Exposing the 3 Biggest Con Artists in House Flipping

TLDR

I cite a claim that real estate agents sell their own houses for 3 percent more and take 10 more days than they do for clients. I use it to show how incentives work, not to tell a villain story. Three vendor roles can have incentives that drift against yours, so learn how each gets paid.

Table of Contents

• Incentives Drive Behaviors
• Con 1: The Real Estate Agent
• Con 2: The Wholesaler
• Con 3: The Cost-Plus Contractor
• The Four False Cons
• Three Contractor Categories I Avoid
• The Only Real Protection
• FAQ

Incentives Drive Behaviors

I cite a claim I had read that real estate agents take 10 more days to sell their own houses and get 3 percent more than they get for clients. I did not verify that study in this recording. I use it as an opening illustration of incentives, not as proof about any agent in front of you.

I know this firsthand because I hire these people, and I am also a vendor on the other side. Every day, as a contractor, I face the struggle of what is best for my customer versus what is best for my family. That is how I know that when incentives are not aligned, no matter how strong you swim, eventually the current wins.

This is why I hate the advice to “build a great team.” A great team means nothing if you do not know how to align incentives and manage the current.

Con 1: The Real Estate Agent

Real estate agents get paid by commission on the sale price. “I don’t get paid unless you get paid.” It sounds aligned. It is not.

Early in my career, I had a flip that I was going to list myself. I had spent more on the rehab than I expected. If I could sell for 200,000 dollars, I would break even. An agent came by and said, “Because of my social media following and the ways I market that you don’t have, I can get you 220 pretty easily.”

Let’s do the math using the commission and split assumptions from this deal.

I let him list it at 220. A couple weeks later, “market cooled, let’s go to 215.” Then 210. Then 205. I accepted an offer at 200,000.

At 220, he would have made 3,300. At 200, he made 3,000. For him, a 20,000 dollar drop on the sale price cost him a few cases of beer. For me, it was the difference between breaking even and losing money on the flip. Does that sound like aligned incentives?

How to Protect Yourself

A real estate agent is a tool. You would not hammer a nail with a screwdriver. Use the right tool for the right job. That means a few specific things.

• Evidence-based pricing. Ask what will the house sell for based on comps. Show me the evidence. What finishes do the houses that sold for that number have?
• Real days on market numbers. Not their opinion, the statistics for this neighborhood at this price point right now.
• Fighter energy. I want someone willing to go fight for every inch. On the listing itself, on offers that come in, on inspection resolution. Not someone trying to make best friends with the other agent so they can show up at the same real estate parties next week.

The listing itself is the digital introduction. Professional photos in the right order. Real copywriting in the description, not a generic welcome to the property address. Persuasive language. Real estate agents should be the best marketers, and most of them are terrible at marketing.

Con 2: The Wholesaler

I buy off market because I do not want to compete with an owner-occupant for an MLS house. A wholesaler can bring me that off-market contract, then assign the deal to me for a fee. Here is how one of mine actually went down.

Wholesaler gets the house from the seller at 100,000. Brings it to me at 130,000. On the closing docs, I am buying at 100,000 and paying him a 30,000 assignment fee.

Where does the 130,000 come from? The 70 percent rule. He says the after repair value is 230,000. 70 percent of 230 is 161. Subtract his estimate of 31,000 in rehab, you get 130. That is his number.

Two problems in that math. First, he said the ARV was $230,000. When I ran comps, that was way on the high end; $200,000 to $220,000 looked more realistic. Second, he said the rehab would be $31,000. I could not get inside because tenants lived there, so I had to rely on photos and his estimate. When the tenant left, the real scope was far above $31,000. The transcript is garbled at the exact final number, so this article does not pretend it establishes one.

He sold me two numbers, both in his favor. I lost on the deal.

Do not let an auction mindset turn the deadline into your analysis. Take the time to verify the ARV and rehab, even when the wholesaler says the contract has to move fast.

How to Get Better Wholesale Deals

Wholesalers are going to push both numbers as far as they can. That is the job. So you work around the current.

• New wholesalers. No big buyer list yet. They take smaller assignment fees because they are trying to build the list.
• Stuck deals. If a wholesaler cannot move a deal, it might be bad, or the buyer list might be too small, or they might be on a short fuse from a fast-close commitment. Any of those can be your opportunity if you know why it is stuck.
• Focus over volume. Early in my career I tried to be on 20 wholesaler lists. Better to be number one on one list than number 20 on 20 lists. Pick one or two and build the relationship.

And always verify both numbers yourself. Do not trust the ARV. Do not trust the rehab.

