Wholesaling in the real estate industry refers to the process of finding and contracting properties at a discounted price compared to the retail market; and then assigning the contract to another buyer for an assignment fee, aka wholesale fee. It is essentially a method of quickly transferring the rights to purchase a property without actually taking ownership of it. Wholesaling is common practice in real estate sales.
Here’s how wholesaling typically works and the benefits it offers to different parties:
Wholesaler:
- The wholesaler identifies distressed or undervalued properties that can be purchased below retail market value.
- They negotiate a contract with the property owner/seller, typically using a purchase agreement with “and/or assigns” on the contract.
- The wholesaler markets the property to potential buyers, often real estate investors, who are looking for investment opportunities or their in house buyer’s list.
- Once they find a buyer, they assign the contract to that buyer for a fee, which is often referred to as an assignment fee, or wholesale fee.
- The wholesaler earns their profit from the difference between the contracted purchase price and the assigned price, minus any expenses incurred during the process.
Property Owner/Seller:
- Wholesaling can benefit property owners who want to sell their property quickly and without dealing with the complexities of traditional listing selling methods.
- The property owner/seller gets the advantage of a fast transaction, as wholesalers typically work with cash buyers who can close deals quickly.
- Wholesalers often target distressed properties or motivated sellers who are looking to offload their properties rapidly, often due to financial difficulties, distressed properties, the need for privacy or other personal circumstances.
- While the property owner may sell the property at a lower price than what would be listed on the MLS, they can avoid the costs and hassles of repairs, listing the property, waiting for a traditional buyer, and paying agent commissions.
Buyer/Investor:
- Wholesaling benefits buyers/investors who are looking for buy and manage investment opportunities or properties to rehab and sell for a profit.
- Buyers can acquire properties at a lower cost than the retail market value, which increases their potential return on investment.
- Wholesaling provides buyers with a stream of potential investment opportunities, as wholesalers actively seek out properties that meet their investment criteria.
- It allows buyers/investors to leverage the expertise of wholesalers who have already performed initial due diligence on the properties, saving time and effort.
Overall, wholesaling benefits property owners/sellers by providing a quick and hassle-free selling process, buyers/investors by offering wholesale properties for potential profits, and wholesalers by earning a fee for facilitating the transaction. Some real estate laws and regulations can vary between jurisdictions, so it’s advisable to consult with us and legal experts to ensure compliance with applicable rules and regulations when engaging in wholesaling activities. Here at Real Property Hero we have been licensed in Texas for 20 plus years and we have a duty to honest, fair and transparent wholesaling transactions.
Warning: We’d like to warn Sellers and Buyers about any and all deals with the Big Box Wholesalers. Some of these large wholesalers use scarcity to sell investor/buyer deals without giving the investor/buyer enough time to do their analysis and due diligence which ends up making the deal fall through or causing a closing to be delayed by a lot as they go through buyers. IE – they’ll have a lot of investor/buyers meet at a property at the same time and give it to the first person who writes them a non refundable check on the spot, and usually without the end buyer doing their due diligence (value/ARV check, objective repair estimates or inspections). At Real Property Hero, we are not a Big Box Wholesaler. We only wholesale a property in certain situations and if it works out better for the Investor/Buyer involved. We use transparency, reasonable due diligence periods, fair offer prices, fair assignment fees, and realistic numbers for ARVs, construction costs and sold comparisons.