Wholsalers etc: Why not just go get your RE license?

33 Replies

General question.

I frequently read posts wherein a wholesaler, birddog, or similar, talks about finding buyers, finding sellers, connecting them, and this sort of thing. And the questions are invariably about what contracts to use, how to make it legal, why homeowners don't take them seriously, how to get legally paid, where to find buyers, where to find sellers, why investors don't take them seriously, and the like.

Mostly, I read unlicensed folks trying to find a way to lawfully make money from engaging in real estate agent activities, typically via arbitrage instead of commission. 

So the question begged: why not just go do all those things you wish to do, but as a licensed agent? What's so scary about getting a real estate agent license and doing all those things you wish to do, and perhaps are already doing, within the framework that already exists to do exactly those things? 

Let's take one common wholesaling model: Find people willing to sell for way under market value, tie it up in contract, go find buyer willing to pay more than the seller is willing to sell for, and pocket the difference. Why not get a license, list it, go to those same buyers you already have, present it, and take 5-6%? 

It seems to come down to arbitrage ("pocket the difference") versus commission as the only tangible difference that I can identify (you know, aside from the pesky legal stuff like "is this legal at all?"), unless I am missing something. 

One might suppose that the average arbitrage paycheck is larger than the average commission paycheck (2.5%-3% if you just list, 5-6% if you list AND bring the buyer). But from everything I've read on here, and the few wholesale deals I've been involved in, the wholesale ones are MASSIVE time sinks per-deal relative to the vanilla get the listing -> present it to your buyers -> identify a buyer -> close -> collect commission route. If you have that existing wholesaler skill-set, it seems to me that you could apply it to vanilla or vanilla-ish (as a REI specialist agent) transactions, and net more at the end of the year by simply closing a crap ton more deals.

So, wholesalers, educate me: What am I Missing

Heck, there was a thread earlier this week where someone was lamenting that they sent 16,000 mailers out as a wholesaler, and didn't get a single response.

Sixteen thousand! $0.47 per stamp, that's $7520 out of pocket.

I can almost guarantee you that if that same person was a licensed agent and sent 16,000 letters that simply said "Hi, I'm a local real estate agent, I know our area and community, I'm passionate about real estate and helping people, and I'm also a volunteer at XYZ Charity Event coming up next week if you'd like to come and meet me, or if not hey let me know if you or anyone you know could use my assistance" (polish it a little but you get the idea) and included 4 business cards in each of the sixteen thousand mailers... that'll get "slightly" more than zero responses and likely earn that person "slightly" more than zero dollars and zero cents!

The reason many won't is because it takes effort, time, and money. Once licensed, they have accountability. They have something to lose. Operating as an unlicensed broker only requires a drivers license according to one of them. Of course, most of them will find a new "career" in a few months when they find out it isn't fast big money. One of these posters stated it took them six months to make 6K. Not much of a payday in my book for time invested. 

After looking at it from every different angle I came to the same conclusion. I would guess that for every unlicensed wholesaler nationwide that grosses over $200k a year there are AT LEAST 500 realtors that do.
Being licensed and being able to offer multiple solutions to a seller offers a big advantage. From a credibility standpoint it is big when you can point to your own projects, your own listings and your own network of buyers while having a national name behind you and a broker with deep pockets signing off.

That's a very good question.  Let's look at the tasks that a wholesaler does and see if they are the same tasks a traditional RE agent does as well. I know these aren't absolutes and can vary based on the individual agent. 

- Market for distressed properties : Re agents don't usually target these. 

- Estimate rehab costs : RE agents don't. 

- Negotiate price with seller: RE agents don't. They represent the seller. 

- Find interested buyers: RE agents DO this too. 

- Negotiate with buyers: RE agents don't. 

Lets ask your question the other way around.  Why should a wholesaler get licensed? I honestly don't see what the point of getting an RE license would be. How would it help me other than being able to get better comps? I'm not looking to represent the seller or list their property.  What if I wanted to close on it myself?

