Is 'Wholesaling' Competing With Estate Agents?

Question

Hi everyone,

I've had a couple of great ideas for potential wholesaling business strategies. I understand the basics, especially now I've watched all the wholesaling podcasts and read TONNES on Bigger Pockets about it. Not only that, but I've already sorted contacts to quite a few local property investors who buy property regularly.

Question 1:

When setting up a wholesaling business, are you competing (in effect) with local real estate agents?

Question 2:

When looking for these properties BMV, from motivated sellers or run down properties in need of repair, do you have to get to the sellers property under contract BEFORE the real estate agent or can you still put the property under contract if the seller has already listed it with a local estate agents.

These questions may seem stupid to some, but I've been trying to get my head around it for a few hours. Instead of wasting time trying to figure out something I've never done before, I thought it would be more beneficial to ask experienced wholesalers.

Really appreciate any help and thank you in advance!!

Bill Gulley · Answer

Jack, you have the basics of it, I suggest you know your end buyers, what they want and will buy before you contract with just anyone on anything.

If you had a shoe store, would you buy 10,000 pairs of pink cowboy boots not knowing if your customers would buy them? Know your customer, that's just basic business.

I don't know where you are intending to operate, you're in England, laws may be similar but they are not the same!

And yes, you're selling the right to purchase the property, not the property and you sell your contract for consideration, it's not a commission. Saying commission will put you in an agency relationship, under laws of agency not a Realtor agency, but they are similar.

This strategy and all the others will become clear to you if you learn the basics of real estate instead of trying to learn pieces of transactions separately, I assure you of that and it will be much quicker. Good luck :)

Russell Brazil · Answer

Question 1: Yes you are in essence competing with an agent

Question 2: If the property is listed on the MLS by an agent, you can have it under contract, you just need to be sure that you can actually close on the property. By getting it under contract you are taking the property off the market. In doing so, if you are unsure you can close, you may be doing the seller financial harm by taking the property off the market, which could lead to the agent reporting you to the real estate commission for brokering without a license. So if the property is listed, be extra sure you can close.

Bill Gulley · Answer

Generally, earnest money is given on the sale contract and is usually refundable. A down payment may or may not be. An option price is not usually a refundable amout as you pay for the right to purchase. Your "fee" as they call it is actually the sale price of the contract assigned, you're selling it.

Absolutely, you can't be good at anything in RE without understanding the market and valuations. A school for agents is a great start, after the school you can decide to be an agent or not as you'll understand the implications of agency responsibilities. Good luck again, LOL :)

Bill Gulley · Answer

@Jack Wiggins

Before you jump in, ensure that you know the laws. While we all enjoy public forums that allow ideas and opinions to be shared, they are not the place to really learn anything that is regulated or that can have serious consequences if we do what just anyone suggests. We have a lot of folklore in our real estate operations here in the States.

I'm familiar with other industries and they really don't suffer from the false perceptions or the types of abuse inflicted by gurus or other advocates of business operations the way our real estate industry does. There are so many who are simply trying to make dreams come true, taking paths of least resistance that they are really a public menace as well as putting themselves at risks they aren't even aware of.

Your last paragraph tells me you've been reading my posts :)

I'm glad to hear your attitude and the fact that you'll be seeking competent advice.

There are methods of conducting wholesaling legally and ethically but they are not taught by gurus as they prefer to "dumb down" their "products" in order to market simplified approaches. That "dumbing down" of short cuts actually creates more questions and uncertainties in the business than doing something properly in the beginning.

Best of luck to you! :)

Jack Wiggins · Answer

@Russell Brazil I think I've got my head around this now. Is this how wholesaling works (obviously I will keep it very general):

1) The wholesaler finds a property that would be a great deal for an investor. They do this through their own marketing funnels to find these motivated sellers or properties in need of repair.

2) The wholesaler then draws up a contract and then puts that property under thus contract, in effect taking the property off the market (like you said).

3) The wholesaler then has to sell that contract to an OFF MARKET investor.

4) The wholesaler follows through until the close and takes home a commission.

Is there anything I've missed out here? I know I've generalised the whole process, but don't want to sit here for hours telling you stuff you already know.

Jack Wiggins · Answer

Great advice and information again! Thanks for all your help and if there's anything I can help you with in the future please don't hesitate to get in touch

Jack Wiggins · Answer

@Bill Gulley thanks for the great advice and help again! Two very quick last questions...

1) By deposit / fee above I meant that I've sent members of BP post around on forums and say on podcasts about a small deposit / fee you have to pay (as a wholesaler) to the seller. Is this correct? I've also seen that it is refundable...

2) Would you recommend becoming an estate agent to learn the location you're in? I was thinking this could help me determine the realistic property values, ARV and repair costs, etc.

Jack Wiggins · Answer

@Bill Gulley Thanks Bill for your reply. I have been reading about wholesaling on BP and noticed that what you said about finding out what the investor wants before putting a property under contract is key! Like your shoe store comparison as puts it into perspective.

I haven't yet looked into the laws in England for wholesaling, but it's always fairly similar to the US.

One question, is finding a competent lawyer / attorney the first thing you should do to make sure your contract is water tight? The last thing I want to do is open myself to tonnes of potential lawsuits or penalties.

Please don't think I'm trying to say I want a quick and easy 'get out of jail free card' if I can't sell the property contract because to start with I wouldn't of created the property contract in the first place if I didn't have or know investors who would be interested. Also, it would ruin my reputation if I constantly backed out of contracts because I had some special line which meant I could if it didn't sell.

Russell Brazil · Answer

@Jack Wiggins I guess the fee you are paying them is the price you are paying them for the property. Wholesalers typically are not wholesaling property listed on the MLS.  You are not adding any value to the transaction for your end buyer.  If they had wanted the property, they would have just purchased it on the open market.

Jack Wiggins · Answer

Thanks for the reply @Russell Brazil .. When assigning the contract (and thus taking the property off the market), is there a fee you have to pay to the seller in order to give them 'piece of mind'?

Is 'Wholesaling' Competing With Estate Agents?

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