Real estate agents and Realtors have the credentials required to hold a real estate license. While real estate law varies by location, a real estate license is the bottom-line requirement if you want to work with and represent individuals looking to buy or sell real property.
However, with much ado being made about the potential and terrific financial benefits of wholesaling, it is likely, as a Realtor, you have considered how you may get involved. Can a Realtor Wholesale Property?
The answer is yes; a Realtor or licensed agent can wholesale investment property if they do so without violating ethical boundaries or the legal limits set forth by real estate law and other obligations.
Real estate investors who specialize in wholesaling work with many different types of properties. However, properties that align well with the wholesaling investment strategy tend to share common traits.
Typically, a wholesale property is a) in poor or distressed condition and b) has motivated sellers who are in a hurry. Wholesale properties may include single-family dwellings and foreclosure rental properties, and sometimes an investor may try their hand wholesaling commercial properties.
In addition, wholesale properties are broadly categorized as follows -
A listed property refers to any real estate that has been added to a property database known as the MLS - Multiple Listing Service. The MLS database of available real estate can only be accessed by its members, who must be licensed real estate professionals and pay a fee for the use of its service.
As you would expect, the MLS offers available properties the most exposure, so this typically leads to increased interest in the same wholesale property - from beginner to experienced wholesalers and everyone in between.
That said, the MLS provides an abundance of leads that are consistently replenished on a daily basis, making it an essential part of any savvy wholesaler’s acquisition strategy.
89% of sellers list their homes on the Multiple Listing Service, which is the number one place for sellers to advertise their properties according to the National Association of REALTORS® (NAR).
Read Also: How To Get MLS Access: The (Ultimate) Guide
Unlisted wholesale real estate are those properties that have not been added to the MLS database. Wholesalers often pursue off-market properties because they believe these deals have less exposure and, thus, competition, which leads to the potential for bigger payoffs.
In reality, owners of desirable properties are frequently bombarded with cold calls, direct mail marketing, SMS blasts, and all sorts of off-market messaging, which creates an environment of heavy competition for any wholesaler or investor seeking off-market wholesale properties.
Yes, a Realtor can wholesale property. Wholesaling houses, if done correctly, is a legal real estate investment strategy for any investor. As a result, Realtor and real estate agents have the option to wholesale if they comply with established regulations and laws.
A real estate professional who can call themselves a Realtor is someone who a) has met the credentials required to obtain a real estate license in their relevant jurisdiction and b) is a paying, active member of the largest trade organization in the nation – the National Association of REALTORS® (NAR).
Not every real estate agent or broker belongs to the NAR (or its more than 1,100 affiliates), although more than one-half are Realtor members or affiliates at one of the various membership levels.
The NAR notes -
Those who are Realtors are held to higher ethical standards (than non-Realtors) because Realtors, as a condition of their membership, must comply with the NAR’s Code of Ethics.
The Code of Ethics, which was established more than 100 years ago, covers many essential real estate-related matters. The code is divided into 17 Articles – with Standards of Practice included for many to demonstrate how Realtors must act to remain in compliance. Article 4 is of particular interest with regard to wholesaling.
In addition, as in most real estate matters, disclosure is a pertinent matter. This is clarified in Article 5 –
This simply means that as a Realtor, you must disclose the fact that you are a licensed real estate agent in any offer to buy or sell real estate when you are the buyer, seller, or wholesaler.
Real estate wholesaling is an artful investment strategy that Realtors can use to enter the investment marketplace as investors rather than acting exclusively as service professionals with fiduciary obligations and duties.
When working as a Realtor, as noted in the NAR’s Code of Ethics, a licensed professional is required to put their principal’s interests ahead of their own. In other words, as a licensed real estate professional, your professional actions as a representative of a buyer or seller must comply with the mandates defined by your fiduciary capacity as a licensed agent.
Fiduciary duties are hard and fast rules and seen in black and white, with little wiggle room for interpretation.
However, a Realtor can legally wholesale real estate if they stay within the legal boundaries of the relevant jurisdiction and appropriate ethical boundaries.
In certain situations -
However, despite the legitimate reasons a seller may have to NOT use a Realtor, these property owners are still otherwise motivated to sell. In fact, they may be receptive to learning of an alternative way to sell the property without a commission – mainly if the property can sell fast.
With appropriate disclosure, there is no reason a licensed Realtor or real estate agent can’t use their training and experience to negotiate a wholesale transaction with a distressed seller. As a wholesaler, they can quickly find another buyer (usually a cash buyer) using an existing network, a curated buyers list, or professional, trusted colleagues.
