Wholesaling while being a RE Agent - conflict of interest?

Question

Hey everyone! My short-term goal is to be a wholesaler in order to earn an active income while learning the ropes of investing.

I enrolled in a real estate agent course as a means of education, creating another stream of income, gaining credibility, and accessing the MLS. However, it came to my attention that there may be a conflict of interest in being a wholesaler and real estate agent, especially regarding marketing.

Does anyone have some insight they could shed on this? Anyone out there doing both?

Thanks in advance and please connect!

Kai Kopsch · Answer

@Sarah Castor getting your RE license will help you get started and get a better understanding of the RE Law. Nope, you can not wholesale with an active license in most states and as an license, all your transaction goes over your affiliated brokerage and BIC.

a lot of people think that Wholesaling is an easy start in the RE industry but I think it's the opposite. Much easier is to get a license to work for a flipper or broker get experience and the funding ready and house hack. Wishing you an amazing start to your real estate career!

Joe Splitrock · Answer

In most states you can't market a property you don't own, unless you are acting on behalf of the seller as an agent. That rule exists whether you are a realtor or not, but being a realtor means you have been trained on ethics. Most wholesalers violate the marketing rule, because it would be impossible to wholesale a property without marketing it. They just use private buyers lists as a way to conceal their activities. Marketing by definition is any sales activity, so sending people an address, pictures or price are all marketing.

One way you can do both is if you are buying the property. Some realtors do this. They say, here is my listing price and listing fee or here is my cash price. Obviously the listing price is much higher, but it takes more time and effort. You really want to have cash or line of credit if you are doing this. In this situation you are marking a property you own, so it is different. There is no rule against realtors buying properties.

James Hamling · Answer

@Sarah Castor I am going to have to apologize for the persons who are obviously not qualified to give such responses because from what I read here is all flat WRONG answers with exception to @Bruce Lynn who was spot on, showing himself an experienced Broker.

I will go a step further and point out that in many states there is different LEGAL forms of agency agreements, and some while they don't say the word wholesaler work very much in the exact same manner.

For example, in MN there is a form of agency agreement, 100% allowed by NAR and the state, where you can make a set price with the seller as a guaranteed net to seller, or guaranteed gross sale price to seller, and ANYTHING you can get above and beyond that, you can keep as a commission. Now if you ask 1,000 agents in MN about this, 999 will say nope, can't do that, illegal, which is because they simply don't know about or have any experience in doing such agency agreements.

Thing is 99.9% of agents are taught ONLY 1 set "standardized" way to do real estate agency. It does not mean that is the only way, but those persons will tell people as if it is.

The very nature of wholesaling IS being a real estate agent. Your pairing a seller with a buyer for a payment, that's agency. This is why there is a continuous action of jurisdictions requiring a license to do any such actions, outlawing "wholesaling".

You will need to have to get informed with your local jurisdictions to find HOW you can do such, and than locate a broker who will allow such.

Account Closed · Answer

@Sarah Castor, Latter at the moment but have a lot of friends within Okc that do, or wholetail, STR, LTR, flip, etc. Ultimately a decent amount of work & have to have a decent amount of systems set up.

Account Closed · Answer

@Sarah CastorDefinitely something to consider. In Oklahoma, they just changed the law about wholesaling where we can't "publicly market" without a license & still gets kinda iffy, if the licensee is doing any transactions with wholesalers . There are companies that do just wholesaling, kinda like New Western. But the licensee definitely has to look into the laws & speak with their broker too in order they're in compliance. The laws vary by state, so considering, reaching out to others in your area & looking more into NY's laws would be great, as well as figuring which route would be best for you.

Scott Johnson · Answer

Fiduciary comes in when you're listing the property. When you're approaching as a buyer there's no fiduciary duty, but dealing with clients honestly and being transparent is critical.

Concerning your comment "If a realtor is being truly honest, MLS is the best route for most clients in today's market." I'd contend that no one would know if that's the case until you know the client's situation. Most Realtors make the mistake of assuming that top dollar is what's best for every client, but this is simply not true. My last client was about to get foreclosed on, and they just wanted to save their credit. They'd already made living arrangements and were so far along in the foreclosure process it just needed to be stopped (Subject-To).

You're correct that always being honest and transparent with your clients is critical, but the deal structure is not always one size fits all.

@Bruce Lynn, the only thing I would add to your comment is to ask a lot of questions to the seller. Figure out one or two options based on their needs, but I wouldn't hand them 3-5 options and say which is best. That could fluster them and push them away. On any given Assignment deal, I always say, "Here's the fastest option (Wholesale Offer), but if you listed on the MLS it's a bit more involved and takes more time, but you can definitely get more money (Retail Listing Option)."

