In the past, landowners would occasionally get offers in the mail from people wanting to buy their land. And the person writing the letter would genuinely be interested in purchasing.

Now, things have shifted. Sellers still get letters. The letters even look like the ones they used to get. But sometimes, the person writing the letter with an offer to purchase their land has no money and no genuine intent to purchase.

Wholesalers have entered the real estate game.

During the pandemic, people were at home with a lot of time on their hands. Some were laid off and trying to figure out how to generate income. YouTube wholesale gurus taught an eager audience how to make money without risk or investment.

The newly minted wholesalers sent out offers. Thousands of them. Yet they had no intent to buy.

What the heck? I will explain.

The most important thing you need to know as a land owner is this: it is not in your best interest to accept an offer from a wholesaler. Here are 10 reasons why:

Reason 1: Real estate wholesalers are not buyers.

Real estate wholesalers masquerade as buyers. But they are not buyers. Their strategy is to get the property under contract at one price and then assign the purchase agreement to another buyer at a higher price. Then, they pocket the difference.

Here’s an example of how a wholesaler might implement their plan for vacant land:

• The wholesaler submits an offer to a landowner at, say, $70,000.
• The owner is unaware that the “buyer” is a wholesaler.
• The owner accepts the offer.
• The wholesaler and seller open an escrow.
• While in escrow, the wholesaler markets the land at, say, $100,000 to his “list” of potential end-buyers.
• An end-buyer offers the wholesaler $95,000.
• The wholesaler assigns the contract to the end-buyer.
• The end-buyer steps into the wholesaler’s shoes and is now in escrow with the seller.
• The end-buyer pays cash for the land, and the escrow closes.
• The seller receives $70,000, the wholesaler gets $25,000, and the end-buyer acquires title to the land. (I have ignored closing costs for simplicity.)

As you can see in this example, the wholesaler had no intention of buying the land when he submitted an offer. In fact, wholesalers usually do not have the cash to buy the land, even if they wanted to.

To be clear, when I refer to a “wholesaler,” I’m not talking about real estate flippers. Flippers buy land and then re-sell it at a profit. Flippers differ from wholesalers because, when they submit the offer, they have the intent to purchase. Their purchase is not contingent on finding an end-buyer before they even close escrow. Flippers almost always close escrow so, from the seller’s perspective, flippers are essentially end-buyers. What they do after closing is not the seller’s concern. Wholesalers are not end-buyers. What they do during escrow is the seller’s concern.

Reason 2: Wholesalers don’t market land thoroughly.

Wholesalers don’t own the land. But, after getting the seller to sign a purchase agreement, they do own something: they own the right to buy the land, i.e., a contract. Wholesalers refer to this as “equitable interest” or “equitable title” (as opposed to legal title). Because they don’t own the land, they can’t legally market the land. They can only advertise what they own — the contract.

To oversimplify the difference to the point of inaccuracy, real estate is dirt, and contracts are paper.

Contracts cannot be marketed in the same way that real estate is marketed. For example, a Realtor marketing land can enter the real estate property characteristics into the Multiple Listing Service (MLS). From there, the MLS syndicates it to national sites like Realtor.com, Zillow.com, Trulia.com, brokerage websites such as Coldwell Banker and Century 21, and hundreds more. Through the power of syndication, buyers worldwide can see that the land is for sale.

Wholesalers are rarely Realtors, so they cannot enter the property directly into the MLS. They could try to hire a Realtor. However, many Realtors will not represent wholesalers.

Further, Realtors must abide by MLS rules. Some MLS systems will not allow Realtors to enter contracts into the MLS. Agents can only enter real estate into the MLS and only when they have a signed listing agreement with the actual owner. For example, one MLS system that I belong to, the RMLS, states that agents can only enter listings into the MLS on behalf of the property owner, defined as:

The person(s) having legal ownership of the property or the person(s)’ authorized agent or person(s) having the legal right to sell or lease the property, except that the owner shall not include a person(s) who merely has the right to purchase the property, but does not yet own it…..

In addition to using the MLS, many Realtors who are land brokers invest hundreds of dollars monthly to advertise on land-specific sites. These include LandsOfAmerica.com, LandFlip.com, etc. Wholesalers rarely make this investment.

Wholesalers typically perform limited marketing to their “list” of potential end-buyers. That list may be 10 people, 100 people, or 1000 people. Regardless, the reach is still much smaller than what a Realtor can achieve.

Reason 3: Wholesalers often require long escrows and long contingency periods.

Since wholesalers are not buyers, they need time to find an end-buyer after they get the property under contract. In California, a typical contingency period for a cash buyer purchasing vacant land is 17 days. A standard closing period is 21–30 days. But wholesalers will ask for an extended period, perhaps a 60-day contingency period and a 90-day escrow.

Long escrows are bad for sellers because they will miss out on other buyers while the wholesaler has the property tied up in escrow. Plus, sellers will continue to pay property taxes and possibly HOA dues for that period of time. Further, the longer the escrow, the greater the chance that non-real estate events such as 9–11 or a pandemic can derail the deal. If/when the wholesaler cancels, the seller has lost that time, and the publicly available “days on the market” metric is now high.

Reason 4: Wholesalers rarely submit a deposit.

As I mentioned before, most wholesalers are often cash-poor. Even those with funds do not want to risk sending a normal-sized deposit of 3% to escrow. This is because they realize they may never get it back. They will likely not find an end-buyer and will have to cancel. They know from experience that the seller will be angry when they walk away. The seller will realize he has been duped and may refuse to sign escrow instructions to return the deposit to the wholesaler.

So, the wholesaler will write a tiny deposit of like $100 into their offer. Or, if they propose a larger deposit, say $1000, the wholesaler will specify in their offer that they will submit the deposit to escrow only after they complete their due diligence.

