Question for Real Estate Agents Who Wholesale Properties

11 Replies

I am curious to know how those who are licensed agents handle the issue of wholesaling. I am a licensed agent and just starting out with wholesaling. Does anyone see a conflict in buying a property from someone at wholesale and profiting as a middleman when in theory you could have brought the end buyer to the seller as an agent? 

I understand that no one can guarantee a quick sale as an agent, but essentially, you are performing the same function in finding a cash buyer to take over the contract.

Help me put my mind at ease :-) Thanks!

You haven't entered into any type of agency relationship with the Seller, right? If not, how is it any different than dealing with a FSBO (who often times give away properties for less than market value)?

You MUST disclose your agent status to the Seller (and make sure your contract reflects agency as being "Represents the Buyer Only" on the signatory pages), but other than that, I don't see an issue with being a wholesaler.  What are you doing about your broker?  Hopefully, you are running these contracts through your broker.

@Cara Lonsdale I am asking to learn from the experiences of others. I am just getting back into the investment market; when I invested prior, I was not wholesaling so it was not a concern. And I am licensed, but I am not an active agent (referral agent only). I am aware I need to disclose on the contract, but was just curious to hear how others approach this.

Originally posted by @Anthony Kirlew :

@Cara Lonsdale I am asking to learn from the experiences of others. I am just getting back into the investment market; when I invested prior, I was not wholesaling so it was not a concern. And I am licensed, but I am not an active agent (referral agent only). I am aware I need to disclose on the contract, but was just curious to hear how others approach this.

 Again, I don't see the issue.  Just because you hold (or once held) a Real Estate license, it doesn't require you to provide a fiduciary duty to every person you come into contact with.  It's business.  Look at all of the "We Buy Ugly Houses" people in the Valley.  They don't pay NEAR market value for properties, and many of them are agents or brokers.  What you are doing isn't far from that model.

Disclosure is key, and avoiding ANY type of language that would convey to the Seller any type of agency relationship.

Hi @Anthony Kirlew . It's nice to see you here!

As a licensed agent, you need to first make sure your broker is going to allow you to do this. That would be the first place to start.

I do see a conflict with buying at wholesale and then reselling - if that isn't the seller's idea. There are plenty of properties that people just want to be rid of, and if you can close quickly, that's the most important thing to them.

Being an agent comes with Fiduciary responsibilities, meaning you must put your client's interests ahead of your own. Buying low, knowing you can get more money for it does not accomplish this.

Presenting the choices so the seller can make an informed decision is a way around this. 

"I can buy it from you for $50,000 and close in 1 week. Alternatively, we can list it on the MLS, perhaps get $55-65,000, and close in 30-90 days."

They choose which plan works for them and their needs. 

I would definitely get them to sign something stating you presented the offers and they chose the cash in a  week route, for anyone who chooses that way. You don't want them to file a complaint against you later for  "stealing" their property.

Thanks @Mindy Jensen . It's great to be here and I am glad we met at FinCon.  I am surprised I had not heard of Bigger Pockets before, but I have not been super active with real estate investing in recent years either.

I know lots of agents are also investors, so I am sure I am not the first to ask this question, or have this thought. Although I am not an active agent, I guess I have an ethical challenge with making a big profit on a wholesale (i.e. middleman) deal when I could have advised the seller how to keep that profit for themselves. I would feel it's my obligation as a real estate professional and if I was not looking to profit, my advice would certainly be one of protecting their best interest in terms of maximizing their profits. I say this with the understanding of the fact that some people "just want out and want out quickly".

A few thoughts

1) Your broker has to allow it first of all.  All real estate activities you do are subject to the oversite of your broker because a claim can be made against their e&o insurance.

2) I would contend that in some states you absolutely have to be licensed to wholesale legally...and in other states I would say a licensed agent should absolutely never wholesale via the method of using an assignable contract.  @John Thedford has stated often that in Florida you must be licensed in order to wholesale.  Myself and @Ned Carey are of the opinion that in Maryland a licensed agent should never wholesale.

3) In your state, who is your first duty to? In Maryland & DC your first duty is to the general public. In Virginia your first duty is to your client. 

4) What is the legality of net listings in your state?  My opinion is that wholesaling via the method of using an assignable contract is in essence a net listing, particularly in states where your first duty is to the public as opposed to your client.  Net listings are illegal in all the states I do business in, thus I dont think agents should wholesale in those states.  Net listings are legal in some states though, including Florida I believe.

5) I think that double closing on a property as an agent is a bit cleaner, but could still run into trouble in states where your primary duty is to the public because even though the seller is not your client, you still owe a duty to them as a member of the public.

"Wholesaling" or flipping. In my book, using contracts to broker via assignment clause is "wholesaling" and purchasing and then reselling is flipping. I personally won't use contracts to broker. I believe, even though legal, sellers are taken  advantage of because it is a blind transaction and they have no idea what they are giving up. I am all for buying low and selling high, and if the seller is educated and good with that then good for the buyer. I don't believe in the typical M/O of misleading sellers as to being a buyer when there is no intention of doing so. It is ABSOLUTELY possible to build wealth in an honest manner. Florida does allow net listings, so using contracts to broker, if licensed, is really about the same as a net listing. I reported an unlicensed broker using contracts to circumvent licensing today, and they can expect to be on the state website for unlicensed activity listings within a month or so. Gotta know your laws!

There is NO conflict if dealing with an educated seller. I just bought this one for 145K, and seller had previously listed it for 199K. He screwed around, didn't provide pics, the listing agent cancelled the listing, and he needed money bad. So he offered it to me for a great deal, and of course I bought it! 

You get into trouble when there is the appearance that you are using your knowledge of the market to take advantage of a seller. (Not suggesting you're going to do that,  @Anthony Kirlew !) 

Giving the seller several options, and allowing them to choose which one they want to go with is the best course of action.

Originally posted by @Mindy Jensen :

You get into trouble when there is the appearance that you are using your knowledge of the market to take advantage of a seller. (Not suggesting you're going to do that,  @Anthony Kirlew !) 

Giving the seller several options, and allowing them to choose which one they want to go with is the best course of action.

 This is why disclosure is important. I like approaching these telling the seller what I would list it for, and what I would purchase it for. I typically factor about a 20%+ discount on my purchase price. I also put the following language into my purchase contracts:
"buyer is a licensed agent, purchasing under market value, and with a profit motive".
One of the top 10 reasons agents get sued is misleading the seller on value. 

@Russell Brazil

We have large wholesalers in my office and I've always wondered at the legalities and ethical issues with the various boards. What happens when someone comes after you after a wholesale. Personally, I would never wholesale as an agent, I can't see a scenario where its ethical to the sellers based on implied ethical duties to the public. Have you heard of any legal cases against wholesaling agents in the DC Metro (MD, VA, DC)? I know one of the head attorneys at NVAR, I'll reach out to her about VA.

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