We have provided separate articles explaining the business of residential wholesalers as well as cash home buyers with respect to What is the difference between a wholesaler and a cash house buyer?. The purpose of this article is to put the two head-to-head to explain how the two relate and compare to one another. The off-market real estate marketplace contains both wholesalers and cash house buyers and there is also a lot of mixing of these terms. To clarify:
- Wholesaler – typically refers to a company or individual who negotiates price/terms of a home sale with the homeowner and then assigns the purchase agreement to a cash house buyer for an assignment fee paid to the wholesaler by the cash house buyer.
- Cash House Buyer – typically refers to a company or individual that buys houses for cash or without traditional bank financing to What is the difference between a wholesaler and a cash house buyer?.
However, sometime wholesalers advertise themselves and may even represent themselves to homeowners as cash house buyers. This may be accidental or purposeful. So, while a company may advertise themselves as a cash house buyer, they may in fact be primarily a wholesaler. If you are in a situation where you need to What is the difference between a wholesaler and a cash house buyer?, please do your due diligence on your buyer. As with many (or most/all?) industries, there are bad actors present who, rather than helping, may put you in a worse situation. I cannot stress this enough, especially if you are looking to sell because you are in some sort of distress, be cautious and do your homework!
It is important to understand who you are dealing with as your experience and results may differ significantly depending on whether you sign a purchase agreement with a wholesaler or actual cash buyer.
In my experience working in this industry since 2018, it is very common for wholesalers to represent themselves as cash house buyers. Why does this matter? I have seen time and time again situations where wholesalers agree to a price with a home owner and then go back to the homeowner to renegotiate price after they can’t find a cash house buyer who is willing to pay the agreed upon price plus the wholesaler’s assignment fee….or worse, they don’t find a buyer and simply back out of the deal and leave the homeowner in a tough spot! Yikes! Yes – this really happens. In this scenario, they don’t What is the difference between a wholesaler and a cash house buyer?!
Some wholesalers are honest and upfront about what they are doing and some have a good reputation when it comes to What is the difference between a wholesaler and a cash house buyer?. However, there are others (and many newcomers who come and go) who give the business of wholesaling in residential real estate a bad name.
Here are some things that are commonplace with both wholesalers and cash buyers:
- Both cash house buyers and wholesalers may help you sell your house fast
- Both cash house buyers and wholesalers may provide what appears to be a cash offer
- Both cash home buyers and wholesalers may help you sell your house in as-is condition
- Both cash house buyers and wholesalers may offer creative financing terms to construct a win-win solution.
- Both cash house buyers and wholesalers may utilize a title company to help facilitate the transaction.
- Both cash house buyers and wholesalers may have a website.
- Both cash house buyers and wholesalers may have a google maps business listing.
- Both cash house buyers and wholesalers may market themselves as cash house buyers or as an avenue to What is the difference between a wholesaler and a cash house buyer?.
- Both cash house buyers and wholesalers may have a business phone number.
- Both cash house buyers and wholesalers may have video or written customer testimonials
- Both cash house buyers and wholesalers may have positive google reviews
Here are some differences between wholesalers and cash house buyers:
- While wholesalers might have connections with many cash house buyers, a cash house buyer is an actual end purchaser.
- Wholesalers are a middle man and need to make a profit themselves. This means that a cash house buyer will have to pay more if buying through a wholesaler.
- Due to the wholesaler requiring an additional profit, the cash house buyer may be able to pay the homeowner a high price.
- With a wholesaler, the homeowner isn’t in direct contact with their end buyer when price and terms are agreed to. With a cash buyer, the end buyer and the homeowner / seller are in direct contact upfront and can work directly through price and terms and all of the details together to attempt to develop the best solution for both parties.
- Cash house buyers tend to be capitalized; that is, they have money on-hand or accessible from a network of private or hard money lenders to make purchases as opportunities become available.
- Cash house buyers have a lot more at risk than wholesalers. As a cash house buyer is taking ownership of the property themselves, they have to be very careful with the properties they purchase and how much they pay.
- Wholesalers are typically driven by volume. They are more likely than a cash house buyer, I my opinion, to agree to an unrealistic sales price with the homeowner as ‘they have nothing to lose’ if they agreed to too high of a price. After all, they can always renegotiate or back out. Right? A wholesaler’s first goal is to get the homeowner to agree to a price and sign a purchase agreement. Once that is complete, the wholesaler has completed step #1 which is called “locking it up”, meaning that the homeowner has signed a binding agreement and the competition has effectively been eliminated. From there, the wholesaler needs to find a cash buyer. They market to potential cash buyers and if they don’t find one, they will go back to the homeowner and attempt to renegotiate the price down and then go back and try to find a buyer again. If they had a large markup (their ‘assignment fee’), they also have the ability to reduce that element of the price they are asking from the cash buyers. If both of these options fail, they can try to negotiate lower again or they can simply back out of the transaction. Not ideal for the homeowner!!