The difference between "wholesaler" and "broker"?

Question

I don't know the terms well, but are "wholesalers"(?) the same as brokers? They both act as middleman in a deal right for a fee.

If not then I'am lost, I'am a newbie to the business and I just finished a rather hot topic here I started trying to decipher what I do and who I'am here:
http://www.biggerpockets.com/forums/70/topics/52242-are-note-finders-just-another-broker-

I still don't feel that I'am a note broker, especially since after reading an article from another "wholesaler"(?) here:
http://www.biggerpockets.com/forums/93/topics/37929-beginners-guide-to-wholesaling-killer-exit-strategies-pt-1-

Now,as I read that article I started to second guess my career title as broker. One paticular part of that guide that caught my eye was the "Double Closing (Simultaneous Closing) " section. Which just described my job description exactly but I work with notes instead of property!

Okay, I work with people who have notes and match them with buyers that purchases note. I go out and find people holding notes secured by real estate, after gathering the note information and finding a buyer, the seller and I sign a commitment agreement, from there the seller gives me a copy of all necessary documents, after the buyer signs and returns my NCND (Non-Circumvent, Non-Disclosure agreement) and payout agreement, I surrender all contact info to him and pass along the documents I received from the seller, and finally receive my finders fee.

This process is exactly as Eric explains it as:
Build buyers list==>Find homes==>Put under contract (your name or llc)==>Sign a completely new contract with your buyer==>Double Closing ==> Closing #1-Close with the owner of the home (No money is exchanged)==>Closing #2-Close with your buyer (Give you money)==>Give the money from the closing with your buyer to the title office==>Leave closing with difference between closing #1 and closing #2.

I have closed 4 deals this way, so I know what I'm doing but I don't know how to call it. Now, I was hoping you all could explain this to me and help me confirm my position in the note business. Am I a broker or a "Wholesaler"(?) of notes? Does this mean I change my title to investor or keep the same as broker? Getting these answers will help me immensely.

Chris Martin · Answer

Follow up on another thread... related but different... brokers and wholesalers are not the same. Indeed, brokers are licensed and highly regulated and wholesalers are not. But the fundamental difference is that brokers have no financial stake in the transaction. Wholesalers, even if they use 'weasel' clauses, have a principal interest in the property because they get property under contract. To me, that is the real difference. See also http://www.idfpr.com/Forms/DISCPLN/1001_dis.pdf and search for unlicensed practice of real estate to see how some states handle the difference (hint: it is a $25K fine in Illinois) So operate your business correctly and know your state laws well. Not legal advice, but my opinion for any business activity you may decide to pursue.

Jon Holdman · Answer

IMHO brokers and wholesalers are the same thing.  Wholesalers are unlicensed, though, so work around the licensing regulations by taking possession.

Some titles are regulated in some states.  For example, calling yourself a mortgage broker in Colorado would require that you be licensed.  If "broker" is a regulated title in Maryland, and you're not licensed, there is some state agency that will have you in their sights.

Notes, being financial instruments are even more heavily regulated than real estate.  And Maryland has some tight regulations on real estate.

Account Closed · Answer

Hello,

If you have trouble with understanding the terms, I think the following article might help you. It explains all real estate titles you might need:

https://realtyna.com/blog/difference-between-agent-broker-realtor-real-estate-titles-explained/

Lee Allen · Answer

My answer was based on the original question of whether you need a license to be a wholesaler because you are acting as a middleman. I was not talking about IRS rules or tax law.

Chris Martin · Answer

The only difference? It's not quite that easy, since the principals in these transactions and the IRS could treat these two transactions entirely differently. For example, time frame, intentions, and a person's actions all play a part in identifying if the principal is executing the transaction in the context of a dealership.

Lee Allen · Answer

The main difference between a broker and a wholesaler is that the broker never is a principal of the transaction.

As a wholesaler you take title to the property or note for a period of time and then you sell it to another buyer and receive a profit.

Would it be illegal for an investor to buy a house and then sell it 3 years later for a profit? No, because he is a principal of the transaction.

The only difference between the transactions is that you may have owned the property or note for 5 minutes and the other guy owned it for 3 years.

Jon Holdman · Answer

I'll stand by my opinion that wholesaling is just a way to be a real estate agent without a license.  The fundamental difference is the license. Wholesalers take title to the property, in some form or another, specifically to avoid unlicensed brokering.

Bill Gulley · Answer

OK, sorry for the assumption, hope you get it worked out with the attorney.

I'd suggest you get a hold of Wests Business Law, text book. Check out the glossory. Go to any college book store, you can get used books for cheap. It's also a good bacic read for anyone in any business, especially real estate.

What you might be finding is that different industries may call someone like a broker, in another industry they may be called a wholesaler, another might be an agent. A guy who buyes your corn at the silo could be an agent or broker, while he sells commodities like we sell homes as wholesalers, we don't use the same terms since that would imply a real estate agent. You have to stay within the terms generally used within the industry. When you start adapting other titles or names, it becomes confusing, misleading and might be decietful, unintentionally.

In real estate and the paper buisness, it's really important to use common legal terms, especially in contracts. If you read music, writing a song in B flat and trying to play in C minor presents some problems for some musicians, having to transpose, no one wants to transpose meanings while trying to consider a deal.

Go to the book stores, and please stay away from guru books for now, LOL. Bill

Jerome Harrod II · Answer

It's not law circumvention I'm after, again Licensing is not a problem for me.
                              It is legal in the state of Maryland to be an unlicensed wholesaler of notes.
                              I simply wanted to know the differences ,if any, between brokers and wholesalers, and  that is all. The way a wholesaler does things is exactly how I do things but instead of real estate I work with notes but they operate under a different title.
                              I was curious how it worked, because one side calls it brokering and this side calls it wholesaling. I plan on going to an attorney anyway, but I wanted to get as many as my questions answered here before I have to pay to go see an attorney for 1 or 2 questions.
                              Soon I was going into the real estate agents area to ask different questions about what they do.
                              Please understand that Im not after anything else but  definitions and information.

Bill Gulley · Answer

Jerome, it really sounds like you're trying to define yourself so that you don't have to comply with the various laws. What you call yourself is not important, you can say you are a Mortgage Transaction Specialist, what ever.

But when something blow up in a deal, either party is not happy for what ever reason, and they report the issue or they go to their attorney, which I guarantee will happen sometime, you'll be back peddling with your definitions and titles and they won't fly. Any judge is not going to look at your definition and title, they will be looking at what you do and then the intent of the law.

Jon is absolutely correct, the financial arena is tightly regulated. See an attorney in your area, it shouldn't be 30 minutes to get this worked out for you...good luck, Bill

The difference between "wholesaler" and "broker"?

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