even a $30,000 or $40,000 assignment fee,” Cook warns. “Make sure to compare what they are offering you with the fair market value of your property. In most cases, you’ll find that it amounts to much more than six percent.”

In addition, Cook explains that if the wholesaler cannot find a buyer willing to pay more than their original offer, a due diligence clause in the contract often allows the wholesaler to back out of the deal at the last minute. Homeowners who thought they had sold their home might discover their property being advertised for sale on websites like Craigslist.

“Imagine that you’ve packed all your belongings in a U-Haul or Pods, ready to move, and then they back out,” Cook emphasizes. “This can cause real damage.”

These contracts often grant the wholesaler access to the homeowner’s property during the contract’s terms.

“That’s so they can show potential buyers your property,” Cook clarifies.

Best Ways to Safeguard Yourself in Wholesale Deals

If you are curious or interested enough to entertain the offer, Cook provides specific ways to protect yourself from entering a bad deal. One initial step can be to ignore the call or text message and instead return the call.

“If you call back and it’s a VOIP number or Google Voice asking for your name before speaking to someone, these should raise red flags as legitimate businesses do not engage in such practices,” Cook advises. “A legitimate real estate professional will identify themselves as such, as required by licensing laws. They will also disclose the brokerage they are affiliated with.”

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Once you have them on the line, start asking questions. “Inquire about specific details regarding who they are, their office location, and what their intentions are with your property,” Cook suggests. “See if they can provide straightforward answers to these queries.”

Cook then suggests asking about the nature of the purchase agreement. “Ask them if they are planning to assign this contract,” Cook urges. “And if so, what kind of assignment fee they will be charging you. Their interest in the sale will immediately diminish.”

Another test can involve mentioning your desire to have an attorney or real estate professional review the contract. “If the person you’re dealing with implies in any way that they don’t want a real estate agent or attorney involved in reviewing the contract, that’s a major red flag,” he warns.

Attorneys or real estate agents will be able to identify terms like “assignment of contract” or a comprehensive due diligence period that grants the wholesaler the right to terminate the transaction.

“These are precisely the kind of things that real estate agents will challenge, or that attorneys will refuse to accept,” Cook states.

Finally, if you’re interested enough to explore the offer further, Cook advises against signing anything until a professional has reviewed it. “Absolutely do not sign anything until you have a professional review it,” Cook emphasizes.

Cook is offering to review such contracts free of charge, and he notes that many other real estate professionals in central Indiana are willing to do the same. If the offer seems legitimate, he assures he won’t stand in your way. However, if it seems someone is attempting to take advantage of you, he will alert you.

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If you would like Cook to review a contract you believe is from a real estate wholesaler, you can contact him via email at [](