Regardless of whether the proposed deposit is small or large, they often “forget” to send it to escrow.

These tactics give sellers little recourse when the wholesaler inevitably cancels.

Reason 5: Wholesalers often try to renegotiate the deal.

In the example above, the wholesaler and seller agreed to a price of $70,000, and the wholesaler found an end-buyer to pay $95,000. But suppose the wholesaler could not find an end-buyer that would pay $95,000. Suppose he could only find one that would pay $85,000. He would then go back to the seller to try to renegotiate the initial contract price down to, say, $60,000. This way, he can maintain his $25,000 profit margin.

If he is unsuccessful at renegotiating the price, he might ask the seller for a more extended due diligence period and a longer escrow. This is so he can have more time to find an end-buyer.

Reason 6: Wholesalers may not close escrow.

As I stated before, wholesalers usually cancel escrow. Based on my experience, this happens 90% of the time. They cancel because they cannot find an end-buyer that will pay more. Here are some of the reasons for their failure:

• As already discussed, the typical wholesaler does not market the property widely. His “list” of end-buyers is small, and since he is not an agent, he cannot place the property in the MLS to be syndicated to a broader audience.
• He has the stigma of being neither the agent nor the property owner. It is hard for some end-buyers to understand how a non-owner and non-Realtor can be marketing property they don’t own.
• Since he does not have title to the property, he cannot legally market the property. He can only market what he does “own,” the right to buy the property, i.e., the contract. End-buyers find this confusing.
• He has not viewed the property in person and has done little or no research. As a result, he is unable to answer the end-buyer’s questions.
• He may have offered too much for the land. Because he is virtual and has not visited the property, he may be unaware of some of the problems that a local buyer would be aware of. As a result, he may have offered so much that no buyer will pay more.

Remember, wholesalers usually do not have the cash to buy the property. And, even if they do, they are not interested in purchasing real estate.

Reason 7: Wholesalers cause high days-on-market.

Buyers look at “days on the market” (DOM) when deciding what to offer on a property. They assume that the longer a property has been on the market, the more anxious the owner will be to sell and the lower the price the seller will accept.

Wholesalers tie up the property for weeks or months before canceling. During this time, DOM keeps going up. High DOM can taint the property and affect the price sellers can get from the next buyer after the wholesaler walks away.

Related to this, cancellations are now public information, thanks to sites like Zillow. Cancellations are a bad look. Future buyers will wonder what’s wrong with the property that caused a previous buyer to cancel.

Reason 8: Wholesalers can create legal liability for the seller.

Sellers are required by law to disclose all material facts about the land. Unaware that the buyer is a wholesaler, sellers will naturally give these written disclosures to the wholesaler. But what happens to those disclosures when the wholesaler assigns the contract to the end-buyer? Does he advise the end-buyer that the property is landlocked, the neighbor’s garage is encroaching, and it failed a perc test for septic? What happens after closing when the end-buyer discovers the flaws with the land that the seller did not disclose to him? A possible lawsuit for the seller, that’s what.

Reason 9: Wholesalers make low-ball offers.

The seller in the example above, who accepted a $70,000 offer, is not receiving the full value of their land. If the land owner had listed it at $100,000 with an agent, the agent would likely have found a buyer at $95,000, just like the wholesaler did. Even after paying a 6% commission (ignoring closing costs to simplify these calculations), the seller would have made over $89,000 instead of $70,000. The seller is leaving money on the table.

Sometimes, it is in a seller’s best interest to accept a lower price in return for a fast, sure-thing sale. As a land broker, I see this all the time. Sellers commonly have urgent needs, such as medical care, a family emergency, or an upcoming vacation. Sellers realize they must choose between a high retail price or a fast sale. They can’t have both, and they know it. It is not irrational for a seller to accept a lower price in cases like this. However, accepting an offer from a wholesaler is not the solution. This is because the second part of that equation, a fast sale, generally does not pan out.

Reason 10: Wholesalers make high-ball offers.

An underappreciated fact is that newbie virtual wholesalers often offer too much. How could this possibly be a problem for the seller, you ask? It’s problematic because it makes it impossible for the wholesaler to find an end-buyer that will pay more. And as I’ve said many times, they will cancel when they fail to find an end-buyer. Cancellation is a problem for the seller.

For example, suppose the wholesaler in our example offered the seller a high price of $100,000 instead of $70,000. The seller would be pleased and accept right away. The wholesaler might then market the land to his list at $125,000. However, because he has wildly overpriced the property, he will fail to find an end-buyer.

Wholesalers often submit offers on scores of properties per month, sometimes in several states. They have a shotgun approach. They do very little research on the land and offer a good price because they want to get a large number of properties under contract. They might get 10 or 100 properties under contract and hope one or two will work out. After all, there’s no financial risk to them.

Better alternatives for land sellers

If you want to sell your land for the highest price possible and are willing to wait a few months for the property to sell, the best thing to do is hire a Realtor, preferably a land broker.

On the other hand, if you want to sell immediately and are willing to sell at a low price in return for a fast sale, then sell directly to an end-buyer.

How do you find an end-buyer? Ask your family, friends, colleagues, or acquaintances if they want to buy your land at a steep discount. Advertise on Craigslist or Zillow. Google something like “Fast cash land” and many land-buying websites will pop up. When considering a buyer you find on the web, be sure to ask questions and verify that any “buyer” you find is not a wholesaler. If you receive an offer in the mail from someone offering to buy your land, don’t throw it away. Vet them to ensure they are an actual buyer, not a wholesaler.

Conclusion

It is generally unwise for a landowner to accept an offer from a wholesaler. There are far better alternatives.