The practice of wholesaling has become more & more prevalent in the Oklahoma real estate market. In its truest form, we firmly believe that wholesaling is a predatory practice, leading distressed sellers to forfeit their home’s hard-earned equity to middlemen feeding large (often corporate) investors with a portfolio of rental properties. There are multiple examples of journalists (see also), state judiciaries, and even federal agencies backing our opinion.

At Flotilla, we feel that it’s essential to shed light on this issue, particularly in Oklahoma City’s current seller's market, where homes are fetching unprecedented prices at lightning speeds.

Understanding Wholesaling

You’ve likely seen wholesalers’ “bandit signs” across OKC claiming an instant cash offer for your home. It’s crucial to note that wholesalers are NOT genuine cash buyers as they tend to claim. Instead, they sell your home's purchase contract to another buyer, corporate investor, or hedge fund. This practice involves a homeowner entering into a “purchase contract” at a discounted “wholesale price” with a wholesaler, who then turns around and sells the contract to a third party for your home’s higher, true market price.

Wholesaling is an appealing practice for wholesalers, as they don't need to invest their own capital in purchasing your home outright. Instead, they only need to act as a middleman holding the contract to purchase your home between you and potential buyers.

The profit rightfully belongs to homeowners, NOT wholesalers who sell your home for a higher price and pocket the difference.

Know Wholesaling Terminology

It's important for sellers to be vigilant regarding the language used in wholesalers’ contracts in order to identify them. If you are presented with a “purchase contract” by an individual with or without a real estate license, including an “assignment clause” or “power of attorney,” it is likely a wholesale transaction.

Wholesalers who are licensed real estate agents should use a standard “Oklahoma Real Estate Listing Agreement” rather than an “Oklahoma Real Estate Purchase Agreement”—while they may be disguised as a buyer with a purchase contract, their true goal is to find your home’s actual buyer who will assume the contract to purchase your home at a higher price (that you will not receive). They will never tell the seller their “assignment fee”—the profit they make on the sale of your home.

Other Clues

• Unsolicited cash offers
• Earnest money at or below $1,000
• Multiple visits from strangers to “inspect” the property
• Difficulty with getting a copy of signed contracts
• Difficulty getting phone calls returned
  
• A mysterious lien filed on your property to cloud the title
• Being asked to sign a power of attorney
• Your home was not for sale when the wholesaler first contacted you
• You received a text, call, mailer, or Facebook message asking if you would like to sell your home “hassle-free”

The Danger of Setting Your Own Home Value

One of the most significant dangers of working with wholesalers is getting trapped into accepting your own opinion of your home’s value. Wholesalers often capitalize on sellers' lack of knowledge about their home's current market value. They may prompt you to state an amount below the actual market value, leading you to settle for less. The amount you accept for your home in a wholesaler’s purchase contract is the final amount you’re bound by contract to accept. Armed with knowledge of your home’s true market value, the wholesaler then sells it to a buyer at its higher market price, pocketing the difference. A wholesaler’s “assignment fee” (i.e., their profit) can amount to tens of thousands of dollars lost on your home’s value.

Know your home’s true market value by getting your home value estimate.

The Myth of Closing Dates

Wholesalers may claim that you can close on a date of your choosing. However, this is contingent upon them finding a buyer in time, and their contract does NOT guarantee the sale of your home. While a purchase contract is a good faith promise from the wholesaler to purchase your home, if they can’t locate a buyer in time, the wholesaler can walk away from the purchase—many of them never even deposit earnest money as promised.

Often, sellers have their belongings packed & ready to move with the wholesaler failing to find a buyer by the agreed-upon closing date, causing the closing to fall through on the very day of. Promises to close in just a few more days are repeatedly extended until the homeowner finally resigns.

Legal Safeguards

The state of Oklahoma recognized the potential pitfalls of wholesaling and passed the Predatory Real Estate Wholesaler Prohibition Act in November 2021. This legislation mandates wholesalers obtain an Oklahoma real estate license to ensure compliance with industry regulations.

Licensed wholesalers who are also members of the MLS are bound by the National Association of REALTORS® Code of Ethics— Specifically,

Standard of Practice 1-3
REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.

Standard of Practice 16-10
REALTORS®, acting as buyer or tenant representatives or brokers, shall disclose that relationship to the seller/landlord’s representative or broker at first contact and shall provide written confirmation of that disclosure to the seller/landlord’s representative or broker not later than execution of a purchase agreement or lease.

REALTORS® shall make any request for anticipated compensation from the seller/landlord at first contact

At Flotilla, we aim to safeguard our clients' real estate investments. When you choose to work with a competent, experienced REALTOR®, you have a local expert advocating for you. We're committed to ensuring your home sells at a fair market price, allowing you to walk away with the equity you've rightfully earned. When you're ready to buy or sell your home, don't hesitate to request a Comparative Market Analysis from your Flotilla partner to understand your home's value.

If you receive an unsolicited offer for purchase, we are always happy to review the offer with you at no cost or committment before you sign anything.

If you know of anyone who may be likely to fall prey to predatory wholesaling offers, please share this article with them or educate them. Let's keep Oklahomans' home equity in the hands of Oklahoma home owners!

© 2023 Flotilla Holdings, Inc.