Understanding the Role of Wholesaler's in The Real Estate Marketplace

"Wholesale Real Estate" is not a term often associated with residential Realtors. There are indeed Realtors that engage in this practice, but it's probably the exception, not the rule.

"Wholesale Real Estate" is the practice of buying distressed properties directly from the owner for cash. This sale is generally on an accelerated closing schedule and written on a transferable contract.

The contract is transferable because the wholesaler is only looking for the deal, not the property. Once they come to terms with the homeowner, the wholesaler then goes to their network of Real Estate Investors and looks for somebody to buy the property.

The wholesaler is merely looking to take the difference between what the seller is willing to sell for and with the investor is ready to buy for as their profit. For example, the wholesaler finds a property that is in excellent condition would sell for $250,000. Unfortunately, due to circumstances, the seller has not been able to maintain the property, and its falling into disrepair so, the wholesaler and negotiate a purchase price of $175,000.

The gap is the key, and in this scenario, the difference is $75,000. Based on the wholesalers estimates the property will require $50,000 worth of repairs to bring it up to retail sale condition, this leaves $25,000 in play. The wholesaler will sell the property to the investor For $180,000, leaving $5,000 profit for the wholesaler and $20,000 of potential profit after repairs for the investor.

This scenario certainly seems like the homeowner was on the short end of the stick, but it's important to remember that this property was most likely going into foreclosure. The homeowner didn't have the funds to bring the property up to a condition suitable for a retail sale. Additionally, the homeowner was merely looking to get out of the home with some cash.

The benefit to the homeowner is fast cash without the hassles usually associated with a real estate transaction. By hassles, we mean inspections appraisals and more importantly for the distressed homeowner conditions of the appraisal.

Don't forget the problem the homeowner has is an inability to get to their Equity without liquidating the property. So, if the appraisal calls for repairs such as painting or bringing things up to building code, the seller has no way to access money to facilitate those repairs. I realize the wholesale scenario seems quite brutal but for the distressed homeowners in many cases it's actually a relief. These are generally people who have lost a job or falling into ill health or other horrible personal situations.

So, as Realtors before we judge those cheesy handwritten signs on the side of a road or median, we need to understand that they do serve a role in the real estate food chain. like it or not.