Dwayne Poster · Answer

Everything is fine and dandy when the seller goes on with life. It will be that one that isn't happy that you hadn't advised them in a professional manner that files a complaint with the board. Make sure your broker is on board. Personally, I would consider it a distraction from working hard as a salesperson. How much more attractive could it be than comm off the MLS.

Charlie MacPherson · Answer

@Sarah Castor  The first step is to run it by your broker, who in all likelihood will tell you that it's illegal.  Even if he/she approves, your next step is to plan your defense when you're charged with taking a net listing.

That's illegal in most states and strongly discouraged in others.

Wholesalers need to buy a property well below market value.  Generally, they do that by finding sellers who are either badly misinformed about the real value of their property or are so desperate to get out of a bad situation that they'll accept a bad deal.  Either way, the wholesaler needs to buy it at a discount that's so big, they can mark it up and assign the contract to an investor who is still getting a good deal.

In other words, wholesalers are generally taking advantage of ignorant or desperate people.  Your final step is deciding whether that's how you want to make a living.

Many wholesalers try to sell the lie that they're providing a service that Realtors can't.  That's absolute garbage and even if they won't admit it, they know it's true.  There is absolutely nothing that a wholesaler can do that a decent Realtor can't - and that includes selling to a cash buyer with a fast closing.

Of course, the best way to help a seller is to get the property on the MLS with a good description and great photos.  They will *always* net more money in the end.  That's just the right thing to do.

Bruce Lynn · Answer

#1 you want to talk to your broker about it.

#2. I don't see the conflict as long a you present two or more options....

A.  I'm a licensed realtor, if I list your home on the market at X price, I think it will sell in X weeks, at X price, here are the things you need to do to get that price.......clean, mow, paint, update, etc...  Should take another 30-45 days to close and then you will get your money.

B.  I'm also know as what we call a wholesaler.....I will pay you X today for your home, close in 7 days, and you don't have to do a thing, but move...and I'll even give you another 7 days to do that after you get your money.   If we go this route I'll expect to make X profit on it....in exchange for my work and risk.

C.  If you will sell me your home SUB2 the existing financing, I'll pay you X more than if I have to pay cash for it, same thing, I will close in 7 days and give you another 7 days to move.....chances are I'll sell it it 2-5 years and also make a profit on it, in exchange for you keeping the loan on it.

Which option works best for you?   Do you want cash today, with less risk and with no out of pocket time or expenses for you....or would you rather get a higher payout potentially, but have to spend time and money yourself now to reach that point?

If they sell to you for cash, then you should document in the contract that you expect to make massive profits on the resale and that has been explained with the option for a traditional listing.

Be open and honest with people.   You might even show them the differences of what you think you will make....and of course explain the risks to you.

The one thing I don't think you should do is try to wholesale with no money to close and hope and pray you can double close or assign contracts.   You will end up looking like the devil wholesaler no one likes when end buyer doesn't close and the original seller AND their family is now pissed at you.  Now that you are licensed and potentially have big brokerage bucks and insurance, they may come after you.

Robert Hamilton · Answer

@Scott Johnson I would agree with your comments in regards to the assumptions that most people make that MLS is the way to go. The wholesale route is not for everyone and I agree with many comment you will see on BP about the shady actions some wholesalers do give others a bad outlook. Wholesaling, or MLS for that matter, must fit the seller's criteria and situation. Wholesaling fits certain criteria that allows for cash offers or quick closes to be the answer as opposed to listing on the MLS. The latter may include accepted offers that fall through, repair contingencies, family disputes, 1031 contingencies, court approvals, etc. Ethical wholesalers provide a service that the seller feels fit his/her criteria based on the situation.

Many properties that wholesalers target, can't be listed on the MLS as-is or not without putting some in some capital to reach the ARV of the market area. Maybe the sellers does not want to put 50k in to update his 1950's decor to get the top dollar. Maybe he doesn't want to spend weekends out of his home in order for a realtor to show his property. Maybe he inherited the property from a deceased relative and he lives overseas and just wants it to be off his hands. So while many on BP go on and on about how wholesalers rip off the uninformed, there are many wholesalers with ethics that perform a service that is needed, maybe at a premium to the seller, but nevertheless fits their situation. Sometimes it is just a matter of convenience and peace of mind. Have you ever had room service and paid $25 for a hamburger that you could have walked down and grabbed for $10?

Wholesaling while being a RE Agent - conflict of interest?

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