Wholesalers and licensed realtors often have conflicting views because they go about the real estate business in different ways. In wholesaling real estate, the wholesaler acts as a middle man and is given the authority to assign a contract. A realtor is a licensed professional who is able to buy and sell a property for another person.
Wholesaling Real Estate Definition
Wholesaling real estate is when a wholesaler looks for a property that is priced below the market value and the wholesaler is given the capacity by the seller to assign the contract to the final buyer. The wholesaler benefits from the wholesale real estate deal by setting a markup between the asking price stated by the seller and the final sales price.
The real estate wholesaler will add a set amount on top of the seller’s asking price which will then be considered as the wholesaling real estate profit. Wholesaling real estate works well for an investor who wishes to gain quick cash in a more flexible manner.
For the seller, wholesaling real estate is also appealing because it eliminates the hassle of hiring a real estate agent and this deal enables them to sell the property at a faster pace. Wholesaling real estate works well when the asking price of the seller is below the market value.
Working as a wholesaler can be extremely appealing to those who want fast money and it enables the investor to have control over how much money they can make in a wholesale deal. There are several other wholesaling benefits that a real estate investor can find appealing.
a. Eliminates the Need for a Formal Education
Since wholesalers are generally unlicensed, they do not have to meet the mandatory number of study hours and they do not have to take exams. If an investor wants to begin practicing a real estate career with fewer compulsory requirements, wholesaling real estate should be their chosen path.
b. Ability to Work with Deal Scouts or Bird Dogs
A real estate deal scout is a person employed by the wholesaler to track down motivated seller leads and they are tasked to find a distressed deals and prospects, in exchange of a finder’s fee. The information that comes from these bird dogs will be extremely beneficial to the business of the wholesaler. However, licensed realtors cannot employ unlicensed bird dogs.
c. No Membership Fees
Wholesalers are not required to become members of any associations. Therefore, they are not legally obligated to pay any association dues. On the contrary, realtors are required to pay the quarterly MLS fees and other realtor association dues.
d. Access to Unlisted Properties
Since the wholesaling real estate business only involves the direct assignment of a contract, they do not need to list the property for the public. The wholesaling real estate process only involves the motivated seller, the final buyer, and the wholesaler. Most wholesaling real estate deals also involve a non-disclosure agreement, so it is safe to say that the information about the property will be kept between the related parties.
There are several wholesaling benefits that are not accessible to realtors. However, there are still downsides to working in wholesaling real estate.
a. No Association Benefits
Wholesalers do not pay an association fee, which means that they do not have the capacity to enjoy the same benefits that are afforded to the people who are members of a certain association. These associations usually provide benefits in the form of access to the latest business tools, real estate market data, personal insurance, trainings and seminars, MLS, and other programs that are exclusive to the members.
b. No Direct Access to Realtor Lock Box Codes
Most homes that are listed on the market have a lock box to keep the property safe while permitting several real estate agents to come and see the property. This real estate lock box is a padlock-shaped box that secures the house that is on the market. The code for this device allows communal access for all real estate agents. Those who practice wholesaling real estate have no direct access to these codes since they are not licensed realtors.
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Real estate agents are licensed professionals who have undergone pre-licensure education courses and who have met the mandatory requirements in their state. The requirement for a real estate license in each state is different, but the general requirement is to complete the required hours of pre-license education and submitting yourself to the mandatory background check.
Real estate agents are required to work under a designated broker. They are legally authorized to represent the interest of the buyers and the sellers with whom they conduct business with. The job of the real estate agent, but not limited to, is to be able to provide assistance to the buyers through the process of buying a property and to give help to the seller when they are selling and renting out their properties.
Real Estate Agent Benefits
a. Direct Access to Listed Properties
Since real estate agents are given the legal authority to represent their clients, they are also given priority access to listed properties. Moreover, real estate agent benefits from being able to have the direct access codes of lock boxes. This means that they can make their own appointments to show clients around the listed property.
b. Access to MLS
MLS is an acronym for Multiple Listings Service. It is run by real estate brokers to act as a communal facility to consolidate and share the information about the property listing of each broker. Apart from sharing information, the MLS also provides mutual benefits in terms of commissions.
Most MLS have an electronic database that lists the properties for sale by the brokers and it is usually kept up to date. Real estate agents have access to the MLS, while wholesalers are not granted a direct access to this service.
Real Estate Agent Disadvantages
a. Getting a License is Costly
The average cost to get a real estate license is at around $1,000. This will include your pre-licensure courses and the fees for the exams, fingerprinting, and background check. Once you have passed the licensure exam, you should also begin paying association dues. Wholesaling real estate requires little to money as an investment. Wholesaling real estate only demands your time, effort, and a couple of marketing expenses.
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b. Payment Goes Through Broker First
In wholesaling real estate, the difference between the seller’s asking price and the final sales price is considered your profit. For a real estate agent, their salary is in the form of a commission. However, the full commission rate is not entirely headed towards their pocket. There is still a standard commission rate for real estate brokers and this broker commission rate is usually at 6%. This is the reason why the saying “Don’t count your chickens before they are hatched” is extremely fitting for real estate agents.
Wholesaling real estate is an investment choice, but being a realtor is a career path. One can choose to be a wholesaler while maintaining their real estate license. A real estate agent can also choose to practice wholesaling real estate if their broker gives their consent.
GENTLE REMINDER: While these two paths lead different roads, it does not mean that these two roads cannot intersect with one another.