Is a wholesale fee a buy signal or a tell that the wholesaler overpaid

The operators sending you deals overpaid, full stop. A wholesaler who locked something up at $295,000 planning to flip it to a flipper for $310,000 plus a $20,000 fee already told you everything about their underwriting when they signed that contract. Negotiating the fee down and watching the deal suddenly pencil is something that almost never happens. In a thin spread market the wholesaler shaves $5,000 off a $22,000 fee, calls it a win, and you are still $80,000 wide. Your bird-dog friend is the actual signal: direct-to-seller at the same price range clears, which means the problem is the acquisition price rather than the existence of a middleman. South Jersey wholesalers right now are largely underwriting to 2021 ARVs, so that $420,000 comp they send you is probably a Q3 2022 sale on a finished product that no longer exists in this rate environment.

The direct-to-seller comparison you ran already answered your own question. Same price range with no fee, and it pencils. That is not a coincidence. Take an Atlantic County deal from 2022 at $298k plus a $17k assignment on a house the wholesaler swears comps at $410k. Independent pulls land at $379k, and it sells 14 months later at $371k after two price drops. In that case the entry was the problem, and the fee only made a thin deal impossible to survive. A $100k gap is a sourcing mistake they are moving off their books and onto yours, and no amount of negotiation turns it into a deal.

South Jersey comps have been soft since Q3 last year and those wholesalers are working off spring 2023 ARVs.

The fee is a distraction. The wholesaler's buy price is what breaks the deal.

The basis problem is upstream, not in the fee line. Wholesalers in competitive South Jersey zip codes are locking contracts at near-retail to win the deal, then pricing the assignment fee like margin they never actually had.

The number I would want to see is their actual contract price, because $290k under contract with a $20k fee is a salvageable conversation, while $310k under contract with a $20k fee on top means they never had a deal to sell you.

Negotiating an assignment fee down almost never works once the wholesaler knows you can close without financing. They will wait for the buyer who has not pulled their own comps yet. Your $388k against their $420k is a 32k swing, and that gap is almost certainly where the $20k fee was sitting the whole time. The usual version of this: the anchor comp turns out to be 14 months old, on a corner lot with a finished basement, nothing like the subject property, and the entire ARV rests on it. If the bird-dog deals pencil at the same acquisition price with no fee, the answer is already sitting in front of you.

Your own math already told you: same price range, no fee, those pencil.