INDIANAPOLIS — Real estate experts are warning Hoosiers who’ve been getting unsolicited calls and text messages from people offering to buy homes in central Indiana.
Todd Cook, a licensed real estate agent with Keller Williams, says he’s hearing from more people who are getting such offers even though their home isn’t listed for sale. The people making the calls and sending text messages often refer to themselves as an “acquisition specialist” and promise a quick transaction that will save the homeowner money.
“You’re not going to have to pay any realtors, no commissions, all these different things to compel you to sign the offer,” Cook said. “The real concern here is people being misled and getting into something that they’re not aware of under the guise of saving money on commissions.”
While the practice of real estate wholesaling is not illegal, Cook says it can be deceptive and 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 buying the home. During the time period outlined in the contract, the wholesaler is searching for someone else who will buy the home for more than they agreed to pay the homeowner.
“The vast majority of these people think at the time that they’ve sold their house,” Cook said. “When in reality, this person is looking for a third party to buy it.”
Contracts like this often give the wholesaler the right to assign the transaction to a third party. Homeowners who think they’re saving money on a realtor commission, possibly around 6%, later learn that the wholesaler is charging them an “assignment fee” in the tens of thousands of dollars.
“What they’re not aware of is this person is charging a $25,000 or a $30,000 or $40,000 assignment fee,” Cook warned. “Make sure you look at the difference between what they’re offering you and what the fair market value of your property is. In most conditions, you’re going to find that adds up to a lot more than six percent.”
In addition, Cook said, if the wholesaler can’t find a buyer to purchase your home for more than they offered, a due diligence clause in the contract will often give the wholesaler the right to back out of the deal at the last minute. People who think they’ve sold their home will often find their home advertised for sale on Craigslist and other websites.
“Imagine, you’ve got all your stuff in a U-Haul, or you’ve got all your stuff in Pods ready to move, you’ve already packed everything up and then they back out,” Cook said. “I mean this can cause real damages.”
The contracts often give the wholesaler access to your home during the terms of the agreement.
“That’s actually so they can show potential buyers your property,” Cook said.
Best ways to protect yourself in wholesale deals
If you’re curious or interested enough to listen to the offer, Cook says there are specific ways to protect yourself from a bad deal. A first step can be ignoring the call or text message, then calling the number back.
“If you call it back and it’s a VOIP number or Google Voice asking you to give your name before you talk to someone, these things should all be red flags because legitimate businesses don’t do that,” Cook said. “If you’re dealing with a legitimate real estate professional, they’re going to identify themselves as a real estate professional, they’re required to by license law. They’re also going to identify what brokerage they’re with.”
Once you get them on the line, start probing for information. “Ask them about specific questions about who they are, where their office is, what do they intend to do with your property,” Cook suggested. “See if they can give you a straight answer to those questions.”
Then, Cook said, start asking about the nature of the purchase agreement. “Ask them are you looking to assign this contract,” Cook said. “And if so, what kind of assignment fee are you going to be charging me, and they’re immediately going to lose interest in the sale.”
Another litmus test can be mentioning that you would like to have an attorney or real estate professional look over the contract. “If a person you’re dealing with or corresponding with implies in any way that they don’t want a real estate agent or attorney involved in reviewing the contract, that’s a huge red flag,” he said.
Attorneys or real estate agents will notice terms like “assignment of contract” or a catch-all due diligence period that gives the wholesaler the irrevocable right to terminate the transaction.
“These are the kinds of things that a real estate agent is going to stand up to, or an attorney is going to push back on,” Cook said.
Finally, if you’re curious enough to see what is being offered, Cook says there’s no harm in having them send you their offer. “Absolutely 100 percent do not sign anything until you have a professional review it,” Cook cautioned.
Cook is offering to review such contracts free of charge, and he says many other real estate professionals in central Indiana will do the same. If the offer appears to be a good deal, he says he won’t stand in the way of it. However, if it appears someone is trying to take advantage of you, he’ll warn you.
If you’d like to have Cook review a contract you believe is from a real estate wholesaler, you can contact him via email at firstname.lastname@example.org.