The Pros and Cons of Wholesaling With a Real Estate License

by | BiggerPockets.com

Lets discuss the pros and cons of wholesaling with and without a license.

It’s safe to say this question has been circulating around the BiggerPockets community for years: Should I get my license? Some people comment “Sure,” and others say “Heck no.” As a wholesaler, I’ve been on both sides of this debate. When I started, I did not have a license. While I quickly saw the benefit of having it, I’ve also seen some of the limitations it brings.

As we begin, I will lay the ground work. I’ll discuss a pro and follow up with a con. This way, you’ll clearly see the advantages and disadvantages side by side.

Another question I see all the time is, Is wholesaling illegal? I’m sure you’ve seen this question tossed around as well. We can minimize the complexity of this question by answering: It doesn’t matter if you have a license.

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Pros and Cons of Wholesaling As A Real Estate Agent

Pro #1

You don’t have to worry about doing something illegal. This a good thing to know. For those of you who want to wholesale and can’t acquire a license based on your history, finances, or whatever, then it’s safe to say you’re taking a gamble.

Con #1

The cost of acquiring a license. It will cost you close to (if not more than) $1,000 to get your license. By the time you pay for classes, the test, and membership fees, you could be starting in the red. So for those on a limited budget (as most newbies are) you have to stack some coins before starting.

Related: Answered: Should You Get Your Real Estate License?

Pro #2

I refer to the ethics of doing real estate transactions. We know there are some greedy and grimy people in this industry, and that’s fine (not really) as long as they don’t cross the line. If you’re licensed, you have to do everything according to the department of real estate standards. That includes submitting to a criminal background check. In some cases, real estate investors already have a bad name, and we want to make sure those operating in the space are not doing business illegally.

Con #2

If you did something incriminating 30 years ago, should you still be judged for something you did when you were 19? Our society is quick to say we believe in rehabilitation, but do we honestly believe that? I’m definitely not saying anyone and everyone should have an opportunity to handle a transaction, but there needs to be a little more discretion used in the decision-making process.

Pro #3

When you’re at the table with the seller, encouraging them to sign with you instead of the guy that’s not licensed, you may have the upper hand. You can make the argument that you are licensed and have to do everything according to the department of real estate standards. This gives you credibility.

Con #3

To that point, if you do acquire the deal, you have to pay your broker. Yes, this makes your assignment fee smaller. Less money in your pocket.

Pro #4

Proximity. Agents like to do business with other agents. (What I refer to as proximity.) If agents in your brokerage know you have investors or properties, they will look to you for the deals. You will not have to do too much work to find either. Unless your in a market like today’s — definitely a sellers market.

Related: What Exactly is Real Estate Wholesaling (& What Does a Wholesaler Do Every Day)?

Con #4

As a non-licensed wholesaler, you don’t have to use that 15-page book as a contract. You can create (or have an attorney create) something short and sweet. The contract that agents have to use provides a lot of protection for the seller and the buyer, but it’s so dang long that a lot of sellers get intimidated. You can lose a deal because the seller will say, “I need to review all of this before signing.” While they’re reviewing it, a non-licensed wholesaler can offer the same price on a one-page contract and the deal is done. While your book is sitting on the nightstand.

Conclusion

I could go on and on about the pros and cons of both options, but you have to decide whether you’re vested in this for the long haul or just looking to get in and get out. In my opinion, if you’re making real estate investing a career, get your license. It will be a benefit for you in the end.

I’m sure you have some other awesome pros and cons for wholesaling with and without a license, right?

Share them below so we can get an open debate going!

About Author

Marcus Maloney

Marcus Maloney G+ is the Executive Officer of Equity Realty & Investments as well as 3rd Generation Management & Holding LLC, both are family owned and operated real estate investment firms. The firms’ goal is to provide affordable solutions in real estate while providing exceptional opportunities for community redevelopment for the residents of Phoenix, Arizona and Chicago, Illinois. You can follow Marcus on Twitter

20 Comments

  1. Michael P. Lindekugel

    when self dealing as a real estate licensee your E&O insurance probably won’t cover your transactions. in WA State there is more to think about. a WA licensee acting on their on behalf is required by the law to make more disclosures, including about value, to the unrepresented seller. a NWMLS member is prohibited from engaging in the practice of pocket listings. the fines are very steep.