Your guy with 16000 mailers obviously did something horribly wrong. You think zero responses for 16k letters is a norm? Do you think that was a marketing issue or because he was a wholesaler? 

We're all accountable whether we have a shiny license or not.  I don't know what magical shield you get by assigning contracts. The fact that many flippers are contacting wholesalers for deals shows that they are providing something of value that agents aren't providing. 

At a glance,  the two may look very similar,  but when you look deeper or experience it yourself,  things are quite different. 

that's where my re license and being a member of NAR / REALTOR comes in handy, if a home owner (that contacts me from my yellow letters) tells me that they don't want to sell to me at bottom price - 65% of arv, then I will offer to help them list it on the mls for retail.

So, you have more to offer if first option  Doesn't work.  

Homeowner's are aware that it's a sellers market and quite frankly, they also want as much as possible.  You know what, you can't blame them and I'm glad to offer an option - To list as well!

Still becomes a win-win for both.

Hi @pratik p.,

- Market for distressed properties : Re agents don't usually target these.

Some do. No rule says they can't. 

- Estimate rehab costs : RE agents don't.

I've seen agents that do, and include it in marketing materials for the property. Plenty of agents list it with full blown contractor bids in the portion of the MLS that only agents can see.

- Negotiate price with seller: RE agents don't. They represent the seller.

 - Negotiate with buyers: RE agents don't.

If they are double ending it they do.

Lets ask your question the other way around. Why should a wholesaler get licensed? I honestly don't see what the point of getting an RE license would be. How would it help me other than being able to get better comps?

Less time per deal. Greater volume. Less legal worries, no longer in the shadows / grey market. 

@Chris Mason I believe it has to do with the Guru Gobbledygook that promotes Wholesaling as a way to start with no money and implies it is easy. 

So that is my answer. The following is just miscellaneous rambling.

I think the vast majority of "Wholesalers" are new investors that have never done a deal and don't really know what they are doing. They sent out deals that are puffed up with repair estimates that are minimized. I think the bogus numbers are more a matter of ignorance and limited experience rather than any conscious attempt to rip people off. Most fall away quickly. Unfortunately not until some of them have put "Investors" in a bad light. 

I was an agent and hated it. I didn't like rules and regulations that made no sense. For example, here in MD you are required to give a 4 page disclosure/disclaimer statement. I currently do that on all my deals as required. However as an agent, many brokers actually require a 2 page statement saying that the buyer is entitled to the 4 page document.

Currently the vast majority of my "Wholesale' deals, are properties I actually take title to. I often use an auctioneer or agent to sell them for me.

@Chris Mason ,

@John Thedford touched on it: the time, effort and expense of getting licensed, not to mention the disclosures which will then become mandatory, the continuing education requirements, connecting with a sponsoring broker, office space expenses, marketing expenses and other expenses which come out-of-pocket before one ever sees a penny of commission, ...

Most folks looking at wholesaling are staring bankruptcy / homelessness in the face. They need cash, and they need it NOW! ... not months down the road at the end of the licensing class and state testing, etc.

There is considerable debate regarding whether selling one's place as a buyer in a contract constitutes acting as an unlicensed agent of any kind. Corporations (including banks!) do it all day long. Often times, it's a matter of misperception / appearance.

I'm not saying agents don't that stuff at all.  I was generalizing.  I've been talking to quite a few agents because I'm looking for buy and hold deals (for myself).  I noticed a lot of them don't understand what investors look for and what's a good deal.  Good wholesalers know these things. 

I'm not sure why some people here think there are no expenses or time needed for wholesaling.  Clearly they don't really understand the role and what it entails. 

Real estate isn't my primary career nor do I want wholesaling to be my "job".  My end goal is to have multiple businesses that are automated, bringing me passive income.  I have zero interest in representing sellers. 

I'm not going to argue the topic but just wanted to give you my opinion.  

