Homeowner Education

Is this note in my mailbox some kind of scam?

Most homeowners in Ottawa have received at least one of these “we’ll buy your home, sight-unseen!” notes from a Wholesaler. What is a Wholesaler, and what should you be cautious about?

Wholesaling: An almost-scam

Many of us who live in single-family homes have received a note from a wholesaler in our mailbox. These notes, often appearing handwritten, make a variety of promises to homeowners that can sound appealing:

  • Quick Sale: Wholesalers often emphasize their ability to close transactions quickly, sometimes within days or weeks rather than the months it might take through traditional selling methods.

     

  • Cash Offers: Many wholesalers advertise that they can make cash offers, which can be appealing to homeowners who need to sell their properties fast without waiting for mortgage approvals or financing contingencies.

  • No Repairs Needed: Wholesalers may assure homeowners that they will purchase the property in its current condition, saving the homeowner the hassle and expense of making repairs or renovations

  • No Commissions or Fees: Some wholesalers claim that they can buy properties without charging any commissions or fees to the homeowner, potentially saving them money compared to working with a real estate agent

  • Assistance with Paperwork: Wholesalers may offer to handle all the paperwork and administrative tasks associated with the sale, simplifying the process for the homeowner.

  • Confidentiality: Wholesalers might promise to keep the sale confidential, particularly if the homeowner is facing financial difficulties or other sensitive circumstances.

  • Reliable Closing: Wholesalers often stress their ability to ensure a smooth and reliable closing process, minimizing the risk of the deal falling through at the last minute.

What is Wholesaling?

A wholesaler is simply an investor or someone scouting on behalf of an investor for a property that they can buy cheaply and resell at a higher price, either by repairing and “flipping” it or assigning the sale to a buyer for a higher price and pocketing the difference.

Although their notes are often made to look handwritten and casual, wholesalers typically mass-market neighbourhoods in search of potentially distressed sellers or distressed homes. It’s a numbers game; by blanketing thousands of homes with these notes, there’s bound to be one or two that raises their hand and decides to work with them. They then get the home under contract and either close or assign the contract to another homebuyer.

 

Is it illegal?

No, but it is almost never to the homeowner’s advantage to sell to a wholesaler. There are many aspects of the practice that make it unsavory and a borderline-scam. It is certainly something that all homeowners should be aware of and educate their loved ones so that they are not taken advantage of.

Here are some aspects of wholesaling that make it a dubious business practice:

 

  • Low offers: Wholesalers make their money by buying low and selling high to another Buyer. As an owner, that’s equity that you should be getting, not putting in the pocket of someone who’s willing to take advantage of you for 10-20% (or more) of your equity in your home. 

     

  • Wholesalers prey upon people who are trusting, distressed or uneducated on the market:  Wholesalers’ victims are often homeowners who need to move quickly and (incorrectly) feel that they have no other options, or homeowners who aren’t aware of how much equity they have in their home. This often means elderly sellers or those desperate to clear up other debts.

  • Complicated Contracts: Wholesalers do not typically use standard Ontario Real Estate forms, as they are not generally Realtors. These custom forms often feature language and conditions that heavily favour the wholesaler and might include buyout penalties for the seller if the contract is ended early, or even the ability of the Wholesaler to walk away from the sale if they can’t assign the contract.

  • No Oversight: Wholesaling has little regulation, and a “wholesaler” may simply be someone who learned about this field from social media. As a result, there is a marked lack of professionalism and clarity in dealing with wholesalers.

How to protect yourself and others

The best way to protect yourself from predatory wholesale buyers is simply to know the true value of your home, and to educate those you know about how wholesaling works, particularly elderly relatives. The best ways to do that are:

 

  • Ask your Realtor: My team updates our past clients with a home equity checkup at least once a year. This is a quick snapshot of what comparable homes are selling for around yours, so that our clients have a feel for the true value of their home. If asked, we are always happy to give a more in-depth, no obligation report on the value of their home.

  • Review all contracts with a lawyer before signing:  Ask your lawyer to explain the pros and cons of any wholesale contract to you. Look for language where you might be penalized for breaking a contract, or where the Buyer is allowed to list and resell your home while you’re still living there.

  • Get three opinions: Don’t have a Realtor like me who updates you on your home’s value? Ask three Realtors to create opinions of value for you. It’s very likely that the wholesaler is undervaluing your property relative to its true worth, or willing to tie it up contractually. 

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