What is a real estate wholesaler?
And how is an investor different?
Real estate wholesaling isn’t a new phenomena. But a flurry of recent media attention has brought the profession into the public lens. Rising home prices have made investing in real estate more attractive. But what makes an investor a real estate wholesaler? And is there a difference between the two?
We’ve put together a breakdown of the differences in investment strategies between investors and wholesalers. Here’s how you can benefit from understanding the difference!
What do wholesalers do?
Like investors, real estate wholesalers work to find investment viable properties to purchase for cash. We call the owners of these properties “motivated sellers”. These motivated sellers have distressed properties with an immediate need to sell their home. They are usually looking for cash buyers who can close quickly.
A wholesaler will work with the seller to put the property under contract. Usually below market value. They then work to assign the contract to another buyer who will pay a higher price. When a contract is assigned, all of the privileges and obligations to fulfill the contract pass from the “assignor” in this situation, the wholesaler, to the “assignee” who is the final buyer.
To find this buyer the wholesaler will usually market the property. Usually to a network of real estate investors who are actively buying properties.
When a wholesaler finds a buyer, the seller then sells the property to that new buyer while the wholesaler takes a cut called an “assignment fee”. The seller gets the amount they agreed upon with the wholesaler, and the new buyer pays the assignment fee to the wholesaler.
What are the drawbacks to working with a wholesaler?
For some sellers, wholesalers offer a solution to their real estate problems by offering a quick cash sale; however, there are some drawbacks to be aware of:
- A wholesaler won’t close on your property without finding an end buyer. If they can’t find someone to assign the contract to, you will be back to square one on your sale.
- A wholesaler isn’t required to have a real estate license. Meaning they may not have a comprehensive understanding of local real estate laws and customs, nor are they bound by the rules of a local real estate board.
- You may have to suffer additional showings while your wholesaler tours prospective end buyers through your home.
- A wholesaler may request price reductions based on the feedback they receive from prospective buyers, leaving you with less cash.
What are some red flags to look out for when working with a wholesaler?
If you do decide to work with a wholesaler, be sure to keep an eye out for the following, as they may indicate an inexperienced wholesaler or a risky deal.
- A long inspection period. An inspection period is a buyer’s opportunity to make a good faith effort to perform home inspections and appraisals. However, it’s also referred to as a “get out of jail free” card in Florida. During the inspection period a buyer can terminate the contract without penalty, without providing a reason. Because of this, unscrupulous wholesalers often use a long inspection period (30+ days) to tie up a home while they find a buyer. A good buyer has a short inspection period, usually no longer than two weeks.
- No or low deposit. A deposit, often called an Earnest Money Deposit or EMD in real estate terms, are funds a buyer places with a reputable title company in escrow at the time of contracting. If the buyer fails to perform on their side of the contract, the EMD is forfeit to the seller to compensate them for their time and as a penalty against the buyer. No deposit or a deposit in the double digits indicates an unsure buyer, and should be viewed warily.
What is a real estate investor?
A real estate investor is an individual or group which purchases real estate as an investment strategy. These individuals and groups are well funded, usually with private money. And they are looking to close on transactions quickly and efficiently.
Unlike a wholesaler, an investor closes on the sale regardless of any exit strategy they may use. Additionally, a good real estate investor has licensure or partners with a real estate agent ensuring laws and customs are followed.
So should I sell to a wholesaler or to an investor?
If you are in a situation that requires a quick cash sale, or you simply don’t want to deal with selling a home the traditional way both a wholesaler and an investor can offer you the type of sale you need.
However, a good, licensed real estate investor will offer more support, professionalism, and security in your sale. This ensures that you get the cash you need in the timeframe you need it. If you have a choice between a wholesaler or a vetted and trusted real estate investor, the investor will be your better option almost every time.
If you have a home you need to sell quickly, or want to see what a good investor offer looks like for your situation. Give us a call at 904-346-0600 or click the link here to get started. We’ll provide a free cash offer! Even if you don’t decide to work with us, it’s helpful to have in your back pocket for future negotiations!