To License or not to license
To License or Not
So it seems to be a very hot topic for many, whether or not a wholesaler should be required to hold a license. As a wholesaler myself, I am obviously biased on this answer and personally can’t see what it would accomplish. I decided that I would write this and hope to remain neutral in the comparisons, between a licensed broker/agent, wholesaler and an Investor.
I am going to break down the common parallels between each and hopefully shed some light on how similar the actions are, both negative and positively, to hopefully demonstrate that a license, is not the answer.
OFFERS:
Wholesalers are often accused of taking advantage of home owners, by low balling their offers. There is no arguing this, it happens and is a really crappy way of doing business. If there was anything good to come out of it, it’s that those wholesalers that engage in this, usually are not around long enough for it really to have an impact. The real truth is that you cannot build or sustain a wholesale business on low ball offers, there are just not enough sellers that will fall for it. It takes time to realize that, and fortunately many just quit before they realize it.
Investors do this as well. The same thing applies to them, you cannot build or sustain a REI business, on low ball offers. It typically takes years to accumulate enough properties, to make it sustainable.
When it comes to broker/agents, this is probably less of an issue, as they are price motivated. However, it happens, and we all know it, especially if they have an interest in that property, themselves. I think we all remember the Coldwell Banker ads of years back stating they would buy your house for cash, if they could not sell it within “X” Days. We all know those were not full price offers.
For most Investors, this is the only way you make money by taking equity from the seller. If your strategy is solely equity based, you have no choice.
MONEY:
It's often argued that wholesalers are just wannabe Investors, but they have no money. This is a very interesting way of looking at one of the highest ROI strategies in Real Estate, period. At some point all Investors and Broker/Agents should know that the smart money, is always someone else's money. The more you can leverage, the more you make. Wholesalers are experts in leveraging not only the money, but time. If a wholesaler is able make 5-10K, with nothing more than a signature, please tell me what strategy will beat those returns?
I think it’s pretty clear that many investors leverage money and time, so does this mean these investors don’t have money to be investors?
There’s very little to say about Brokers/Agents here, other than many of them are not experienced enough to educate a seller on this option, thus leaving a substantial amount of money on the table, for both of them.
EDUCATION:
It is believed that wholesalers are not educated in the world of Investing. I guess this does hold true in some respects but when it comes to those topics that have a significant impact on a deal, it would take someone with many years of experience to learn what wholesalers learn in a year or two. It comes down to simple numbers, wholesalers can look at dozens of properties per month, thus picking up experience at a break neck pace. We are able to hone our skills, at a much faster pace than those looking at a few deals per month. What all this adds up to:
Negotiation skills - Wholesalers become outstanding negotiators, because we have plenty of opportunities to practice and correct ourselves. We perfect the art of negotiation, listening!
Property Assessments – Wholesalers can assess a property, by only the pictures. This enables us to give offers, on the spot or even on the phone. We need no assistance from contractors or inspectors. When you’ve looked at dozens or even 100s of homes, you have a pretty good feel for things.
Creativity in Deals: Wholesalers are able to talk in terms, other than cash. We can offer so many ways to get a deal done, deferred cash, Short Terms, I/O terms, Balloon Terms, Long Terms, all at rates that beat the bank and still beat the market price on the home, for the seller.
Strategies: Wholesalers have to become knowledgeable in multiple strategies, because not all Investors are alike. We can’t just focus on equity deals, especially in competitive markets, you have to be flexible and be ready to pivot into something else.
Investors that source their own properties, will pick up these skills as well. The more they look at, the more comfortable they get. Those investors that use Brokers/Agents exclusively, will pick these skills up, but at a much slower pace. They negotiate through the B/A, thus never getting to talk to the seller, to identify an opportunity to get creative. Not all sellers are cash motivated. They often turn to property inspectors or contractors to assist them in their analysis. This works fine, as long as you hire that contractor, otherwise it’s most likely that the price will change, hopefully lower. If they are focused only on equity deals, they miss out on much better opportunities, especially if the seller is not at all cash motivated. Investors in general, develop tunnel vision, focusing on 1 or 2 strategies.
Brokers/Agents - Let's be 100% honest here. The Real Estate courses offer absolutely nothing in the form of education, in REI. I have never been licensed but almost did it, once. I remember going through the online course and chapter tests, not one topic about investing was ever talked about. However, I did learn how to fill out a HUD, not that I have actually had to.
I have worked with many B/A through the years and there have been some rock stars, no doubt about it, but they have all shared one common interest, they transitioned too investing. I have also met several B/As, that knew nothing more than what the different rooms in a house were called. How can they possibly have my best interest in mind, if they have no clue what they are looking at? They are allowed to set the price of a home, with no knowledge of repairs or those costs, and this is acceptable? If I am the average consumer that has no working knowledge of a house, is it too much to ask that my RE professional, have some working knowledge?
