Is it okay to wholesale houses as a Real estate agent?

Question

I am looking to dive into Real estate full time. My question will I have any conflicting problems wholesaling property as a Licensed agent?

Karl Krentzel · Answer

Gotta respectfully disagree with you, I am a licensed Broker in the State of Arizona, and have been for over 18 years.

I have a few disagreements with a couple points you made... again, respectfully speaking.

A.  Wholesaling is NOT a "net listing".  Net listings are discouraged by the National Code of Ethics (Article 1).  Wholesaling is where you as a principal, enter into a SALES Contract with the Seller.  Net listing is where you as an AGENT enter into a LISTING Agreement with the Seller.  There is agency involved with a Net Listing, where in a wholesale deal, there is NO agency.  Hence the difference.

B.  The statement "the value you bring to a wholesale transaction is no more than what an agent already brings...."  Again, have to disagree with you on this one.  The listing agent (I've been one of those in addition to an investor) has an obligation to sell the property at the highest price, and best terms possible as directed by the Seller.

A trained, and competent Agent/Wholesaler brings far more to the equation than an "ordinary Agent".

A trained, competent Realtor® Investor brings many things to the equation.  Truthful, and accurate comparables (Article 1, 2 of the NAR Code of Ethics). Discloses the nature of their "Principality" in the transaction (Article 4) and is able to bring a TON of cash to the problem.

Your Untrained, NON Realtor® Investor is ONLY able to look at the Seller's property through one view.  A Listing. Expressly what they DO NOT want.

C.  While I agree with your assertion that you cannot mislead the Seller as to the value, that does not automatically mean that you are unable to wholesale.  Wholesaling property... regardless of agent status, does NOT require the use of Subterfuge, or Lies to mislead or otherwise be less than truthful about the values.  Article 4 of the National Code of Ethics teaches agents how to flip, assign, sell, lease, or otherwise dispose of assets of a real estate nature.

One area I WILL wholeheartedly agree with you on is the prevalence of NON Agents teaching wholesaling to the licensed.  LICENSED Agents have a few more concerns than that of the non-licensed.  There are trade offs of course.  Agents have some benefits that non agents do not enjoy. Having a non-licensed "guru" teaching a Realtor® how to wholesale is a recipe for disaster.

In my recent article "Does Getting a Real Estate License Help or Hurt You?" we recently covered some of those very same advantages.

To point out the obvious, I fully believe that Realtors® should add wholesaling (aka assignment of contract) to their repetoire of services. So much so that I often write about this subject, particularly as it relates to the Code of Ethics.

In short, your job description does not define your rights as it pertains to purchasing, flipping, disposing, or otherwise buying real estate.  A Realtor® is SUPPOSED to know about the good deals.  What you choose to do with them is answered already for you in Article 4 of the Code.

Have a Powerful Sales Day!

Bill Gulley · Answer

I don't argue anymore, at least not for long, and I'm not here, but Karl and everyone:

Some have been around RE a long time, doesn't mean they have the correct view of issues, but there are different mind sets. Realtors are educated to be sales oriented, ethics can be skewed within the word of each code agreement of any profession and generally they will look more to "how do I do accomplish this as I'm motivated to do" as opposed to "should I be doing this" while looking at the intent of rules, regulations, laws and my code of ethics. The later approach generally takes you to a less risky and profitable side.

While Karl claims that a Realtor-investor brings more to the table, I do agree, simply from knowledge. It's also clearly biased justification, IMO, thinking he is worth more, I disagree as the talents necessary vary. If a brain surgeon were to treat me for the flu I don't really think it's ethical to charge me his rate for brain surgery, his additional skills were not applicable to his services. Same goes for attorneys, they may charge more per hour or per case in more difficult cases, than the cut rate pricing for a simple divorce.

A wholesale deal is no more difficult than what a new agent might facilitate.

No service of any kind adds value to a property! You will never see an appraiser giving a value for any property and then adjusting the value up because it is listed by the best broker in the area.

You're getting intrinsic values mixed up with subject and object valuations. just because I'm involved in a transaction it doesn't change the value of the property. My insight as to how to best proceed may be of value to a buyer or seller or both, but that value can not be justified beyond the usual and customary cost associated in transferring title.