Con 3: The Cost-Plus Contractor

There are two ways a contractor can bid a job.

Bid price. Agreed scope, one number. If the defined work costs the contractor less than the bid, you still pay the bid. If it costs more, the contract and any valid change order decide who pays; a fixed price does not erase scope changes or contract terms.

Cost plus. Contractor charges you whatever materials and labor actually ran, plus an agreed markup. If costs were 10,000 and markup is 25 percent, you pay 12,500.

With the bid contractor, he is motivated to stay under the bid number because anything he saves is his margin. With the cost-plus contractor, what is his motivation to stay under 10,000? If it costs 15,000, he makes more money. You might not hire him again, but he does not care about next time. He cares about this job.

Dumb Mistake

Hiring a cost-plus contractor and then walking away to let them run the job. In my system, cost-plus requires tight review of decisions, materials, and labor. Without that control, the final cost can grow with the contractor’s fee.

I hire bid price. Always. If you take a cost-plus deal, be ready to micromanage.

The Four False Cons

Not everyone you think is out to get you is actually out to get you. I do not treat these four roles as automatic cons.

• Codes enforcement inspectors. Everyone thinks they are trying to screw them. But every time I go to a job site and look at what they are seeing, I think, if I were them I would not pass that either. They have licenses and paychecks to protect. They are not putting their butt on the line for you.
• Appraisers. I fought appraisals plenty in my day. Every once in a while I won. Mostly a waste of time and bandwidth. They have licenses to protect too. Usually the honest answer is that we as investors think our property is worth more than it really is.
• Home inspectors. Hired by the buyer. Their job is to find things wrong with your property. Even brand new builds built perfectly, they find things. If they did not, nobody would hire them again. Expect an inspection resolution. Plan for it. Just get the deal closed.
• Lenders. A lender has an incentive to close sound loans and may want repeat business. Some of my best early mentorship came from lenders. That does not make a lender a neutral deal adviser, so verify the numbers and written terms yourself.

Three Contractor Categories I Avoid

After the cost-plus discussion, I identify three categories whose business models or pricing I avoid.

• Remediation companies. I found that some homeowner-focused remediation pricing did not fit my investor jobs. I am not saying to ignore remediation or hire unqualified labor; I am saying to compare the defined work, qualifications, and bids instead of buying from fear.
• Structural companies that run on sales commissions. Last week I got a bid for over 120,000 on work my crew priced under 30,000. Over 90,000 dollar difference. Get a structural engineer to tell you what to do, but the crew that actually does the work does not have to be the guy giving 120,000 dollar bids on the spot.
• Roofers built around insurance-claim work. Their sales and administrative overhead did not fit the investor jobs I was pricing. I compare the scope and bids instead of assuming that business model fits my project.

The Only Real Protection

There is no way to fix the fact that real estate agents get paid by commission, wholesalers leave less meat on the bone as their list grows, and cost-plus contractors have no reason to stay under budget.

So globally, what do you do? You gain the skills to know what to expect from each of them and the confidence to hold them to it. Skills come from knowledge times experience.

House flipping and real estate investing changed my life. Not just financially. Work and life kind of become the same thing when you are doing work you actually like. I want that for you. But it is not on the real estate agent, the wholesaler, or the cost-plus contractor to make it happen. They are trying to take care of their families. So are you. The only real protection is yourself.

FAQ

How do I interview a real estate agent the right way?

Ask for the comps that justify the suggested list price, the finishes in the houses that actually sold there, and the current days-on-market statistics for that price range and neighborhood. Then ask how they will present the listing through professional photos, ordering, and persuasive copy, and whether they will fight for the offer and inspection terms.

Are all wholesalers con artists?

No. Some are clean and fair. But all wholesalers have an incentive to maximize the assignment fee, which means pushing ARV high and rehab low. Verify both numbers yourself on every deal, every time, regardless of who the wholesaler is.

Is bid price always better than cost plus?

I prefer a fixed bid for the investment projects described in this source. The transcript does not define when cost-plus is appropriate for a custom owner-occupied build, and the written scope and contract still control either structure.

How do I tell if an inspector is being unreasonable versus just doing their job?

I say inspectors have licenses and jobs to protect and that I usually understand their concern after seeing the work. The transcript does not establish that most citations are correct or prescribe a dispute procedure.

Just starting out. Can I trust my lender to give me straight advice?

I say lenders are financially aligned with closing loans and that some of my best early mentorship came from them. That does not make every lender a neutral deal adviser or guarantee the accuracy of every recommendation.