Hey marine,

I wondered the same thing myself a while back, and I think the answer is a combination of a few of these answers. I've bought a few deals from wholesalers, and they've all also been licensed agents, and mentioned that as a selling point. I've met a few wholesalers whom (I assume) are not licensed, and I've never seen a decent deal from any of them. So the conclusion that I've come to is this; serious wholesalers usually get a real estate license anyway, because it's quick, easy, and lends credibility, but they continue to wholesale because 3% is not a very good return when they're also sourcing the deal. Of course I'm sure there are many exceptions, that's just my anecdotal evidence. I'd love to hear from investors who have bought from unlicensed wholesalers and see what their opinion is.

With the hundreds and hundreds of people representing themselves as such I am surprised at the extremely small number of responses to this question.

@Ned Carey

Taking title is honest. Putting contracts on properties with no guaranteed way to close and then walking if they cannot assign is the problem. Many operate that way because they have been taught that it is OK.

I agree with you @Chris Mason ,

A side point is that commissions aren't locked into 5-6%. Even our board makes it very clear that there is no "standard" commission rate and it is against our rules to say anything like "6% is the standard". So that being said if the wholesaler takes 5K on a 45K house they can do the exact same thing (legally) by just writing that into the contract. Money will come at closing and all is good.

Another point is that there is nothing that says we can't represent a buyer and go find off market properties. I hear how "Agents deal with the MLS and wholesalers don't". I sell properties that are off market. It is done easily, I find a client who says "Hey Mike, i am looking for minimum 4 acres and a 3bed/2 bath that needs some work in the following area". Then while representing the buyer I can go find a house that fits that criteria. I am legally required to let them know I am representing a seller (which wholesalers say) and I am legally required to try and get the best deal for my client (lowest price for house like a wholesaler). So I have to get the price down.

With no MLS access or board cost about $300 total and you are fully legal.

@Joe Bertolino , the numbers may not bear out your position regarding income...  Top 25% Real Estate Agent IN THE COUNTRY is at $45,784 (http://swz.salary.com/salarywizard/layouthtmls/swz...).  According to the Bureau of Labor Statistics, "the best-paid earned about $105,270" in 2014.

I'm a licensed agent and a wholesaler.  The logo on your business card or yard sign doesn't do much for agents - why do you think so many agents change brokerages as frequently as they do?

@Chris Mason , all do respect, but getting a contractor bid isn't the same as what @Pratik P. is talking about.  Anybody can go get contractor bids - there's nothing saying that that bid is the best value proposition.  I have hundreds and hundreds of contractors that I can/do call for my investor customers.  I've also rehabbed many houses myself, so I know what bids should be vs. being a typical agent and dialing up someone from the yellow pages so you can pay retail.

@Mike Cumbie , you'd have to be very careful taking the commission you mention as it could be considered a net listing, which is a big no-no in most states.

I've asked a few times on here that we find different terms for newbie wholesalers and pros, because they're very different animals.  You guys are all correct that most newbie wholesalers are in rough financial shape and are looking for a way out.  Pros like me aren't the same, just like the kid with the lemonade stand down the street isn't the same as Crystal Light.

Beware painting with too broad a brush.  People are likely to ignore any good points you may have when you apply your narrow experiences to people you've never met.

Speaking as an unlicensed wholesaler, I haven't got an RE license because of my age. I'm 20 and in IL you must be 21 to obtain an RE license. When I first heard of wholesaling and was taught it, I found out it was a way into the industry and to learn while you gain capital and knowledge. I take a lot of pride in being as accurate as possible when estimating repair cost, finding comps, and deciding if it's a deal or not. I'm personally only doing this until I can build my personal credit, income, and network so I can become an investor. But there definitely is a huge amount of wholesalers who use the term lightly and don't take much pride in their work. I haven't decided whether or not to get my license, but I've been talking to plenty of licensed and unlicensed investors. If I learn that it'll make me a better investor I wouldn't mind getting it.

@Sean Cole ,

Net Listings are a huge no no here. That is taking all of the profit over a certain number. I am talking about taking a flat commission of 5K on a 45K house to represent the additional time and energy required for a home that cannot be financed and is going to require a specific type of buyer.

