Warning for Homeowners of Real Estate in Colorado Springs

Long-time Homeowners May be a Target

The term “assigning transactions” may not currently carry much weight within your need-to-know vocabulary. But it has carried the weight of much frustration and financial loss to recent victims of what is quickly becoming an unscrupulous real estate practice in Colorado Springs and across the country.

As this issue is closely tied to the services offered through Colorado Springs Property Investors, we feel a duty to arm you with this knowledge in order to help protect your real estate interests.

Beware of This Real Estate Practice in Colorado Springs

Perhaps you’ve more often heard it called “wholesaling.”

The investors and real estate professionals that force deals through wholesaling think of little else but finding the largest profit margin possible through whatever means necessary.

While there are certainly some who practice the wholesaling method in trustworthy, honest fashion, we have seen far too many that choose to capitalize on a homeowner’s innocence and/or ignorance concerning real estate in Colorado Springs.

So what, exactly, are we talking about?

Wholesaling/Assigning Transactions

The concept of wholesaling, at its core, is innocent. It’s been practiced across almost every culture and  industry for hundreds of years.

In essence, a wholesaler is a middleman. Many of your online purchases are from a middleman. The tomatoes you buy at the grocery store sit there due in large part to a middleman – a tomato broker (we know…weird). Perhaps you even financed your current home in Colorado Springs due to the work of a mortgage broker – again, a middleman.

So we’re not knocking the concept of wholesaling, even in real estate. But we are warning you that not all wholesalers are created equal.

Whom do they target?

Those that would take advantage often target elderly individuals, long-time homeowners or distressed homeowners.

Long-time homeowners have minimal housing debt (if any) and may unknowingly sit atop a good bit of equity. Their home’s value when they purchased 20+ years ago has surely risen to significantly more than the original purchase price – likely more than they would ever suspect.

How do they do it?

Wholesalers will approach an individual such as this (often unsolicited) with an offer that appears enticing, especially when the price is double the original purchase amount. But the unsuspecting homeowner does not realize that the actual value may be 3 or 4 times greater than the original price.

Generally, the wholesaler has “data” to back up their offer price. This may come in the form of other property comps, an exaggerated list of needed repairs, and market condition scares. Unfortunately, these can all be manipulated to serve a purpose.

Once the wholesaler has signed a contract with the homeowner for the agreed upon price, they turn around and sell, or assign, the property again for considerable profit without ever having given any actual money or sweat equity. This is most often accomplished through “assigning”  the contract.

Here again…is wholesaling all bad? Definitely not. A lot of work can go into the hunt for a good wholesale property in Colorado Springs. Many wholesalers work hard for the money they earn, and most do not take advantage of homeowners in such extravagance. However some do. And they do so by manipulating numbers, data and the homeowners emotions, often forcing an unsolicited sale.

What can you do to guard against this?

• Get help – Seek the advice and involvement of a family member, friend, neighbor or even a third party real estate agent. It needs not be much. Simply ask them to look over the information provided from the wholesaler and give a second opinion.
• Make decisions with others – If possible, determine to make a decision to sign only when you have the involvement of your supporters.
• Obtain copies of documents – Ask for a copy of the property comparisons the wholesaler provides and then take them to another source for review. Remember, these can be manipulated to support the wholesaler’s claim, masking the real value of your property.
• Consider a professional appraisal – Spending $300-400 on an appraisal may end up saving you thousands of dollars in the end. It’s certainly worth considering.
• Look at the contract – Review the contract to see if it is “assignable”. If so, ask why, to whom it is assigned and what the assignment fee will be (how much will the wholesaler profit?).
• Call a contractor – Call a reputable contractor in the area and explain the situation. Ask for a quick price range on the proposed work to gauge whether the property repair pricing is actually within reason.  Note: Out of respect for the contractor’s time, obtain a price quote over the phone instead of requesting an on-site proposal if you do not intend to do the work.
• Seek legal advice – If you’re still concerned, consider hiring a lawyer experienced in real estate transactions.

Is all wholesaling bad?

Despite the unethical methods, wholesaling does still happen. Thankfully, most of the time it happens with solid practices and no manipulation.

It’s important to remember that it’s completely acceptable for wholesalers to make some amount of profit from the deal. Most of these wholesalers are hard workers, just trying to make a living with opportunities they unearth. Most don’t pocket large hoards of money by swindling the unsuspecting widow down the street.

And while you must scrutinize all considerations closely, it’s also important that you keep an open mind. If their offer accurately represents the value of real estate in Colorado Springs, provides a solution for a tight spot you’re in and takes the stress off your mind, you may find yourself working with a wholesaler!

Ultimately, it’s up to you as the homeowner to do your homework. Talk to as many professionals within the real estate industry as you can, and trust your research, not your emotions.

For more information concerning the dangers of this practice, read the CODORA Consumer Advisory on the issue.

If you’re interested in talking to us about this practice or other real estate related issues, please call us at 719.323.3029.