Pros and Cons of Selling Your Property to a Wholesaler
Selling homes & investment properties to wholesale buyers can be a tempting option for property owners looking for a quick and easy way to sell their property. However, like any decision, there are pros and cons to consider before making a final decision. In this article, we will explore the advantages and disadvantages of selling properties to wholesale buyers.
Pros:
Quick Sale: One of the primary advantages of selling a property, whether your home or investment property, to a wholesale buyer is the speed at which the transaction can be completed. Wholesale buyers typically have cash on hand and are able to close on the property quickly, often within a matter of days. This may prove to be a major benefit for those that truly have to sell a property fast. There is generally no financing involved so slow bureaucratic process will not need to be navigated.
No Need for Repairs: Wholesale buyers are typically willing to purchase properties in any condition, so there is no need to spend time or money on repairs or renovations before selling. This can be a significant advantage for property owners who are looking to sell quickly or who may not have the financial resources to make repairs. A prevailing thought is if you're selling your home or investment property why would you want to spend money making it better for the new owner.
No Commission Fees: Since wholesale buyers are not real estate agents, there are no commission fees to be paid when selling a property to them. This can be a significant cost savings for property owners.
However, are the positives enough to outweigh the negatives?
Cons:
Lower Sale Price: The main disadvantage of selling your property to a wholesale buyer is that the sale price is typically significantly lower than what could be achieved on the open market. Wholesale buyers are looking to purchase properties at a steep discount in order to make a profit when they resell the property.
Are They Really Buying Your Property?: This may be confusing on it's face. Afterall, you have a signed purchase contract. But did you really read and understand everything in it? Did you notice the word, or some derivative, "assign" anywhere in the purchase contract? If so, your wholesale "buyer" is likely not the true end buyer. What's more likely is that during the contract period they will market (more on this in a bit) their interest in the purchase contract to other investors. For example, let's say you've decided to sell your property for $100,000. The wholesale buyer will then attempt to locate an end buyer. If located, the wholesale buyer will sell their interest in the purchase contract at a premium-let's say $125,000 in the exact condition it is currently in. So the wholesaler profits $25,000 for doing no repairs of any kind; only for finding the end buyer. Many wholesalers never actual buyer or take formal possession of the property. In essence, you may have actual lost out on an additional $25,000 had you publicly listed your property yourself or with a real estate agent. If an end buyer isn't located, the wholesaler may/will opt out of the purchase contract and receive any escrow deposit back. And you've wasted time. This last scenario occurs more often than you might imaging.
State of Ohio's Rules on Marketing Properties: From my observations, so take it as just that, many wholesalers actually run afoul of what is allowed in Ohio. In order to publicly market a property (including address, photos, etc...) they do not own, a person must be a licensed real estate agent. The simplest form of compliance is to not use actual photos and address while advertising what they are truly selling: Their interest in the purchase contract; not the property. All it takes is a few moments on any social media real estate investor group to see this is not generally adhered to very well. So someone who did not go through the licensing process is now openly marketing your property as if they own either own it or are representing you the actual property owner.
Lack of Fiduciary Duty: Essentially, a fiduciary is someone that has the obligation to act in the best interest of another party ahead of their own self interests. For example, this would include professions such as attorneys and real estate agents. However, this absolutely does not apply to wholesalers. In fact, by definition they are the exact opposite of a fiduciary. They are seeking the highest return on their investment only. Whether or not it's in your best interest is irrelevant. A wholesaler's obligation is to their bottom line; not the property owner.
While most everyone has seen the "We buy real estate with cash" signs, you may not have realized it was an advertisement for a wholesale buyer. In a free market, each of us are able to choose with whom we do business. However, it is also a best practice to fully understand the business dynamic you are entering. Selling your home or multifamily property to a wholesale buyer can be a good option for property owners who are looking to sell quickly and don't mind accepting a lower sale price. However, for those who are willing to put in the time and effort to market the property and negotiate with potential buyers, listing the property on the open market may result in a higher sale price and more favorable terms. As with any decision, it's important to carefully consider all of the pros and cons before making a final decision.
As a final part of helping you understand real estate wholesaling, I've provided a link below from the Ohio Association of Realtors® from Feb. 1, 2023. It contains a panel discussion video that includes among others Daphne Hawk, Superintendent of the Ohio Division of Real Estate & Professional Licensing. I found it very informative and you may as well.
Before contacting a wholesaler about your property, contact the Purvis Property Advisors for a consultation. Click the Button Below to Schedule Your Free, Consultation Today!
Wes Purvis
Director & Founder
Purvis Commercial Group
Purvis Property Advisors
Coldwell Banker Schmidt Realty
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