Why Don't More Realtors® Wholesale?

34 Replies

@Greg H. 

In my "I will buy your house" marketing (yellow letters, postcards, etc.) for my investment LLC, I don't disclose my status as a licensee, but I will disclose this during my initial conversation with a prospect even though I have no legal obligation to do so.

You’re absolutely dead on about agents getting upset when one of my marketing pieces reaches the seller of a listed property and the seller contacts me, more especially because my marketing doesn’t include any disclaimer language. But, two things come into play here.

First, my mailings are always general in nature, meaning I’m not specifically soliciting “listed” properties so there is no violation under TREC, TRELA or Code of Ethics and any complaint regarding same would be nixed at its initial review stage, especially since I’m not advertising as defined by TREC.

Second, many agents who market with the goal of soliciting a listing include a disclaimer, a disclaimer is not required under either TREC or TRELA (nor under the COE). There is nothing wrong with including this type of disclaimer, but in my case I’m not soliciting a listing, I seeking to purchase a property.When a seller calls off my marketing and I’m informed that the property is listed, I simply explain that because I’m essentially paying the commissions (they’re priced into the property), I don’t purchase a property that is currently listed.

Well, not exactly the case everywhere as to disclosure of a license, a licensee here (and other states) must disclose if they hold even a minority interest in any company advertising for RE business if they hold a license, so, state requirements may vary.

The purpose of disclosure is that legally, a licensee is seen as having greater expertise than the general public, that dealing in good faith requires parties having equal or nearly equal knowledge in negotiating a price, it's an ethical issue. Dealing as a licensee or for your personal investment is generally irrelevant to advertising requirements.

Licensees trying to wholesale will likely be confronted with various thin lines to walk, the more you try to make wholesaling the thinner the lines get, for most agents, it's not worth the effort, they can easily go down the conventional road, list it, take a commission and move on without issues. I don't know of any successful licensees in my area that wholesale, they are more successful as agents and brokers. :)  

Originally posted by @Victoria Winters :

@Karl Krentzel   

As pointed out by many of the posters in this thread, it is possible to wholesale legally and ethically with and without a license.  It is all a matter of understanding tthe wholesale business and applying the knowledge in the correct scenario.  Any tool will work if the person using the tool understands how it operates, has or creates a need to use it and uses it to the best of their ability. 

Net listings by a Realtor/Broker are illegal in Georgia (and most states) and so is ANY marketing of any real estate without including your Broker's information "in the same size print..." in and on the marketing materials.  As I understand it, this includes even real estate you own - you must disclose to any potential buyer that you are a broker/realtor even if there is no agency relationship.

To say, cart blanche, that it is ethical and legal to wholesale as a Realtor is just patently false; even without a real estate license many wholesalers, if not most, border on the unethical even if not strictly breaking the law.  

@David Begley  You are absolutely correct about disclosure. Agency law is complicated for most people to thoroughly understand, however, it must be adhered to unquestionably. In my post, I stated, "...it is possible to wholesale legally and ethically with and without a license." 

Realtors follow a code of ethics as established by the National Association of Realtors. In no way do I advocate that a "Realtor", real estate agent or any other person involved in real estate business commit illegal or unethical acts.   It is incumbent upon the individual business person to comply and understand prevailing laws and to work within those established boundaries. 

Originally posted by @David Begley :
Originally posted by @Victoria Winters:

@Karl Krentzel  

As pointed out by many of the posters in this thread, it is possible to wholesale legally and ethically with and without a license.  It is all a matter of understanding tthe wholesale business and applying the knowledge in the correct scenario.  Any tool will work if the person using the tool understands how it operates, has or creates a need to use it and uses it to the best of their ability. 

Net listings by a Realtor/Broker are illegal in Georgia (and most states) and so is ANY marketing of any real estate without including your Broker's information "in the same size print..." in and on the marketing materials.  As I understand it, this includes even real estate you own - you must disclose to any potential buyer that you are a broker/realtor even if there is no agency relationship.

To say, cart blanche, that it is ethical and legal to wholesale as a Realtor is just patently false; even without a real estate license many wholesalers, if not most, border on the unethical even if not strictly breaking the law.  

 For my two centavos RE: The "Net Listing" issue.  As far as the Code of Ethics goes, I believe the current belief is that it is not a good practice to have or do.


However, wholesaling (aka "Assignment of Contract") is NOT a "Net Listing"

A "Net Listing" is where the Agent takes SOME form of Fiduciary duty to the Seller in a Written Listing Agreement.  


A "Wholesale Deal" is where a BUYER (who happens to be an agent who has disclosed their status as a licensee) enters into a SALES Contract with the Seller.    The Buyer at some point subsequent to the execution of the A-B Contract sells their interest in said contract to a third party.    There is no agency implied, nor expected.  

No agency+No Listing Agreement= No Obligation to Seller for anything other than"honest and fair dealing."

Just my thoughts on the whole "Net Listing Thingy" It's not the same as assignments.

While agents and wholesalers have some overlap in that both are connecting buyers and sellers, they have some significant differences in their approaches.

To be successful, a real estate agent wants to help buy and sell as many properties as possible - with a predetermined profit(the commission) on each deal.

The wholesaler wants to find something to buy as cheaply as possible, so that there is as much room as possible for the "assignment fee".  It seems generally the assignment fee is a higher percentage, but it wouldn't surprise me if on high-end flips it is actually lower.

I think agents already essentially wholesale to some degree, with the "We will buy your house if it doesn't sell". I imagine the broker usually ends up assigning(or straight setting up) the contract to an investor at some significant discount to the MLS listing price.

@Bill G. 

Thanks Bill. I'm aware that the rules are different for each state and please note that I never stated in my response that Texas rules and regulations are applicable to the other 49 states. I was simply responding to Greg's question (a Texas licensee) regardingTexas laws and regulations as they are defined by the regulatory bodies for this state.  

I would never claim to know real estate laws of all 50 states...that would be arrogant to say the least. I do understand the rules and regulations under which I work and will use the definitions that the regulatory entity developed since they would be responsible for slapping me silly should I violate the rules. My state is clear on the purpose and intent of disclosure irrespective of whether you, I or the man in the moon agree. 

Wasn't clipping your wings Guy, I'm sure you do what you must to keep your license in good standing and you were apparently speaking to Texas, not the rest of the country. :)

@Mike Gallagher  Net listings are illegal here in Utah too.

To me, this topic makes no sense.

The point of licensure is to be able to represent third parties in a real estate transaction.

The point of wholesaling is to avoid that representation (and licensure) by selling equitable interest as the principal.

If you're wearing one hat, you have to take off the other one.  So marketing will always be a problem.

Wm