Speaking of strictly wholesaling, you don't add any other value other than facilitating the transaction, any new agent can do that and the customary fees carry a 6% commission per transaction.

Now, if there were legal issues, title matters, something more unique about the property such as an environmental issue and the agent or investor solved that problem outside the general scope of facilitating a transaction, then there is a value added as solving such issues would be incurred by another professional, an attorney, engineer, title company.

Need some economics to understand the underlying justifications of "value" as well as laws of equity need to be applied. Value is subjective, objective and intrinsic to a buyer and seller. Intrinsic values can not be measured as to effecting real estate values and are not considered. I might pay more at auction for Elvis Presley's Caddy, but the value before that auction is measured to all other like cars.

Every service has a value and the basis of that value is viewed from an economic, accounting and legal standpoint as to what an alternative service would command in that market place. I might have skills as a great finish carpenter, but if I'm cutting a side of beef, my fees are more akin to those of a butcher, not a carpenter and I'm not entitled to charge for both skills, only those pertaining to the actual service required.

Where Karl feels he is entitled to justify a higher price as an investor-broker, I disagree as a good broker should already know what an investor would lend to a transaction.

On that note, then I'll say, I approach a real estate transaction as an investor, financial advisor, a real estate broker, a real estate official, a real estate lender and as a regulator! I'm looking through many more issues than an investor-broker, but if all I apply to the deal is what a Realtor would do, then all I can command for that service is what the alternative costs would have been. This is where ethics kicks in, over valuing your position based on fabricated justifications instead of what charges are customary in the market for the same service, not only is it to ethics but also is to law, as dealers that overcharge beyond what is customary will generally be shot down.

Now, through my regulatory eyes, net listing goes deeper than Karl's definition into the intent of the law, that being that 1. services provided carry a set valuation and 2. that a licensee does not take equity from a transaction that would be due an owner. Claims of having expertise beyond what is necessary to facilitate a transaction is one matter, but then the effect of a net listing is the same, whether you use a listing contract or a half dozen contracts that circumvent the agency relationship, you're still taking equity for facilitating a sale transaction.

Now, as to Nathan's comments, I certainly agree you need to be careful as to who you take advice from in public forums. But he's totally incorrect as to wholesaling being legal in all cities, not even a clue. It will depend on what a state RE commission views as facilitating sales without a license and I doubt Nathan has even spoken to any RE regulator. Assigning a contract in anything is one thing, doing it as a course of business, assigning dozens of contracts is totally a different matter. The justification is totally guru oriented, what they aren't explaining is that dealing once in something as an interested party is totally different than running a business designed to circumvent laws. So, yes, be careful who you listen to.

Lastly, we don't talk politics in the forums, to some extent it needs to be allowed more than it is. Not to political parties, but there is a saying "All real estate is local" and that has much to do with the local political issues of an area, laws are interpreted differently by different judges and often in line with their political views. We might say an area is landlord friendly that means the are is more conservative and leans toward business, if we say it's tenant friendly, we are saying it's more liberal minded and consumer oriented. Each person will have their own line in the sand as to ethics, that line may be adjusted by political opinions and what is socially accepted. So, keep in mind that when you see folks advocating something and saying they have no issues, look to their location, what state are they operating in, what might be the accepted practice there, how does that area fall politically and how might law be interpreted there, then consider your own area, it may or may not be different.

In my area, Realtors don't wholesale properties, in this area we see that as unethical dealing if you only facilitate a transaction and take equity, we put that in the same box as a net listing as such dealings have the same outcome as a net listing and the type or number of contracts is irrelevant. I agree with that view from my investor-financial advisor-real estate broker-real estate official-real estate lender and as a regulator. :)

Joel Owens · Answer

I wouldn't hang my hat on opinions on a national forum.

You need to run things first BY YOUR BROKER who holds your license. You signed an Independent Contractor agreement that spelled out the companies mission. It also should have spelled out the licensing activities that the brokerage allows you to do. Anything not listed you should have to go through the principal broker or designated BIC ( broker in charge) to see if it is an allowed activity.

