Couple of questions about Realtor's and Wholesaling...

3 Replies

Hey all! I just recently signed up with BP and have been looking into wholesaling in the Phoenix market. I don't have much capital to start with, but I've had some construction experience remodeling homes. There's a couple of things that I haven't figured out about wholesaling yet but I'm working through those. 

The first thing I don't understand is a wholesaler sure sounds a lot like a Realtor to me. You find a buyer for a house that is for sale. I understand that you draw up a contract to purchase the property then find a buyer to buy it from you but my brain still thinks that's too close to what a Realtor does. Can you help me distinguish the two more clearly?

My next thing is I have a contact and she works with Canadian investors who buy properties down here in Phoenix. She is a Realtor and her husband remodels the houses she finds for her Canadian investors. It sounds a lot like wholesaling to me but I'm not 100% on what exactly she does. I know 100% she would help me get in touch with one of her investors if I found a property to wholesale. Even though I know her personally, I feel like I should kick her some $$ for helping me find a buyer. What do you think? Not knowing 100% how she operates, I feel like if I find a property to wholesale, ask her to get in touch with her contacts, and if they buy, she would get her commission anyways.

And one last question! If I find a property and get it under contract, but I can't find a buyer, am I stuck with this property? I can tell you right now I wouldn't be able to buy it if it came down to that. What kind of ramifications are there if it comes to closing and I don't have a buyer?

Just trying to make clear of every detail before I jump into this thing to avoid disaster!

Thanks in advance!

Gary

I'm just getting started myself, but from what I understand:

Wholesalers and agents can seem very similar. In my view, a wholesaler is someone who has little desire to deal with retail buyers. Wholesalers are more focused on building relationships with a handful of experienced investors, finding properties that fit the criteria of those investors, and getting them off the market (under contract). Since there is no need for a license to do this, a lot of wholesalers see being an agent as unnecessary. Although it seems it's more a matter of opinion on whether to be an agent or wholesaler in order to cater to investors. Also, you can do what a wholesaler does as an agent, but a wholesaler cannot do everything an agent can. In the end, one wholesaler could operate completely different from another so it kind of depends on your business model. The only 2 downsides (if you want to call them that) of having your license are paying annual license fees and having to disclose the fact that your an agent to sellers.

As far as your contact who is an agent, I know something that is typically done in that situation is for you (as the wholesaler) to take a 25% cut off the top for marketing expenses. Then, if you found the seller and she finds a buyer, you would split the remaining 75%. At the end of the day, I suppose it's a matter of whatever you negotiate with her though.

Getting out of a contract is simple enough. It's a matter of adding a clause in the contract that gives you the option to walk away based on inspection, which in theory could be for any reason. However, you should view this as your last option after all avenues have been exhausted as you don't want to build the reputation of someone who is tying up properties without the intention doing your best to make a deal happen.

Wholesaling:

(1) Enter into a purchase and sale contract or option to purchase a Property with a right of assignment

(2) Assign (aka sell) your rights to buy the house under the purchase contract or option to another investor

(3) Collect your payment for sale of the assignment at closing

(4) The other investor buys the house

Real estate agents (some are "realtors" members of the NAR):

(1) List a Property you do not own or represent a home purchaser

(2) Collect a commission based on the sale of the home

Wholesaling is simply selling an assignment, the same as any other contract assignment that can be sold. This one just happens to be for the right to purchase a house based on the purchase and sale agreement you already entered into. It usually requires no special license.

So, they are not related, but there can be some issues if the price you sell the assignment  for is based on the sale price of the home or somehow construed as a "commission." There can also be issues if you list your assignment payment as a "fee" in the closing documents. Generally, only licensed real estate agents can collect a commission on the sale of a Property they do not own. If you collect a fee based on the sale price of the Property, you are at risk for unlicensed sale of real estate. Good luck!

Disclaimer: This is not legal advice. It is general information on wholesaling and real estate agents. Contact an attorney licensed in your state for legal advice. 

@Jason Quick.

Would it be fair to say that the agent represents either the buyer or seller in the transaction and is paid a commission for the services rendered.

The wholesaler represents themselves and profits from the spread that they create in the purchse and sale of the property.

Stephen

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