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Common Myths About Wholesale Real Estate

In the world of real estate, there is a lot of trust, a lot of truths, a lot of doubt, and a lot of lies. Being in the industry ourselves, we know just how complicated it can be to navigate through the doubt, lies, and truth to figure out who you can trust.

Whole Real Estate Myth 1: Wholesaling is Illegal.

We get asked this question a lot. No, wholesale real estate is not illegal, nor do they need a real estate license. So why do so many people ask this? This is where it gets tricky. A wholesaler does need a license if they intend to broker a real estate transaction, meaning if they want to arrange a purchase or a sale.

Basically, it is illegal only if they don’t have a license and are outright trying to buy your home.

However, if they don’t have a license and aren’t directly buying your home, the process is legal. Basically, a third-party buyer purchases the home and then contracts with a wholesaler. The wholesaler then markets the home for the buyer and makes money by selling their contractual rights. This is 100% legal and is a common method for startups and individual wholesalers.

Here’s how it works: a wholesaler uses a third-party buyer to get a distressed property (usually one with little buyer interest) under contract. Then, the wholesaler markets the property to their buyers’ list. A flipper sees potential and agrees to buy the contract from the wholesaler.

If you’re still confused, think of it as a resale transaction. The seller buys the home and then resells it to a more qualified/interested party for a small profit.

Where Does This Myth Come From?

The laws surrounding real estate licenses and wholesale real estate are confusing! We get it — a licensed wholesaler can legally buy and sell a home, while an unlicensed one can’t...even though they can still be involved in the process via a third-party. It doesn’t make a lot of sense if you’re not in the industry, which is why this myth is so common.

Myth 2: Real Estate Agents Hate Wholesalers

We can’t speak for everyone, but this certainly isn’t true! In general, most agents are very accepting and welcoming to wholesalers.

There are real estate agents who work with investors and love wholesalers because they can provide off-market deals. This helps agents show their clients that they are embedded in the local industry, which builds credibility, demographics, and trust!

On top of that, it’s a myth that real estate agents don’t like working with distressed properties. The truth is, they can make a good profit from wholesalers due to them receiving below-market deals on homes that wouldn’t sell on the traditional market.

Where Does This Myth Come From?

Competition and bad apples, mostly. The real estate industry can be very competitive. If handled improperly, competition can lead to negative feelings. If you do see this when you’re researching wholesalers or real estate agents, it’s usually a sign for you to look for another company or agent.

Myth 3: You’re Going To Get Ripped Off

A professional and trusted wholesaler isn’t in the business of ripping people off. Instead, they’re in the business of helping homeowners who need to sell a home. Many homeowners, especially those with distressed properties, don't’ find much luck with a traditional sale on an MLS.

While there are bad apples in the industry, there are many cases where a wholesaler is helping a family avoid foreclosure and bad credit by giving them a way out of a bad situation. A reputable wholesaler recognizes this and gives you a fair offer for your home. They work hard to find the right buyers for the seller’s homes, typically closing within one to four weeks.

If you’re unsure, always do your research. Check online reviews, ask for referrals and references, and make sure you know your home’s true market value as well. Like with any real estate transaction, you can negotiate the price or turn down the offer if you don’t feel like it is fair.

Where Does This Myth Come From?

Every myth has some truth to it. Selling to a wholesale real estate agent will likely make you less money than if you sell on the traditional market. However, most wholesale situations are emergency situations. They’re for homeowners who can’t afford to wait to sell their home, or who simply can’t sell their home on an MLS.

This does not mean reputable wholesalers are looking to rip off homeowners — like the homeowner, they simply have to take the situation and the state of the home into consideration. Based on that, their offers will be fair and near the real market value almost every time.

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