Principal brokers only get what is required of them for E & O insurance. Example their policy might be weighted to insure residential and not commercial as that is all they do. If you have a commercial claim and insurance investigates and sees that your business was 80% commercial and 20% residential then they might deny the claim.

So IF your brokerage allows it after checking then you need legal counsel to check on the compliance issues for the license laws. You then need to weigh the benefit of taking this approach versus regular transacting as an agent.

In most states that I know of you are not required to be a REALTOR. That is a third party organization in the real estate commissions eyes just like MLS's. The real estate commission cares about license laws and protecting the interest of the general public. So if you are not a REALTOR then you are not subscribing to the ETHICS code they have outlined. Doesn't mean you do not have ethics just that you are not bound by those or can get sanctioned by those.

Many brokers and agents hold active licenses and are NOT part of NAR by choice.

Even though you might not have a signed listing agreement with a seller you have to be very clear on your intentions. Through no intention of your own you might trigger an IMPLIED AGENCY situation with a seller even with no contract signed for a listing.

There are customer acts that are ministerial and then there are client acts. You need to get very familiar with where the line is in your state.

Some investors do not care and simply say if something happens I just lose my license etc. but keep investing. If the license and your reputation mean something then that is not the approach to take.

No legal advice given.

Nathan Paisley · Answer

@Chris Lynch the answer is yes you can be an agent and wholesale properties in all US cities and states. It is NOT illegal or unethical just a few more steps need to be taken.

@Karl Krentzel pretty much nailed it I'll just add that you can double close as well. Remember, there are several ways to wholesale properties not just dealing with motivated sellers.

Please for petes sake, be careful who you take advice from. A lot of people on forums like to troll and spew bad information. " I heard this one guy from kentucky who went to jail and was sued and now it's illegal to wholesale blah blah blah".

Good luck

Bill Gulley · Answer

The issue is that with wholesaling you don't take title, if you actually buy you aren't facilitating a sale between an owner and another buyer......world of difference. Many agents fix and flip. Some who are contractors fix while the owner holds title and receives an amount as a construction fee, then sells with commissions, they earn the value added.

However, buying and never touching a property, just flipping it for a huge profit can cause the prior owner to bring claims against you, someone got to someone and with a license you're seen as the expert in the room and under ethical structures in dealing in any manner with the public.

And frankly, the big windfalls from wholesaling or quick flips is rare in reality, you'd do better knocking off commission based deals at a much higher rate. Your risk is also less. :)

Jesse T. · Answer

You won't get it right away, but as an agent you should be able to get about 6K on a 200K ARV property.  As an agent you can find investors and look for properties off market for them.  Unlicensed wholesalers really can't do this.  Since you start representing the buyer, you should be able you should be able to get a dual listing on that side.  Assume a price of 100K, that should get you 3K.  Then when the investor has rehabbed it, you hopefully will get the listing which should be another 3K.  If the exit strategy is a rental, they pay-off isn't as big, but you probably have a relatively high initial purchase price and the ability to build continuing income and a continuing relationship.

Bill Gulley · Answer

If you were to go to a car race to run your car and they said no Corvettes and you wanted to race yours; do you think if you took the body off and put a stretched fiberglass Porsche body on it that you should be allowed to run it? I think it goes to the spirit of the rules, not just how you shape the matter.

Use this form, I'm a principal, use this form,  I'm a Realtor. I think you need to be a Realtor at all times, the end result is the same regardless of what form of contract you use. You might have the best of both worlds if your seller comes out better off than if they had listed it as a Realtor acting as a wholesaler......if you don't get too greedy. :)

Larmon Cummings Jr · Answer

@Karl Krentzel

You made some very good points. Thanks for the feedback, me being an IL licensee, this has always been a confusing debate, but posts like yours really help to clarify a lot of the confusion. Thanks

Chris Lynch · Answer

Bill Gulley

With that said is fix and flip ok? Buy and hold?

Guy Gimenez · Answer

Is it legal?  Yes.  You're acting as a principal.

But your broker's policies may prevent you from doing so.

Is it okay to wholesale houses as a Real estate agent?

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