A real estate wholesaler’s goal is to enter a real estate purchase agreement for a price below market value.
A real estate contract, when fully executed, is a legally binding agreement. Through the Principle of Equitable Conversion, the purchase contract legally re-defines the subject property’s ownership.
Once the real property has been placed under contract, the wholesaler can assign one’s contractual rights (a.k.a., equitable or beneficial interest) to another end buyer. An assignment contract is a legal instrument the wholesaler/assignor uses to transfer the buyer’s/wholesaler’s rights & obligations to a different buyer.
The final buyer (a.k.a., the assignee) is often a cash buyer who is a flipping professional intent on rehabbing the property for the final retail homebuyer. A wholesale transaction closes (in weeks, not months) with the assignee or new buyer taking the title, not the wholesaler.
In the above scenario unfolded as written, the real estate professional’s actions would be that of an investor and not as a licensed representative of the seller. As a result, a Realtor, in the above scenario, would NOT be violating Article 4 of NAR’s Code of Ethics.
Realtors must remember which ‘hat’ they are wearing (Are you a licensed representative/fiduciary of a principal or a real estate investment wholesaler?) when participating in a real estate transaction. A licensed real estate professional acting in the same transaction can be a wholesaler or a licensed representative but not both.
Yes, a house that is MLS listed with a licensed real estate agent, real estate broker, or brokerage, can be the subject property in a wholesale transaction. The MLS offers savvy, smart wholesalers the opportunity to find and search for distressed properties priced appropriately that have been listed with other real estate licensees.
As noted above, the Multiple Listing Service is the dominant database used by professional real estate agents and Realtors across the country. Its popularity and incredible growth over the past ten decades speak to its ease of use and its unmatched effectiveness.
Real estate wholesalers, whether they are Realtors, agents, or unlicensed individuals, have the ultimate objective to sign contracts with sellers to gain control of the property’s equitable interest – if only for a limited period that is defined by the executed contract.
The objective is to find another buyer while the property’s owner maintains physical possession.
The profit generated through the wholesale transaction is earned as a wholesaler, not as a licensed real estate agent or active Realtor member.
Yes, a real estate agent, like a Realtor, can wholesale property legally if their actions as a wholesaler do not violate relevant real estate laws.
Licensed agents must have a clear understanding of their role in the transaction to avoid violating established regulations.
When referencing one wholesale transaction, a licensed real estate professional can be a wholesaler or a licensed representative – and not both. A dual role would create a conflict of interest that may lead to the licensee violating their duty as a fiduciary representative.
The really good news is that real estate professionals possess the education, the knowledge of the due diligence process, and the experience that is easily applied to a wholesale deal as an investor. For example, licensees typically have market experience and in-depth knowledge of the market conditions as well as real estate law.
Seasoned real estate agents have usually had the opportunity to hone their negotiation skills and talents, which can pay off when developing a new wholesale real estate transaction. Experienced professionals have also developed lists of trusted vendors, investors, and satisfied clients, which facilitate the wholesale process.
Yes, non-licensed individuals, in most locations, can wholesale if their actions do not violate the relevant real estate and license laws. Wholesaling has become a prevalent investment strategy that has created lively debates nationwide.
As a result, the art of real estate wholesaling has been on the radar of many cities and states. Some have proactively redefined the laws to include the actions of a wholesale real estate professional. Among them are Illinois, Philadelphia, and Oklahoma.
Real estate wholesalers, who do not hold a real estate license, must be certain they stay within the legal lanes of the property’s jurisdiction.
Remember, wholesalers can legally sell or market their equitable interest or their ‘right to purchase.’ This, according to most state laws, is VERY different than selling real property.
Representing a seller or buyer requires the individual to earn a real estate license, whereas wholesaling does not.
Read Also: Is Wholesaling Real Estate Legal?
Wholesaling real estate can be done with or without a license (except in Illinois, Philadelphia, and Oklahoma) if the wholesaler does not violate license law.
However, there are wholesalers who choose to earn their real estate license to enhance and grow their wholesaling business by creating real estate industry connections and opportunities. First, earning a license will offer a wholesaling investor access to the MLS through a paid membership.
Earning a license and one of its many sub-credentials is a great way to establish professional credibility while building relationships, networking with colleagues, and meeting potential buyers. And it allows you as an investor to develop a deeper understanding of the relevant wholesaling laws in the local real estate market.
