We Buy Ugly Houses? The Truth About Real Estate Wholesaling

Have you ever seen signs that say “We Buy Ugly Houses” and wondered what they really mean?

In this episode of Real Estate Connections, host Mary Foerster breaks down the concept of real estate wholesaling, what it is, how it works, and why it matters for homeowners, investors, and families.

Drawing on her background in state government affairs with AARP, Mary shares both the legitimate role wholesaling can play in real estate and the risks that can arise when bad actors use high-pressure tactics to take advantage of vulnerable homeowners.

This episode is designed to help you understand what is happening behind those signs and what protections are being discussed at the state level.

In This Episode You’ll Learn

• What real estate wholesaling is and how the process works
 • Why homeowners may choose a quick cash sale
 • How wholesalers assign contracts to investors
 • The difference between ethical investing and predatory practices
 • Why elderly and lower-income communities are often targeted
 • What high-pressure tactics can look like
 • Key consumer protections being discussed in legislation
 • Why understanding your options can protect your financial future

This episode is intended for informational purposes only and does not constitute financial or investment advice.

Transcript

0:01

Today, I have the pleasure of talking to you about state legislation and city regulation as well. And I say the pleasure because I spent a lot of years at AARP doing state government affairs. And so I have just an emotion behind what some of these issues are. And I hope I share that emotion with you today so that you understand what some of the downsides are around wholesaling a property. And I just want to say I have flipped houses. I have worked with flippers. I work with very, very reputable people. And we want to do our business fairly and legally. And they do too. That's how they make money and stay in business. So I hope you enjoy this session on wholesaling today. If you have any questions, do send me questions at information at real estate podcasters.org. If you like this episode, please share it with people. Press the subscribe button, write a review, ask a question. I typically answer questions that are posted. Have a super day and welcome to We Buy Ugly Houses. Welcome to Real Estate Connections podcast, where relationships open doors. I'm Mary Forrester and housing is a universal need. We are often thinking about our existing housing, our future housing, that possibly of family members. This is where you're going to hear the issues and the people who are working the issues every day. Please hit subscribe and like if you find this podcast helpful to you. Thank you. Welcome to Real Estate Connections podcast. And today we're talking about wholesaling. What is wholesaling? And what does it have to do with me, person interested in real estate? Well, wholesaling is when a person goes to a property owner and says, "I will buy this property from you in its current condition for cash." Have you ever seen the signs, "We buy ugly houses?" Have you ever wondered about what that was all about? Yeah, you know that when you see those signs, "We buy houses, we pay cash for houses," it usually indicates that there's some urgency behind this transaction and some shortcuts or some shorter timeframe than just getting a realtor, listing your house with an agency, putting on the multiple listing service, having open houses and having mortgages be applied for the home. No, those signs mean, "I'm in trouble. I got to get out of this property soon." And who are these people? Well, unfortunately, the elderly are often targeted. Hispanic and black communities, lower income Hispanic and black communities are targeted. And that's because these people typically don't have the money to repair the roof. Repair the roof would be a condition of a lender to actually provide a loan to a buyer, right? And they often need cash. In a tight economy, which we have right now, people can't pay medical bills. We're really strapped in many ways. So we're seeing more and more of what we call wholesaling. A wholesaler goes to a property owner and says, "I will buy this house from you right now for cash. We'll close in seven days," et cetera, et cetera. The homeowner or the property owner says,"I so need $50,000 right now and I'm going to have $50,000 more." Well, for the most part, that would work out for everybody's benefit because what the wholesaler will do then when the contract is signed with a clause in it that allows the wholesaler to assign the contract to someone else who will actually pay for the property and go to a closing, that then will move things along very, very quickly. Helps everybody, right? Yes. And wholesaling is a very reputable activity. But it's when the bad actors get in there and become predatory, meaning abusive. They threaten the homeowner. You'll never get any money for this property. Nobody's ever going to lend you any money to even fix that. And I can help you right away. I can solve this problem for you right away. And Mr. Jones, I talked to you three weeks ago and then I talked to you four weeks ago and are you ready to do it? So sometimes in high pressure tactics, phone calls, constant, constant and being persistent and wearing Mr. Jones down because Mr. Jones really does need some money right now. AARP along with the National Consumer Law Center and a firm called Econsult Solutions Incorporated have just come out with a report on wholesaling, what's happening nationally and what can be done to take some of these abusive practices and make them more fair, level it out a little bit. So states are actually taking action right now and it's important for you to check in your area. Maybe you're an investor. Maybe your dad is living in a house like that and your mom has to go into a nursing home and you have no idea. Think about this scenario. Mr. Jones agrees with wholesaler Ed to sell his house for $150,000. Mr. Jones calls his son in Kansas City and says,"Son, I just did something really important. I sold the house. I'm getting cash. I'm going to have enough money to pay off the bills and to put your mom in this lovely facility." Someone says, "Dad, what did you do? Why?" And it's the first time he's essentially hearing about it. So the house, the contractor's already signed and there's no going back. So here are some of the protections that the National Consumer Law Center has pulled together in their model legislation. Now let me just point out two. These organizations are awesome organizations. I can say that because I worked for AARP doing state legislation for a number of years and I know how they work, but they don't work so low. They work with so many local organizations that are out there watching some of this abuse go on and being powerless to help people. They are very active in supporting these kinds of protections as well. So here they are. The first one is to require an appraisal on any transaction. The wholesaler knows the value of the property before it's repaired because he or she has to sell it to an investor who doesn't want to buy it any more than 65% of the after repair value. So the wholesaler knows the value of this property and knows the potential, right? But the homeowner often does not, has no idea, no idea. So require an appraisal, right, of its current value. And the second provision or protection is to require some regulation or oversight over wholesalers. Now, once again, I'm sure 90% of them are very honest and straight and true and don't use deceptive practices, but once again, we're regulating or legislating for that abusive predatory behavior. We saw that back in the early 2000s when we saw subprime lending, again, mostly to older people and definitely to low income people. The state of Iowa now requires wholesalers to be licensed. Okay, that's pretty serious. That's one state so far. The third protection is to make sure that there is no waiving of the person's rights. Okay, Mr. Jones, if you just sign here and just check off that box that says, "I waive my protections," and this will make it much faster. Mr. Jones, we would prefer to see that you have the right of waiving it. And then the fourth protection is an important protection. We see it in some other credit transactions where that there is a cooling off period or a right to rescind the contract on the part of the homeowner for a certain period of time. So in the model legislation, it might say up to 30 days or closing whichever is sooner. So that way, Mr. Jones' son in Kansas City can say, "Dad, I think we have some other solutions for you. I can pay for the roof. That will satisfy a lender. Let's put it on the market and get the fair market value." And it might be like 200 and a quarter. Dad could be a whole lot more if you're at that point now of selling this asset. So these are the important things that go on. And we don't know it, we don't see it. But then every time now, you're going to see that sign, "We buy ugly houses," and you're going to think, "Ah, now I understand what goes back, what the back is on that." And the background is that we need to make sure that vulnerable populations are protected in these situations. I hope you enjoyed the content of this. If you're a professional in the real estate business and you need some more information, contact AARP. They have the model legislation. It's terrific what they do. And I am deeply biased. Thanks. Have a great day. Thank you so much for joining us today. And I hope you found this conversation useful to you and your real estate goals. You'll find the contact information for our guests and any links they recommend you have in the show notes. And should we be able to help you identify some strong real estate professionals in your area? Give us a note at info at realestateconnectionspodcast.com. Thanks again and bye for now.