@Sean Cole   correct about net listings in most states.. but in some its OK.. I brokered 22 new build duplex's for a flat fee of 30k each.. as the builder just could not get them sold I sold them all in one weekend.. when I did big presentations in CA...

when I first started in RE as an 18 year old agent.. I targeted hard to sell land.. and as such the sellers were happy to pay me anywhere from 10 to 40% commissions... depending on how tough it was to sell.

now I could see the same thing with these low value assets that are common in the mid west and northeast.. I see this constantly on huds that I fund for my vendors....  10k purchase and 3k fee to brokerage that's 30%...

I think the main issue for me is simply the selling RE without a license.. I mean if we could all simply put buyers and sellers together and charge a fee.. why even have a real estate industry at all no one needs licenses..

and of course the obvious.. .were you have guru's or even here on BP...

the quote is verbatim.

I have low funds so I am going to wholesale so I can make money then buy and hold and leave my day job ( if they have one  LOL).... I have been doing this stuff a long time and I can count on one hand the amount of deals I wholesaled.. and they were are plats that I sold to bigger builders and made some hefty fee's  6 figures common.. but I also put up 40 to 100k or more to get my plat pre approved this was risk money.. wholesalers running around tieing up properties with 100.00 just make this seem so cheap and crummy.. I guess its just me.

@Jay Hinrichs I'm not on here defending the $100 EMD newbies who read a blog and listened to a podcast. I'm on here defending pros like me/my company who DO add value for our customers. It'd be no different than a bunch of people coming on here claiming all developers were crooks and shady and lumping you into that group by proxy.

@Sean Cole   not singling you out I tagged you to add to your thought process that commission are negotiable..

Yes I understand public perception.. in the mid 90S  I owned a logging company  ( raped the forests)

Was developing subdivision in highly charged local environments ( big bad developer) and of course the one most like I was for years the number one or two buyer of court house foreclosures in my PDZX metro area.. ( kicking those poor folks out of the home they just lost because of the big bad bank) and of course I owned a fairly sizable HML company 35 mil plus) so we were loan sharks on top of it... I just never got into wholesaling LOL.. other than the aforementioned when I would take a plat to pre plat and flip it to Dr Horton or Lennar.. and make many hundreds of thousands on a double escrow..

however I understand your licensed and in my day job now of funding folks like you all over the US I see that the bigger wholesalers that actually have some legs are all licensed..   I have funded well over 200 deals in Orlando that Altura wholesaled to my clients for instance.

yeah I gotta say every good wholesaler I know is licensed. In the state of Florida it just makes way more sense IMO to be licensed. 

That being said @Chris Mason I don't think I would list a good wholesale deal on the MLS and try to collect "6%" from it for two reasons:

-Listing agents are constantly being asked to lower their fees to 2%< and you cannot not present an offer from another agent to the seller so the chances of you selling it are usually slim

-and last but not least: the chance to make a big fee! I made an 80k fee on a 230k house in February. Why the hell would I ever put that on the MLS for 6% when I made more than 95% of North America's yearly salary in a single transaction.

I am one of these people new to real estate, lack experience and (much) knowledge. However, I'm also not the person on the verge of bankruptcy.

I just joined late last night/this morning and posted my intro. In response, someone suggested wholesaling as a first step. I wasn't familiar with it, so I did a little research and have at least an idea of what it is.

Then, I found articles and other threads talking about this same topic, wholesaling vs RE agent. I prefer not to skirt the line so I am willing to spend the money to get a license if wholesaling is the route I decide to start.

The thing that gives me pause is I'm not interested in being a real estate agent. At the moment I want to eventually get into owning rentals (niche could change as I learn more). In order to actually be an agent and not have to worry about the gray area of wholesaling, I would have to get a sponsor, right? Why would someone, knowing I'm not interested in being an agent, want to be a sponsor?

@Justin Stamper I am in Florida, you mentioned it makes so much more sense to be licensed in Florida. Why is that?

@David Graham because it gives me the option to actually practice and discuss real estate, instead of only being a "buyer" or "seller" as a wholesaler. 

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