CONTRACTS:
Wholesalers are told that if you can’t sell it, tear it up. This is of course an amateur move and is an unfortunate ugly spot on the concept. However, these types of wholesalers typically fade into the sunset, because they just give up.
However, there is not an investor or B/A, that has not torn one up themselves for many of the same reasons.
LEGAL:
Are we selling a house, or not?
So the argument is we are acting as a broker/agent, for the seller. Right?
I have been doing this for quite some time and this has always been a hot topic, and probably will always be. With me not being an attorney or playing one on TV, I knew someone that met those qualifications.
My attorney, at that time, had been practicing law for over 20 years, his specialty is Real Estate.
I paid for a consultation so I could get a legal perspective on whether or not I was legal in doing this business.
I am not quoting him of course, it’s been several years since this conversation took place, but you will get the idea.
“As long as you do not state that you are selling their home and your contract does not mention that you will sell their home, I feel 100% confident that I can make a legal argument to protect you, with precedent. The fact is this, contracts and their rights have been sold in this country, since its inception. It is a practice that is still going on today, across multiple industries and is not illegal by any stretch. If you were to be summoned to appear, I could and would make that argument on your behalf. I could not promise the verdict would be in your favor, but I would find it hard for a judge to not see the merit behind the argument.”
He basically ended it with, don’t worry about it. It’s only going to escalate to that, if enough complaints are filed against you.
LICENSING:
To be or not to be, this is the question.
Let’s just get this out of the way, right now.
If we look at all the industries that have a requirement of a license, a picture starts to form. This picture is one displaying the additional revenue collected by the states. This is apparent, because many of these industries and privileges (driving), have absolutely no barrier to entry.
In the US, there are roughly 225 million people that have been issued a driver’s license. This gives you the right to drive anywhere in the US, regardless of weather. If you grew up in an area where you never/rarely see snow or ice, you are still legal to pack your car up and head into a blizzard, with no experience on how to navigate those conditions. If experience is so important to so many things, why is this treated so recklessly? If you were to take the weather out of the equation, what percentage would be fair for those people that have no business behind the wheel of a car? 10%? 20%?
I am a retired master plumber. When I decided at a much earlier age to learn plumbing and make a career out of it, I also learned my requirements to become licensed. This was 5 years verifiable experience in the plumbing field, before I could even sit to take my test. However, I could have gone to school for “X” years, read a bunch of books and took a ton of tests, and with absolutely no experience, create designs for buildings, bridges and overpasses. Once approved, my plans would be put into action. How is this obvious oversight in logic, even allowed?
If you look at those industries that require a license, you see the glaring hypocrisy from one to another. When you look at skilled labor, they are required to prove actual experience, before they test. In addition, and thankfully, so is the medical field. What a disaster that would be.
The licensed real estate agent.
Let’s dig into this a bit more, shall we.
It’s sold to the American consumer that having a real estate license, somehow qualifies you to be an expert, regardless of how long you have actually done it. Those investors and agents that have done this for more than a week, know that it takes a bit longer than a recently passed exam, to actually be an expert. To be an expert should mean that you have a very deep knowledge base to work with, this is usually only possible with years of experience.
They are legally allowed to represent buyers/sellers in very expensive transactions, with zero experience and in many cases, very limited knowledge of what makes a home tick. Most of those consumers have no knowledge themselves yet put their financial health in the hands of an “expert” with no knowledge.
It gets better…
I do believe in most, if not all states, I can choose to become a property manager, because I am licensed!!
- No Background check required
- No credit check required
- No fingerprinting
- No need to disclose anything, to anyone
- Keep YOUR money, in my business account. I say when you get it, how much you get or if you get it at all
However, if I run a TV spot, radio spot, billboard or social media campaign stating if you invest with me, I GUARANTEE you 25% return on your money, every year!! I could be charged with a crime. This has to be a joke, right?
The 1st scenario, you basically have no recourse. You can sue and you will win, but you will spend thousands with an attorney to win, but winning and collecting, are not the same. The DA could press charges, but if it’s only a few thousand dollars, that’s not likely to happen. I could possibly walk from it all, with a bankruptcy filing and your money.
The 2nd scenario, you have actual paper that has significant value in Real Estate, which is the DOT! That means if I skip out or get hit by a truck, the house is yours and you stand half a shot of recovering some or all of your money.
So to recap.
Having a license allows anyone to control investor money, with no qualifications or security measures.
Advertising for investor money, can be a crime in and of itself, whether I secure investing or not.
Makes perfect sense!
When you look at the overall scope of being licensed, it just offers no merit. If it is supposed to mean something, then it needs to be treated in that way. Require experience to even test, and by all means require background checks to become a property manager. The point here is this, having a license does not validate anything, unless there is a real barrier to push through. I have no issue with all of the states requiring it, as long as they stop making a mockery of it. If there are no plans to make experience relevant, then I would prefer to keep my money, thank you.