5 Common Mistakes Wholesalers Make and How to Avoid Them

Wholesaling real estate can be a lucrative business, but it’s not without its pitfalls. Here are five common mistakes wholesalers make that can lead to serious trouble. By learning from these errors, you can avoid making the same mistakes and ensure a smoother path to success.

Mistake Number One: Marketing Properties Listed with Realtors Without a Contract

One of the biggest mistakes wholesalers make is finding properties listed with a realtor and then marketing those same properties to other cash buyers without having a contract in place first. This is a violation of the realtor commission rules, even if you are not licensed.

I know someone who had to go before the realtor commission because he was not licensed. He would find deals on the internet listed by realtors and then market them as his own. This is a big no-no. You don't want to go in front of the realtor commission because if they can prove fraud, they can bring criminal charges against you.

In his case, he wasn’t committing fraud; he was just operating without knowing any better. But this is serious, and you don’t want to get summoned by the state.

Pro Tip: Always secure a contract before marketing any property. This ensures you have equitable interest in the property and protects you legally.

Mistake Number Two: Not Securing a Non-Refundable Deposit from Buyers

Imagine you have a great wholesale deal and a buyer lined up. You assign the contract to the buyer, but they don’t put up any money—no non-refundable deposit. What often happens next is that the buyer disappears before closing, or their phone mysteriously breaks, and they’re nowhere to be found.

To avoid this, always secure a non-refundable deposit from your cash buyer. This ensures they have skin in the game and are more likely to follow through on their commitment.

Pro Tip: Make it standard practice to collect a non-refundable deposit from buyers to ensure they show up at closing and fulfill their obligations.

Mistake Number Three: Incorrectly Comping Properties

Just because you find an off-market property doesn’t mean it’s automatically a good deal. Wholesalers sometimes get a house with an after-repair value (ARV) of 250k and try selling it for 240k just because it’s off-market.

Know your numbers! If an investor can buy a fixed-up house for 250k on the MLS, why would they buy yours for 240k when it needs work? Investors typically want to be between 70-80% of the ARV so they can make a profit.

While the national average is around 70%, we’re currently in a hot market, so investors might buy at higher percentages depending on your location. However, it’s always important to play it safe and know your numbers before making any decisions.

Pro Tip: Use reliable comping methods and tools to ensure your deals are attractive to investors.

Mistake Number Four: Marketing Properties Without Proper Agreements

Marketing a property without proper agreements or contracts is another common mistake new wholesalers make. A true story: A wholesaler spoke to a motivated seller, got the address for the property, and started posting about it on Facebook Marketplace and Craigslist without securing a contract. The seller saw their house online and called the police, resulting in the wholesaler getting arrested.

Having an agreement with a seller gives you what's called equitable interest. Without this, you are marketing a property illegally.

Pro Tip: Always secure an agreement or contract before marketing any property. This ensures you are operating legally and ethically.

Mistake Number Five: Quitting Too Early or Not Taking the Business Seriously

Real estate wholesaling requires hard work, dedication, and time investment. Some people enter this business thinking they can put in minimal effort and get maximum results. This mindset will lead to failure.

I had someone reach out asking if they could make money without putting in much work because they were in a hot market but didn’t have much time. I told him that if he wasn’t ready to put in the necessary work, then this might not be the business for him.

Real estate is not an overnight success business—it requires consistent effort, making calls, sending texts, driving by properties, and more until you find deals that work for you.

Pro Tip: Approach wholesaling as a serious business that requires dedication and hard work. Automation tools can help streamline processes, but initial effort is crucial for success.

Conclusion

Avoiding these common mistakes can save you from legal trouble and help you build a successful wholesaling business. Remember to secure contracts before marketing properties, always collect non-refundable deposits from buyers, know your numbers when comping properties, operate legally by securing agreements first, and approach this business with dedication and hard work.

If you're looking for ways to automate your wholesaling business and generate 5-15 or more deals consistently every month on auto-pilot, check out our AI Automation tools for investors and wholesalers at CosMoSys AI REI.

For personalized guidance on building your real estate business, book a Strategy Session with us HERE.

Be sure to check out this amazing $49/Month deal the CosMoSys AI REI has going on right now.

By following these guidelines and leveraging automation tools from CosMoSys AI REI, you can streamline your operations, avoid common pitfalls, and achieve greater success in your real estate wholesaling business.