Have you seen signs around town offering to buy houses for cash? These signs usually include a cell phone number and state a particular interest for buying “fixer uppers” or “ugly” homes. The contact number on these types of signs is most likely linked to a wholesaler. Wholesalers offer homeowners fast cash for their home at a price below market value. A wholesaler takes the contract made between themselves and the seller and assigns it to an investor for profit, who then flips the home to make more profit. The entire process leaves the homeowner in the dark, keeping the best interest of the wholesaler the focus. Keep reading this post to learn more about how wholesaling works and why you should always use a Realtor when selling your home.
How Wholesaling Works
A wholesaler doesn’t actually end up buying the home, but they probably will not mention that to the seller. As stated previously, a wholesaler offers to buy a home for a low price and pay cash. It’s important to remember that the price needs to be exceptionally low for them to make a nice profit. The contract written up with the agreed upon price between the wholesaler and the homeowner has small details that distinguishes it from a typical contract used when a home is purchased through a Realtor. These details enable the contract to be assigned to another buyer instead of the wholesaler, and for a change price to be made.
Once the wholesaler has a completed contract between themselves and the seller, they go through their network of investors looking for an interested buyer. After an investor commits to the deal, the wholesaler simply assigns the contract to them, and adjusts the price of the home to a larger amount. Remember, no changes have been made to the home. It is in the exact same condition as it was when the wholesaler signed the first contract with the seller. The wholesaler pockets the difference between the price the homeowner agreed to pay and the price the investor pays upon receiving the contract. The profit made by a wholesaler is usually tens of thousands of dollars.
As you can see, the homeowner is the one who gets the short end of the stick as they are completely unaware of the process. This is especially unethical as the homeowner was most likely coaxed into such a low price for their home below market value. Wholesalers have been known to prey upon desperate homeowners in financial trouble.
Always Use a Realtor
Wholesalers are not usually Realtors or even licensed real estate agents. Rather, they are individuals making money independently. Without any sort of licensure or code of ethics to uphold, you can’t trust a wholesaler to act in the best interest of the homeowner. They are not required to disclose their intentions and important information with professional transparency.
A Realtor is a licensed professional who belongs to the National Association of Realtors (NAR). Founded in 1908, the NAR is America’s largest trade association, representing 1.5 million+ members. It boasts an extensive code of ethics along with specific policies, procedures, and professional standards its members must adhere to. A homeowner working with a realtor can have peace of mind, knowing they are working with a professional who has been thoroughly vetted and is currently committed to upholding certain standards.
A real estate agent is a licensed professional who works in the real estate industry focusing on the transactions between buying and selling property, but is not a member of the NAR. A real estate agent not only helps clients buy and sell, but also rent. However they are not required to adhere to the high standards the NAR demands without membership. In order for a real estate agent to be considered a Realtor, they must become a member of the NAR.
A Realtor is required to give a Comparative Market Analysis (CMA) along with their offer if they are acting as a principal in the transaction. You can be almost certain a wholesaler won’t do this or they will skew the data to show an inaccurate picture of the market.
Most wholesalers are aiming for a speedy transaction and fail to include a disclosure. A seller’s disclosure is still required by law unless they fall under one of a few legitimate exceptions. If you are the seller and not being guided with good counsel, you are likely opening yourself up to a potential lawsuit because of a failure to disclose relevant and material information about your property. This is a huge reason not to use a wholesaler.
Sellers can fall into the trap of wanting fast cash for their home. Don’t be fooled! Make sure the person you choose to work with in selling your home can show you their credentials and licensure. You deserve full transparency and decision-making power when it comes to your home being purchased. I have over ten years of experience in real estate and love helping my homeowners maximize their profits when selling their home. Click here to learn my tips for choosing the right Realtor to represent you in your real estate endeavors!