Do you need to know how to sell a contract before you join a group that sells them for you

Question

Wholesaling isn't my plan, I buy and hold and my first property closes later this year. But my brother in law has been in a five person referral group for four months and I've been reading his messages over his shoulder, and something bothers me.

He finds sellers. He is good at it. He has put three houses under contract since June. All three went to another member who has the buyer relationships, and that member handled the assignment and sent him a check. Two of the three closed. He made $3,200 total.

He cannot tell me what either house sold for to the end buyer. He signed the assignment paperwork, he saw a number on one of them, he never saw a closing statement. When I asked him whether that bothered him he said the group works and he's making money he wasn't making before.

So the split in my head is this. One view says the whole point of a network is that you specialize, and a person who is good at finding sellers should find sellers and let the buyer person do the buyer part, and asking to audit every deal wastes everyone's time. The other view says he has handed over the only part of the transaction where the money is visible, and he will never know if $3,200 was fair because he has no independent read on what those contracts were worth.

I genuinely don't know which one is right. He's happier than he was and he has less information than he did.

karen_whitfield · Answer

Land taught me this one. I spent two years handing parcels to people who knew buyers and taking whatever they said the fee was, and it worked fine until one of them stopped being fine. The specialization argument is real, your brother in law genuinely cannot do both jobs well in month four. But specialization and blindness are separate things. He can specialize in acquisitions and still ask for the settlement statement on every deal he sourced, and if the group treats that as an insult, that tells him something about the group. Also worth knowing that roughly a dozen states don't publish sale prices at all, so depending on where he is, the closing statement may be the only look he ever gets.

ryanmck27 · Answer

I'm working through licensing right now and the disclosure question keeps coming up in the material, which makes me read your post differently. The person assigning that contract has a set of duties depending on the state and on whether anyone in the chain is licensed, and that varies enough that he should ask a real estate attorney in his state rather than the group chat. What strikes me though is that he signed assignment paperwork he can't describe. Not knowing the fee is one problem. Not knowing what he signed is a bigger one and it's fixable in an afternoon.

stephen_ok9 · Answer

orchard's split is the one I'd use. Specialize on the work, don't specialize on the information.

I look at capital deployments and the pattern is identical everywhere. The person who controls the settlement statement controls the relationship. $3,200 across three contracts with two closing is around $1,600 per closed deal, and I have no idea if that's low because neither does he, which is exactly the point. If the other member is taking $8,000 on a deal your brother in law sourced and paying out $1,600, that's a 20% referral rate and there are groups that do that openly. If it's a 50 split on a $3,200 fee, that's a completely different deal. Same money to him, totally different arrangement, and he can't distinguish them.

marcus_hale41 · Answer

meridian did the arithmetic I was going to do, so I'll go at the other end. The thing that would stop me cold is the deal that didn't close. Three contracts, two closed. Why did the third one die. If it died because the buyer person couldn't move it in time, your brother in law spent weeks of seller work and earnest money exposure on a contract that failed on someone else's side of the wall, and he'll never learn from it because he wasn't in the room. That's the real cost of the blind arrangement. Not the fee he might be underpaid, the pattern recognition he isn't building. I'd want to see the marketing history on the dead one more than the closing statement on the live ones.

gregpowell66 · Answer

Construction gave me a version of this. I subbed framing for years without ever seeing what the GC billed the owner, and it was fine income and it also meant I had no idea when I was cheap.

What broke it for me was one job where I found out by accident and could never unsee it. Your brother in law is going to have that moment eventually, everyone does, and the question is whether he has it in month four when he can renegotiate or in year three when he's built his whole business on the arrangement. I'd push him to ask now while asking is still a normal question. Groups that share statements exist. He should find out whether his does before he's got twelve contracts of history with people who'd rather he didn't ask.

Do you need to know how to sell a contract before you join a group that sells them for you

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