In addition to the traditional route of selling your home through a real estate broker, Realtor, or agent, working with a real estate wholesaler is becoming a popular method sell your house fast (and often for cash). But is selling your home to a wholesaler a good idea for you?
What is wholesaling real estate?
Let’s start with the basics.
Wholesaling is where one person (the wholesaler) develops and signs a contract with someone who wants to sell a property they own (the seller). Then, the wholesaler can sell that contract to another person (the buyer). The wholesaler essentially is the go-between - he or she negotiates the terms of a deal with the seller, and then finds a buyer willing to purchase the house under those terms.
How do I sell my house to a real estate wholesaler?
Working with a real estate wholesaler to sell your home is, at its core, about the contract you agree upon. The contract states how much you are willing to sell your property for and when you want to close (as well as other conditions if necessary), and it also gives the other signer permission to sell that contract to another buyer – which they typically do at a higher price (that’s where they make their own profits).
Here’s an example:
A wholesale real estate investor signs a written contract stating they will buy a seller’s house for $100,000 in 14 days. During those two weeks, the wholesaler finds another person who agrees to buy the house under the terms of that contract for $100,000 and to pay a wholesale fee of $5,000 on top. After the sale closes, the seller gets the $100,000. The wholesaler gets the $5,000 fee. The buyer gets the house.
What’s the difference between a wholesaler and a flipper?
There are several different ways to make money as a real estate investor. Wholesaling real estate and flipping properties have some similarities – in both cases, the buyer isn’t looking for a home for themselves and plans to resell – but they are very different methods.
Someone who wants to flip houses purchases a property with the intention of increasing its value. A flipper will invest the money, complete repairs and updates to improve the house, then sell the property at a higher price than they paid for it.
A wholesaler, on the other hand, doesn’t buy the property or do any work on it. Real estate wholesalers specialize in finding undervalued properties in the area (or ones that need to sell quickly), negotiating an agreeable contract with the homeowner to sell it, then selling that contract to another investor for a fee.
Often, flippers are the ones buying properties from wholesalers. Wholesalers complete all of their work before the deal officially closes.
Pros of selling your home to a wholesaler
Selling to a real estate wholesaler might be appealing in a variety of situations. Here are a few advantages to selling a property through a real estate wholesaler:
Speed: Wholesalers can often sell your house in as little as a week because they have access to a network of cash buyers. This is great if you need to close quickly for any reason.
Sell in “as-is” condition: Generally, wholesalers will sell your house in the exact condition it’s currently in. Whether the repairs it needs are great or small, you don’t have to worry about the time and expense of fixing the property up before selling.
No (or less) contingencies and inspections: Most of the time, wholesaling real estate contracts state there will not be any inspections or contingencies that may affect the sale of your house.
Commissions: Wholesalers typically cut the real estate agent out of the process, so none of your profit is docked by commissions.
Cons of selling your home to a wholesaler
There are some potential disadvantages to selling your home via a real estate wholesaler as well, such as:
Discounted sale price: Wholesale contracts typically prioritize quick closing and minimum contingencies over maximum profit. Generally, wholesalers work with sellers who are willing to sell their homes below market value so that wholesalers can make some profit when they resell it.
Fiduciary relationship: In most states, a wholesaler does not have to act in a fiduciary capacity as an agent would. This means they are not legally bound to act in your best interests as a seller. While most professional wholesalers care about their relationships and reputation and will therefore serve you as well as they can, you should take care to review the reputation of whomever you’re working with.
Risk of the contract falling through: Just like any other real estate contract, there’s always a risk that the parties involved may not come through. If the wholesaler can’t find a buyer or the new buyer has financial issues, you may need to start the process over again.
Limited exposure: Real estate wholesalers typically work with a small group of cash buyers – and of course, not all buyers can pay cash for a home. Thus, this can limit how many buyers will consider purchasing your property.
When deciding what the best course is for selling your home, you should read over the pros and cons of selling through a wholesaler carefully to decide if working with a real estate wholesaler or agent is a better choice for you.
Still not sure if selling your house to a wholesaler is the best option for you? Book a strategy meeting with a real estate consultant who can help you weigh all considerations.
Why should I consider selling my house to a wholesaler?
While it’s not the most traditional route, there are several reasons you may prefer to work with a real estate wholesaler to sell your home.
Here are some situations where selling your house to a wholesaler may be the best choice:
You want to sell your house quickly: Some property owners need to sell their property quickly for various reasons, such as financial difficulties, divorce, or job relocation.
You inherited property: Inherited properties can often take significant time, energy, and money to get them ready to list on the open market. A quick cash offer from a wholesaler could save you a lot of headache in this case.
You are facing financial hardship: Wholesalers can often get you a cash deal quickly, which could be just want you need if you are in financial difficulty.
You want to avoid foreclosure: If your home is at risk of being foreclosed on, you may have an opportunity to sell it to a wholesaler for quick cash to avoid the negative impact of foreclosure on your credit score.
Your house is in poor condition: If you aren’t interested or able to spend the time and money to alter the condition of your house, a real estate wholesaler can help you find someone interested in purchasing it “as-is.”
Why wouldn’t I sell to a wholesaler?
Deciding whether to work with a real estate wholesaler vs. a real estate agent depends significantly on your goals for selling your house. If your home is in good condition, you aren’t in a rush to close, and you want top dollar for your house, you might not choose to sell to a wholesaler. Working with a traditional agent or Realtor may be the right path for you.
Take note: As with any real estate transaction, sellers should always be certain they understand the terms of the contract – including any contingencies and deadlines – and have the contract reviewed by a lawyer before signing it.
THE BOTTOM LINE
Sellers who really want to sell their home fast or for cash might consider contracting with a trusted real estate wholesaler a great option. Make sure you understand the process, pros, and cons of working with a wholesaler before diving in.
Need some expert advice on which route is best for your individual situation? Reach out to our team – which includes licensed agents, brokers, wholesalers, and real estate consultants – so that you can invest confidently.