A successful wholesaler operates from a position of integrity. This includes -
Remember – a wholesaler cannot legally market/sell real property. Wholesalers can only sell or market their –right to purchase real property at specified terms.
Wholesaling houses offer the potential of a lucrative source of income – especially for experienced investors and agents who have a knack for finding properties that meet established profit criteria.
Remember, a wholesaler is a principal buyer, who, as a middleman, sells their equitable interest in the subject property for a fee or higher price. If a wholesaler does take the title, it is generally for a matter of hours or a day – temporary and for administrative purposes.
Wholesalers have similar salary earning paths and potentials to that of real estate agents. While some companies may entice wholesalers to work on salary, the practice is not the norm for this industry. This type of offer is also likely to be beneficial to the employer, not the wholesaler.
With basically limitless profit potential, wholesalers often turn what began as a simple curiosity or interest into a lifelong, profitable career. The following are the most popular and effective exit strategies used by real estate wholesalers -
The Assignment Of Contract Method
The assignment of contract strategy is the most common and fastest exit strategy. It also typically has the lowest expenses.
The Double Close
A Double Closing requires the wholesaler to attend two closings. The first closing meets the conditions of the initial purchase agreement. A secondary closing then follows an hour, a day, or so later. The wholesaler is now the seller in the second closing.
Note, and this is important - you will need funds (either personal or from one of the available traditional or hard money lenders) if only temporarily, to close on the first contract. Also, closing costs (including title company fees) are higher using this strategy, although it tends to be offered the most legal protection in terms of real estate law.
Plus, the profit you make as a wholesaler remains confidential, which is not the case with the assignment closing method.
Yes, licensed real estate agents in Texas can certainly wholesale properties. Deciding to venture into the real estate marketplace requires the investor to have a basic understanding of the market and its rules and laws.
The Lone Star State of Texas is the second-largest state, with an economy larger than some smaller countries. Of the lower 48 states, Texas is the largest. Its many diverse cities from Dallas to San Antonio and Austin –have seen some recent impressive growth.
The following data and statistics represent the current status of the real estate marketplace in Texas.
The average appreciation rate for Texas properties – on an annual basis - in 2021 (thru Q4) was 17.44%.
Realtors are well-suited to wholesale real estate in California. The Golden State, which was adopted as a state in 1850, is recognized to be the most populous state with the largest economy. There are 1,000,000 more people living in California than in Canada.
The following data and statistics represent the status of the real estate marketplace in California.
The California real estate market’s prices have been rising like most of the real estate across the nation. California’s Q4 – 2021 appreciation calculates to an average of 17.25%.
The rental market in California shows the 2022 Fair Market Rent was $2,651/month. Many areas of California reach seven digits but note that there are many reasonably priced locations throughout California where wholesalers can find viable wholesale opportunities.
Florida is ranked as the third most populous state in the country and is one of the best markets for licensed Realtors to wholesale in.
Its four-season lifestyle has made the state quite appealing, with several cities ranked among the fastest-growing places in the nation (2022-2023) – Lakeland, Sarasota, Fort Meyers, Ocala, Port St. Lucie, Daytona Beach, and Naples – all in the top ten growing cities.
The following data and statistics represent the current status of the real estate marketplace in Florida.
Florida has historically enjoyed being a favorite retiree location, but demographics have been changing due to its preferred warm, tropical climate.
The 2020 Market Rent in Florida for a 2-bedroom apartment in the Sunshine State was $1,972 per month.
Established in 2009, eXp Realty, LLC is among the fastest-growing real estate business examples. eXp Realty focuses primarily on online lead generation.
Traditionally, eXp Realty’s rules do not permit wholesalers, so there you must either enact an appropriate strategy or join the Real Estate Skills eXp organization – which allows wholesaling because Real Estate Skills has grandfathered benefits and advantages.
A Realtor is a licensed real estate professional who holds a real estate license and belongs to the NAR. Realtors, who proactively choose to become members, are held to higher ethical standards (than non-Realtors) because membership requires compliance with the NAR’s Code of Ethics.
Is Wholesaling Real Estate Legal For Realtors Or Other Licensees?
A licensed Realtor or real estate agent can use their training and experience to negotiate a wholesale transaction, not as a licensee but as a wholesaler. They can then find another buyer who becomes the end buyer.
Realtors must remember when deciding on the appropriate action know if they are acting as a licensed representative/fiduciary of a principal or a real estate investment wholesaler.
The real estate wholesaling strategy is a smart way to learn how to enter the real estate market – as an investor. It also offers these essential benefits -
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