Before we dive into wholesaling in real estate and What does a real estate wholesaler do?, let’s examine what wholesaling is from a macro level. Wholesaling exists in all sorts of industries and is quite common. Wholesaling is basically being the middle man between the source of a good and the end consumer or buyer of that good. It looks different in different industries but basically boils down to buying something at a discount and then selling it at a market (often referred to as ‘retail price’).
Let’s take a look at a few examples:
- An ice cream shop orders 200 gallons of ice cream from an ice cream producer (factory). They then sell that ice cream in smaller quantities at a much higher price per pound to individuals looking for a tasty treat. The ice cream shop purchased the ice cream at wholesale prices and turned around and sold it at retail price. What does a real estate wholesaler do?
- A used car dealer buys used cars from people. The dealer offers a much lower price for the car than the owner would receive if selling directly to another individual who would want the car for their own use. The car owner take the lower price for one of many possible reasons including ease/convenience, they trust the car dealer or are concerned about being scammed by an individual buyer, or because they are trading in the vehicle for another one. The used car dealer is buying at wholesale so he can turn around and sell at retail and make a profit. He may add value by inspecting the car, making repairs, cleaning it, or removing odors from the car.
- You go to garage sales or estate sales to find deals. You then list those items for sale online via Facebook Marketplace or Craigslist and sell them for a profit. You bought those goods at a discount (like wholesale pricing) and sold them for what you could get from someone buying them individually (like retail pricing). You did the work of searching for, finding, and negotiating the price at the garage/estate sales which added value to your end buyers.
As you can see, wholesaling is a very commonplace activity with regards to What does a real estate wholesaler do?. It’s just that it’s frequently thought of or spoken of using general language or terms other than wholesaling. Being a dealer or thrifter are examples as to how a wholesaler might be referred.
In real estate and to What does a real estate wholesaler do?, it’s possible to buy properties at a discount (wholesale prices) and then turn around and sell them with a markup. There are dealers around the country that specialize in doing this with manufactured and modular housing. They establish relationships with the manufacturers of the houses and wholesale pricing. They then market their product to the general population and may target their advertising efforts on people they think may be in the market for one of the homes they are selling. When someone chooses to buy a home from them, they collect a profit from the spread between their sales price and the price they paid the manufacturer. They may also make a profit by providing additional services such as delivery and installation. This might include site prep, such as pouring a pad or basement foundation, getting utilities connected, trailing the home or home sections, installing them, and various other add-ons. If you’re like me, you’d probably refer to this person or business as a dealer and not a wholesaler, right?
In residential real estate, wholesalers are typically practicing something a little different than what is described above. Rather than BUYING products (in this case houses) at a discount and then SELLING the product (houses) for retail, they do not actually buy or sell houses when practicing ‘wholesaling’. What they do is NEGOTIATE a ‘wholesale’ price for a house with a homeowner using a form of a residential real estate purchase agreement (often referred to as an ‘offer’). Once the homeowner signs the offer, they then market to a list of potential cash buyers that they have an assignable purchase agreement for the property for sale. The wholesaler charges an assignment fee to the end buyer which the end buyer pays directly to the wholesaler in addition to paying the agreed upon price for the property to the homeowner.
So, like the previous examples, the wholesaler is doing the work of finding the property and negotiating a below market (wholesale) price with the homeowner and then doing the work of finding a buyer who is willing to pay a higher price because they recognize the value of the work the wholesaler put in to finding the discounted property.
Why might someone opt to sell their house through a wholesaler? Well, sometimes a person doesn’t want to list the house on the market and take the time to go through that process. Or they don’t want to go through the process or spend the money getting their house ready for listing. Or they don’t want to have showings. Or they had a bad experience with a realtor and just don’t want to go through that process. Or they are embarrassed about the condition of the house. Or they inherited a house that they don’t’ want. These are all reasons why a person might opt to sell through a wholesaler rather than listing on the MLS with a realtor and What does a real estate wholesaler do?.
There is a similar set of reasons why someone might sell through a wholesaler that relate to a need rather than ‘want’.
They might not have the time to list the house on the market and go through the traditional sales process. This can be for a variety of reasons such as to What does a real estate wholesaler do?.
They may have to relocate very quickly and need the money from the sale before they move. They might be going to prison and need to complete the sale beforehand (yes, this happens!).
They might be from out of town helping someone else, such as a parent, sell their house and move into retirement or assisted living and not have the time or other resources to go through the traditional path.
The house might be in disrepair and the homeowner can’t afford to make repairs.
Divorce.
They need the proceeds quickly to cover some necessary living expense.