When you want to sell your Texas house, you may hear from interested buyers known as “wholesalers.” What is a wholesaler? Should you sell your house to a wholesaler?
Let’s answer some of those questions right now!
What You’ll Learn in 7 Minutes
- What is a Wholesaler?
- How Does the Wholesaler Business Model Work?
- How to Tell if You’re Selling to a Wholesaler or a Cash Buyer
- Should You Consider Selling to a Wholesaler?
- The Wholesaler Boom
- A Faster, Easier Way to Sell Your Texas House
What is a Wholesaler?
In business, a “wholesaler” is anyone who sells goods in bulk, at reduced prices. Typically, the wholesaler’s customers are retailers, restaurants, and other businesses that re-sell the wholesaler’s products to the public, at a mark-up.
In real estate, a wholesaler does essentially the same thing: he or she “sells” buying rights for property, like houses, to investors. The investors may end up flipping the property to another buyer after making some basic repairs.
Here’s the catch: a real estate wholesaler never actually buys or owns the property themselves.
Instead, the wholesaler lines up a deal with a homeowner, negotiating exclusive rights to buy the house. Then, the wholesaler turns around and sells those rights to an investor, at a mark-up. The investor’s money buys the house, and the investor becomes the new owner.
How Does the Wholesaler Business Model Work?
As described above, the wholesaler is a middleman, uniting a buyer and a seller.
But a wholesaler isn’t always acting in the best interests of the buyer or the seller at all.
For example, say you want to sell your house. Bill the Wholesaler contacts you. Bill the Wholesaler may describe himself as an “investor,” or say he is working on behalf of “investors.” He will make you an offer on your house, then ask you to sign an exclusive contract.
Meanwhile, Bill the Wholesaler re-sells the contract to Melissa the Investor, with a fee added. Bill pockets the fee, while Melissa is the person who actually buys your house.
How to Tell If You’re Selling to a Wholesaler or a Cash Buyer
What’s the difference between a wholesaler and a cash buyer?
When someone makes a cash offer on your house, there are a few ways to easily determine if they are a wholesaler or a cash investor.
“Assignees” in the Contract
The easiest way to identify a wholesaler is to look carefully at the contract they offer, before you sign it. A wholesaler’s agreement will typically contain frequent use of the term “assignees.” It may say “assignee” in addition to or instead of the wholesaler’s name, or the wholesaler company’s name.
What is an assignee? Basically, an assignee is anyone who is designated by the wholesaler to be the actual property buyer. “Assignee” allows the wholesaler to “assign” the contract to a buyer. In the example above, the assignee would be Melissa, since she has the actual cash needed to buy your house. Bill the Wholesaler would generate an invoice and designate Melissa the Investor as the assignee,
Exclusive Timed Contract
Besides assignees, the contract will also state that it is an exclusive agreement to sell your property.
Language in the contract will give the wholesaler a fixed period of time – typically up to 30 days – to finalize the purchase. During that time, you will not be able to sell your house to anyone else. So, if you get a better offer while the wholesaler is trying to find an investor, you will be forced to turn it down.
Meanwhile, the wholesaler is out shopping the contract on your house to investors. If they don’t find a buyer before the exclusivity period expires, they can walk away without losing any money. You, meanwhile, are left looking for another buyer, and you’ve lost up to a month of time you could have been using to sell the property.
No Money Down
Even though a wholesaler will ask you to sign a timed-exclusivity contract, they probably won’t offer you very much money up front. They may not even offer a deposit or earnest money at all.
This is because many wholesalers do not actually have the funds to buy your house themselves. If they did, they probably wouldn’t be out shopping the sale contract to other buyers; they might just buy the house themselves!
The wholesaler makes all of their money in fees and mark-ups when they re-sell the rights to buy your house. In that sense, they aren’t really investors; they could be thought of as investor agents.
If someone wants to buy your house for cash but can’t pay you immediately, they should at least be willing to give you a deposit of 1 to 2 percent of the sale price. If they won’t do that, consider selling to someone else.
They Don’t Own Any Properties
In Texas, property ownership records are available to the public. Most counties make this information available online, for free.
If someone claiming to be an investor offers to buy your house, look them up! Go to your county tax assessor or appraisal district’s website and search property records for the investor’s name. Many established investors will have multiple properties. Wholesalers might have just one, or none at all.
An Unexpectedly Low Offer
A wholesaler will make you an offer that might be substantially less than you anticipated.
That’s because the wholesaler’s entire profit comes from re-selling the contract. In order to offer it at a competitive price, the wholesaler must low-ball you, because their re-sale price needs to include their “finder’s fee.” That’s how they are compensated for their efforts.
Of course, there are some cash investors who will make an underwhelming offer. A key difference is that a cash investor shouldn’t ask you to sign an exclusive rights contract for several days or weeks before they actually pay up. Most cash buyers will be ready to pay right away and close quickly.
Should You Consider Selling to a Wholesaler?
To be clear, there is nothing inherently wrong or dishonest about the way wholesalers work. It’s simply another way of buying and selling real estate. Some wholesalers are very successful, and have helped people who couldn’t otherwise sell their homes.
Like cash investors, most wholesalers will buy properties as-is, without the need for repairs. In fact, many wholesalers specifically target “distressed” properties – homes that are in bad shape, in need of major updates, or that otherwise can’t attract buyers.
If you do want to sell to a wholesaler, keep in mind that you probably won’t get as much money as you would if you sold directly to a cash buyer or traditional home-buyer with an agent.
The Wholesaler Boom
In recent years, many new wholesalers have flooded the real estate market.
Interest in wholesaling has grown in part because of heavy marketing in the form of late-night infomercials, free seminars, and websites. These all promise the ability to make a lot of money in real estate without putting any money down. It’s very enticing for someone who wants to get started in real estate, but who doesn’t have the savings to buy a property on their own.
At Local Cash Buyers, we’ve seen the results of this boom. We get hundreds of calls and emails from wholesalers, asking us to buy properties they’ve lined up.
We do not buy properties from wholesalers. Here’s why: we don’t consider most wholesalers to be professional investors. Many wholesalers have not taken the time to understand market value, so they may over- or under-price the homes they try to buy. We have not encountered many wholesalers who truly understand real estate.
A Faster, Easier Way to Sell Your Texas House
All that said, there is a way to sell your house fast for cash, without involving a wholesaler.
Local Cash Buyers will make an offer on your house within 24 hours of a brief visit to your property. If you accept our no-obligation offer, we can close in as few as 7 days.
One last note: we will never pressure you to sell to us. In fact, we will encourage you to ask questions and take your time to research before you sell. Our contracts never have an exclusivity period – you’re free to solicit other offers before you sell. And, if you decide to sell another way, we’ll be happy to offer any guidance we can to assist you.
Call us today to learn more, or fill out the form below to get started. We look forward to helping you sell your house fast, for cash!