Wholesaling As A Real Estate Agent: Strategy & FAQs ExplainedDec 28, 2023
Can Realtors and real estate agents 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.
In this article, we will cover everything you need to know about wholesaling as a real estate agent:
- What Is Wholesaling Properties?
- Can You Wholesale As A Realtor?
- Can A Realtor Be A Wholesaler?
- Can You Wholesale A House With A Realtor?
- Can You Wholesale As A Real Estate Agent?
- Can You Wholesale Without A Real Estate License?
- Should I Get My Real Estate License As A Wholesaler?
- Pros & Cons Of Wholesaling As A Real Estate Agent
- Wholesaling As A Real Estate Agent FAQs
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 that, as a Realtor, you have considered how you may get involved.
*Before we begin our guide on wholesaling as a real estate agent, we invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)!
Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, step-by-step guide for beginners to start wholesaling real estate!
What Is Wholesaling Properties?
Investors who specialize in real estate 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 in poor or distressed condition.
- Has motivated sellers who are in a hurry to relieve themselves of the property.
Wholesale real estate can include single-family dwellings, commercial properties, foreclosures, and rental properties.
In addition, wholesale properties are broadly categorized as listed or off-market wholesale properties.
Read Also: Is Wholesaling Real Estate Legal?
Listed Wholesale Properties
A listed property refers to any real estate that has been added to a property database known as the MLS or 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).
Unlisted Or Off-Market Wholesale Properties
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.
Can You Wholesale As A Realtor?
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. Before we go over these laws, it is important to firmly know the definition of a Realtor and real estate agent.
What Exactly Is A Realtor?
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.
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 concerning wholesaling:
In addition, as in most real estate matters, disclosure is a pertinent matter. 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.
This is clarified in Article 5:
Can A Realtor Be A Wholesaler?
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 are 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.
How To Wholesale Real Estate As A Realtor
In certain situations, a seller or homeowner may not have the equity or funds they would need to enlist or employ the professional services of a real estate licensee. A seller may also prefer avoiding the traditional sales route if they want to circumvent some of the legal mandates (i.e., disclosures and inspections, etc.) that are a part of a conventional listed MLS sale.
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 redefines 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.
*NOTE: 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.
Can You Wholesale A House With A Realtor?
Yes, a house that is listed on the MLS 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.
Get Started Here: Partner with Real Estate Skills & eXp Realty
Can You Wholesale As A Real Estate Agent?
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.
- Are you a licensed representative or fiduciary of a principal?
- Or are you a real estate investment wholesaler acting as the principal?
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 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.
Can You Wholesale Without A Real Estate License?
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.
Should I Get My Real Estate License As A Wholesaler?
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, some wholesalers 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 -
- Appropriate management of the seller’s expectations.
- Transparency – the contract’s terms should include your intentions.
- Knowing when to consult with a real estate attorney for legal advice to ensure you maximize your legal protections.
Remember – a wholesaler cannot legally market/sell real property. Wholesalers can only sell or market their –right to purchase real property at specified terms.
Advantages Of Wholesaling As A Real Estate Agent
- Legality and Compliance: As a licensed real estate agent engaging in wholesaling, you're operating within legal boundaries. This is crucial, especially for those who might face barriers in acquiring a license due to past issues. Working legally provides a sense of security and adherence to industry standards.
- Upholding Ethical Standards: Holding a real estate license obligates you to adhere to the ethical guidelines set by the real estate department. This is significant in an industry where ethical lapses can occur. By maintaining high standards, you enhance your reputation and trustworthiness in the industry.
- Gaining a Competitive Edge: When negotiating with sellers, being a licensed agent can offer a distinct advantage. Your licensure assures sellers of your commitment to following real estate regulations, potentially giving you an edge over unlicensed competitors.
- Networking within the Industry: Being a licensed agent often means you're part of a network of professionals. This can lead to more opportunities, as fellow agents are more likely to engage with you for properties and investors, simplifying the process of finding deals.
Challenges Of Wholesaling As A Real Estate Agent
- Initial Costs: The financial investment required to become a licensed agent can be substantial. This includes expenses for education, exams, and membership dues. For those just starting out, these costs can be a significant hurdle.
- Impact of Past Transgressions: The real estate industry's screening process can be unforgiving, potentially barring individuals with past legal issues, even if they occurred long ago. This raises questions about the balance between public safety and giving individuals a second chance.
- Brokerage Fees: Upon successfully closing a deal, a portion of your earnings goes to your brokerage. This can mean receiving a smaller assignment fee than you might as a non-licensed wholesaler.
- Contractual Complexities: Licensed agents are required to use comprehensive contracts that offer extensive protection for both buyers and sellers. However, the length and complexity of these contracts can sometimes be daunting to sellers, potentially leading to lost deals in favor of non-licensed wholesalers who offer simpler agreements.
Wholesaling As A Real Estate Agent FAQs
In this section, we'll address some frequently asked questions about wholesaling as a real estate agent, providing clear, insightful answers to help you understand this aspect of the real estate industry better.
Do Real Estate Wholesalers Make Money?
Real estate wholesaling is a legitimate method where you play a pivotal role in the property transaction process.
It involves orchestrating deals between sellers and buyers without actually buying the property yourself. Essentially, you secure a contract with the seller and then transfer this contract to a buyer, earning money from the deal. Here are key insights into wholesaling profitability:
No Initial Investment Required: One of the attractive aspects of real estate wholesaling is that it doesn't typically require an upfront financial investment in the property. This lack of a down payment requirement can make it an appealing option for those who do not have significant capital to invest in real estate.
Skill and Knowledge-Based: Your success in real estate wholesaling heavily depends on your ability to find undervalued properties and connect them with potential buyers. It requires a deep understanding of the real estate market, negotiation skills, and the ability to spot opportunities.
Market Conditions Matter: The profitability of real estate wholesaling can be influenced by the real estate market's condition. In a booming market, finding buyers is often easier, potentially leading to more profitable deals.
Risk and Reward Balance: While real estate wholesaling can be profitable, it's not without its risks. Market changes, difficulty in finding buyers, or issues with properties can impact your success.
Building a Network is Crucial: Establishing connections with both property sellers and potential buyers is essential for consistent success in real estate wholesaling.
Legal and Ethical Practices: Adhering to legal and ethical standards in your transactions is vital. Misrepresentation or failure to comply with regulations can lead to legal troubles and damage your reputation.
How Much Can You Make Wholesaling Real Estate?
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.
What Are Common Wholesale Exit Strategies?
The following are the most popular and effective exit strategies used by real estate wholesalers: the assignment of contract method and the double close.
The assignment of contract strategy is the most common and fastest exit strategy. It also typically has the lowest expenses.
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: 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 offer 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.
Read Also: Top 10 Best Exit Strategies For Real Estate
Final Thoughts On Wholesaling As A Real Estate Agent
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.
Learn how you can consistently wholesale houses as a Realtor with our brand new training and be a part of our community of experts and professionals where you can learn all about the strategies we cover on how to wholesale real estate!