I just got a new frame that is 123 mm in the rear, but the previous owner used a wheel with the standard 120 spacing.

I'm getting a new wheelset but I'm not sure if I should go with 120 or 123, what do you guys think?

You can just tighten down the frame that extra 3mm. Or add a spacer(s) to get your rear wheel to 123 if you go with a 120 wheelset (which is likely what is happening when you buy the 123 anyways).

Just be sure to maintain a straight chainline either way.