Can I be a realtor and wholesaler?

Question

My first wholesale deal closed to yesterday and my very traditional broker is questioning whether it is legal for me to be a realtor and wholesale deal. I live an Georgia and I look for some clarity. Does anyone practice both and want to share how it works?

John Thedford · Answer

Everything will sale on the MLS. Prices sell houses. Furthermore the MLS gives a much larger exposure than the typical wholesaler

Russell Brazil · Answer

If you used an assignable contract...it is incredibly easy to view that as a net listing. Net listings are illegal in most states, but not all. So if they are illegal in your state, I would be very cautious about wholesaling via an assignable contract if you are licensed.

While it would cost a little more, Id suggest buying then reselling to avoid a potential net listing.

Charlie MacPherson · Answer

@Grant Rothenburger I'll respectfully disagree.

By definition, the surest way to get the highest price is to expose the property to the largest number of potential buyers.

That requires going to where the buyers are, and that's the MLS.  That's why I say not going on the MLS is a disservice to the seller, and most likely a dereliction of a Realtor's fiduciary duties.  Any marketing plan that doesn't include MLS is a compromise.

I also don't think there's such a thing as a property that won't sell on MLS.  It may need so much work that most retail buyers won't look at it, but there are lots of buyers with dreams of getting a great sweat equity deal.  That's why the FHA 203K and FannieMae HomeStyle renovation loans are so popular.

Russell Brazil · Answer

You are in Florida, which is one of the rare places net listings are actually legal. So it wouldn't surprise me then that you know more agents who partake in wholesaling there.

Kyle McCorkel · Answer

I had my license for a year and a half and dropped it for this reason. Not just because I wanted to wholesale, but also because of all the restrictions on marketing and the general lack of support from brokers for a real estate investors. Most brokers just lacked the understanding and creative thinking needed to support an investor-agent. At the end of the day I got tired of jumping through all their legal hoops just to get MLS access, so I decided dropping the license was my best choice for my business.

Steve K. · Answer

@Akeen Felder It seems like wholesaling as a realtor fits the definition of both a net listing and dual agency. Many veteran agents steer clear of these type of transactions whether they’re legal in their state or not, mainly to avoid being sued. It’s hard to juggle and blend good faith duties, fiduciary duties, best practices all while trying to carve out as much profit as possible for #1. Real estate commissions were created specifically for the purpose of protecting the public from situations like this.

Grant Rothenburger · Answer

@John Thedford @Charlie MacPherson

I appreciate the inputs. I'm basing that opinion on the fact that I've wholesaled a property that was on the MLS multiple times and didn't sell for a year. I was able to find a buyer and make a little money. Maybe that happens less than I thought, I no longer do any wholesaling but I have a friend that does a lot of wholesaling and I know he's come across this himself too.

So if two of us have done it here in Cincy, I assumed this happened often. If not, then my mistake.

I'll still stick to my point of wholesalers typically getting the most dollars that a property can get (run-down properties). They want it to sell as high as possible too, and know better than anyone (if they're good) what a property is worth and what it can fetch. But I guess this is subjective to the individual wholesaler themselves, shady ones don't care much about the seller, or know about the market, good ones want them to get the most they can get and know what that is.

While the MLS has a larger pool of buyers, what percentage of that is residential buyers with mortgages that won't work with these properties, vs. the wholesalers network of all cash buyers and investors that look specifically for these deals? Not to mention that a lot of times these people want/need money ASAP and listing on MLS and jumping through hoops is not in their best interest. Their best interest is cash ASAP, I would argue that you can make that happen faster as a wholesale deal. Maybe I'm missing something there.

Brandon Sturgill · Answer

@Akeen Felder having a license likely means you are associated with NAR, your state association, and your local association...your fiduciary duty is to find the highest and best use...but best and highest may be different. There is a real issue when you begin to rape homeowners of equity (not saying that is the case here). You can be licensed and a "non-member" in my state, at least...having a license means much more transparency and accountability. There is probably a balance somewhere, but it sounds like you've got a conflict to resolve. If you are wholesaling and you're broker is cool with it, just make sure your process is transparent...a lot of brokers are not investors and they simply don't understand your perspective of using creativity to solve problems and earn a buck.

On low dollar properties, it's enticing to wholesale because the fees may be greater than the possible commission...just use caution when you run into these situations. At the end of the day, this is probably a state-specific issue.

Grant Rothenburger · Answer

Not that I disagree with your last point, but I might argue that whatever a home sells for when a wholesaler sells it, is probably close to the top dollar it can get. Typically they aren't properties that will sell on the MLS and wholesalers want to make as much of a fee as they can so they sell it as high as possible usually. So in a way, it could be in the sellers best interest.

But if it was a house that would sell n the MLS and a realtor says "no let me wholesale it for a deep discount instead" that's a different story and I would completely agree that is not in the sellers best interest.

Charlie MacPherson · Answer

@Akeen Felder In addition to @Russell Brazil's point regarding net listings, there's also the issue about "fraud in the inducement", meaning that you entered into a contract to purchase a property when you had neither the intent nor the ability to do so.

Further, your state licensing laws may have something to say about whether you owe a fiduciary duty to the seller.

If you do, and you're buying the home at a deep discount (as is the typical wholesaler's way of doing business), wholesaling is a violation of that duty, since you're not working in the seller's best interest.

Can I be a realtor and wholesaler?

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