If you’re new to the Real Estate game you might have heard the term wholesaling once or twice. It’s a common term used by many in the industry and it’s important to know the details so you can make sound investment decisions and understand the complexities that come with each step of working with a wholesaler.

Wholesaling in essence, is a business strategy. A wholesaler is a person or a team of people who have created a business buying and selling real property “off market”.

What does “off market” mean?

Off Market is another way of saying a seller sold their home without ever publicly marketing it for sale. When a seller decides to sell their home, they can hire a Licensed Real Estate Agent to help them list their home on the MLS (Multiple Listing Service) - in which case the property is considered “on market”.

The seller could choose to sell on their own FSBO (For Sale By Owner), in which case their home would not be listed on the MLS and the seller would need to market it on their own.

Or, the seller may only share the intent to sell with a small group of individuals or investors and negotiate directly. In any case, to be considered “off market”, the property will not be publicly marketed on the MLS or other sites.

Why would someone want to sell their home off-market?

There are many reasons someone might not want to list their home on the market; some common examples look like:

They are elderly, and don’t have interest in fixing up their home, host showings, negotiate with buyers, etc.
They have a need to sell quickly and don’t have the time to go through the proper channels of listing
Their home is distressed or needs extensive work that they do not want to complete themselves

There are many other reasons that a seller may not want to list their home and prefer to sell off-market.

So where does wholesaling come into all this?

A wholesaler builds their business around sellers who may not want to advertise their home for sale. The wholesaler spends their time and resources seeking out this type of seller, offering advantages to selling off market.

Once a wholesaler has begun a conversation with a potential seller, the wholesaler and seller come to an agreement on the sale price of the home and enter into a contract. Typically, the wholesaler also has some time constraints, and must have a buyer lined up by a specific date. For example, the wholesaler and seller might have entered an agreement that the seller will sell the home to a buyer for $300,000 within the next 30 days.

The wholesaler then sends their “listing” out to a group of possible buyers (typically investors) and tries to find someone who might want to purchase it.

In short, the wholesaler is a middle man between the seller and the buyer, sourcing a seller who wants to sell off-market and a buyer who wants to buy a property off-market.

What’s in it for the wholesaler?

The wholesaler will charge a fee by increasing the purchase price before sending it out to their buyer list. In our example, the seller agreed to sell for $300,000, therefore, the wholesaler might send the listing out to its contact list for $325,000 and take a $25,000 pay day for coordinating the sale.

Buyer Advantages

There are many advantages for a buyer purchasing a property from a wholesaler, some might include:

Opportunity to see deals that would not be seen by just looking at on-market property
Opportunity to purchase under market value
Less competition due to only a select buyer list seeing the listing (not listed publicly)

Buyer Risks

If it’s too good to be true - it probably is. As with any investment strategy, there are risks involved. If you choose to purchase from a wholesaler, it’s important to know some key factors and ensure you do your due diligence. Some of the risks include:

There are no “rules” when buying from a wholesaler, meaning, the wholesaler is an unlicensed realtor (in most cases). Licensed Realtors have a fiduciary duty to their clients, wholesalers do not. Therefore, if you are interested in buying, I would recommend being represented by an agent on the buy side - even better if your agent has experience working with wholesalers.
Less negotiation power - because you are getting advantages of buying with less competition, under market value, etc, you generally have less negotiation power - little to no wiggle room on price, rarely are seller paid closing costs, extended inspection periods, or requests for repairs granted.
Inspections/Repairs - In many cases, inspections or requests for repairs are not granted at all, so be sure you know what the seller is willing to accept and what you are comfortable with before handing over any earnest money.
Earnest Money is often times non-refundable, so it’s best to be 110% sure you want the property before making an offer & submitting the funds.

Seller Advantages

Little to no updates or repairs needed to sell your property
Fewer showings
Sell faster
Opportunity to get all cash offers
Typically do not have to pay out agent commissions

Seller Risks

There are no “rules” when buying from a wholesaler, meaning, the wholesaler is an unlicensed realtor (in most cases). Licensed Realtors have a fiduciary duty to their clients, wholesalers do not. Therefore, if you choose to sell with a wholesaler, there are few to no protections for you as the seller. I would recommend you consult with an attorney before signing contracts.
You may sell for less than what the market would drive - if your main goal is to earn the most on your property, selling on market is generally going to be your best bet. Consult with a licensed realtor before making a decision.

Wholesaling is a great way to build your investment portfolio. Our team at West Edge Investments has created relationships with wholesalers in the Twin Cities that we trust. Each quarter, we send our updated buyer’s list to our wholesalers so we can help source deals for our clients off-market. If you’re interested in learning more about how to buy property from a wholesaler, let us help! Get in touch via the form below so we can begin your investment journey today.