A lot of sellers don't want to deal with the hassle of selling it themselves. Many believe that in order to sell it that they need to do all of the repairs, show the house over and over again, negotiate endlessly and know the State forms forward and backward. There are plenty of other reasons. But hopefully you get the idea.
Aside from what Roland mentioned about the traditional path of selling, sometimes the seller is another investor who just wants to unload their properties, other times they are adult kids who have inherited unwanted properties to not have to deal with the costs of it. People are always in some sort of circumstances that have a financial factor and a wholesale buyer can bring a solution swiftly.
@Thomas Weidner Normally people sell their properties at a wholesale price or on wholesale terms for non-financial reasons. They have something going on in their lives that is motivating them to unload the property as fast and with as little stress as possible.
I'll give you an example of a seller I worked with that you can share with your wife to help her understand the kind of situations we regularly come across.
This guy had his house up for sale by owner because no agent could help him. He had bought the house 2 months earlier with his girlfriend, only to find out she was cheating on him. So they broke up...now he had half the income and all of the expenses of this new house. He moved in, and then lost his job. So now he had no income.
He owed more than the house was worth because he overpaid for their 'dream' starter home. He didn't have any equity to pay an agent and he couldn't pay them out of his own pocket. He also couldn't rent it for enough to cover his payments.
So he had 1 month before the bank would start foreclosure proceedings and he was desperately trying to just break even, that's all he could hope for.
When I offered to take over his payments, what do you think he said?
Motivation is a personal matter in every transaction. The deals I like to find are where both seller and buyer and seller find that their needs are met.
A true example I came across some time ago was a lady who wanted to sell her inherited property quickly. Her mom had lived in the home for many years, it wasn't updated, and some back taxes were owed on the property. The daughter who inherited the property lived several hours away. Her motivation was to be done with the long distance headache and any money that she realized from the sale was like "bonus" money to her (similar to how folks often view their tax returns as "free" or "bonus" money). Nonetheless, she wanted cash quickly and wanted out.
Wholesaling can make the process quick and simple and the former owner walks away with less cash but also less hassle. People trade money for less hassle all of the time - like paying for a porter to carry luggage!
I personally couldn't every see myself selling wholesale, but I love buying wholesale!
@Thomas Weidner There are certain situations where it might make sense. For example, if I inherited a property 1,000 miles away and it needed a lot of work to get it up to good condition, I'd probably list it on MLS, but I might be open to a wholesale deal. In other words, I might be willing to trade cash for convenience.
The problem is that wholesalers can't pay anything near retail and I know I'm going to leave money on the table. If a wholesaler could put this unexpected cash in my pocket very quickly with no friction or liability, I might consider it.
One common target of wholesalers is distressed people, circumstances and properties. If the seller's back is against the wall and he needs cash right now, he might be OK leaving 35% or more on the table.
In general though, listing a property with a strong, full-time Realtor with a solid marketing plan will net the seller the most money. It might take a little longer, but I can promise you that exposing it to millions of potential buyers will get you a higher price than a wholesaler will pay.
In my opinion, it almost always makes the most sense to go the Realtor route.
@Thomas Weidner Time. Some people just want a quick sale leaving money on the table for the next person. Usually, they don't want to take the time to get the house in perfect condition. Going in, they know they're selling at a lower price but would rather sell now than putting more work and money into it for a later sale down the road. Hope that helps!
Because sometimes the whole house looks like this and they dont want to deal with a realtor and multiple people walking through their home.
@James Clements I sold it on terms. His mortgage was around 2.5% and I charged my buyer 5.5%. The spread on that particular deal was about $350/month.
@Paul Amegatcher Not many realtors would want to deal with that!
House got flooded, can’t afford the patience or repairs to resale even after insurance. I have one similar that I’m looking at currently.
@Thomas Weidner Right. It's my favorite way of investing, closest thing to passive income you can get.