    • Marcus Maloney

      Wow Michael interesting. We do have to have additional disclosures such as unrepresented seller, and disclosing that I am a licensee, so there are additional provisions. Thanks for adding to the article, great comments always add to the discussion

  2. Mike Dmuchoski

    Good article. Thanks, Marcus. I know of several (if not many) licensed agents in Arizona who use an internally produced purchase contract for their off-market deals. It sounds like you use the AAR purchase contract. What went into that decision?

    • Marcus Maloney

      Mike, thanks for reading man. The AAR contract has so many provisions to protect you and the seller it was a no brainer. Also a broker request for E&O insurance, so it made sense. Actually I’ve never lost a deal because of using the AAR contract. I’ve heard stories of others loosing deals.

  3. Rocky V.

    As a Realtor you have a fiduciary duty to your client so taking a huge assignment fee would seem unethical. I’m a strong believer in giving motivated sellers options so I do hold a license and always give them the choice of listing property. I don’t assign deals but close on 100% of executed contracts.

    • Marcus Maloney

      Rocky,

      The agent is not representing the seller. The seller will sign an unrepresented disclosure agreement. You are representing yourself and not the seller. Also the second leg of the transaction you are not representing the buyer, you are representing yourself in this transaction.

      If the seller is unwilling to accept the wholesale offer then and only then we will ask to represent the seller and list the property.

      Let me know if you have any questions. Thanks for your input

  4. Robert Fisher

    I think another con would be that you have to tell them you’re an agent. Depending on the seller, that may be reason enough for them to shut down and go with somebody who isn’t.

    A guy in my local REIA a bunch of assignments and wholesales, as well as keep a few for himself, went through the whole education process and at the end decided not to take the test and get his license because he had gotten several deals in the past simply because the seller didn’t trust real estate agents.

    • Sean Hevenor

      This is a great point., Robert. Following that thread, because you are a licensed professional, IMHO, there are ethical issues with dealing and negotiating directly with sellers. If things ever go south, it would be very easy for attorneys to frame the situation as a professional taking advantage of the public, and the results would not be pretty.

      Primarily for that reason, as a licensed broker myself, for my investing side of my biz I stick to dealing with seller’s agents, with banks, or with other investors, all of whom I see no problem ethically negotiating with. And all the better if the guy on the other side of the table is an investor agent as well.

    • Nephtalie pierre

      I should’ve been more specific. If one of your own partners closes on a wholesale deal in the companies name, do you still have to pay a percentage to the broker? especially if the lead came from your own companies marketing?

  5. Kim Tucker

    Strange, as a real estate agent, I have never split my wholesale fees with a broker. If I was conducting a transaction where I was a buyer, seller, or wholesaler, that had nothing to do with a listing, my broker had no part of my profit. But if I had a marginal deal and LISTED it instead or buying to flip or wholesaling the deal and earned a commission for my efforts, then that commission was split with my broker.

    As an agent, if you are not earning a commission or a referral fee from another agent, you should never have to split with your broker. If you do, then you need to find a different broker.

    • Ty Haas

      Kim,

      Thank you very much for your comment. The “Con #3” was an eye-opener to me. When you wholesale a property, as a real estate agent, do you have to use the “15-page book” as a contract, or are you able to use a simpler one or two-page purchase contract followed by an, again, simple assignment contract? I reside and do business in Kansas, if that matters for your response.

      I am just starting out in wholesaling (haven’t even completed 1 deal yet, but there’s one in the oven, so I’m hopeful but definitely new). I just got my LLC for my real estate/wholesaling business up and running plus contracts – all through an attorney. Another question…if I were to become a real estate agent, did I just form the LLC and have contracts drawn up for nothing?

      Furthermore, I have a brokerage wanting me to be an agent for them. It seems like an opportunity, but I do wonder how well it will mesh with my current pursuit to wholesale properties. Sure, having access to the MLS would be handy, but many wholesalers do not. When considering this option, I envisioned my wholesaling business, where I put a property under contract with the option to buy or assign, being separate from my job as a realtor where I represent a buyer or seller. Did I envision that incorrectly? Do you conduct your investment business separate from your real estate agent business?

      This article was helpful, but I would like to know more of the pros and cons of wholesaling as a real estate agent. If you have any suggestions, I’m all ears. Thanks in advance and sorry for so many questions. It’s just that your reply hit home.

  6. Gabriell McLeod

    Thanks for sharing these pros and cons. I sometimes feel that people who aren’t licensed have an advantage because they can market and do certain things licensed individuals can’t do (or have to do differently). In contrast, being able to lean on the code of ethics and do everything “above board” is a plus. It give you credibility. The commission split is another issue but if you have a good deal, it’s just the cost of doing business.

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