Wholesaling as an agent

[Devonta Taylor]

Hello All, I’m a little confused and need some enlightenment. So I’ve done a few wholesale deals already but last week I passed my Real Estate exam and want to become licensed. I want to continue wholesaling as an agent but I’m not sure how it works. How are agents wholesaling without their broker having to receive a percentage or are they getting a percentage of the deal ? All responses are appreciated.

[James Orr]

I am not an attorney, but I am managing broker of a VERY SMALL real estate brokerage in Colorado where I work. Laws and brokerage agreements I am sure vary state to state, but here's how I see it.

If you are wholesaling, you are likely putting properties under contract to buy for your own portfolio. Then, when you find a buyer, you are assigning your rights in your personal contract to that buyer in exchange for a fee.

First, if you were working for me as a real estate agent where I was your managing broker, I have an obligation from the state to supervise your real estate activities and if I don't do that properly I can be reprimanded and/or fined and/or possibly lose my license. So, I'd want to know what you're doing and make sure you were doing it legally to be in compliance. That likely means, the brokerage will want to be paid a fee.

Second, some brokerages will allow you to do your own deals without paying the brokerage part of the commission (or a discounted amount based on your arrangement). If I recall correctly, when I wasn't my own brokerage, I could do 3 personal deals per year with the brokerage and all I had to pay was a $250 file review fee to the brokerage to make sure the file was done correctly in case we got audited. Any above that, I had to pay the brokerage their part of the commission based on the split.

I am sure there are great exceptions to what I am about to say, but as someone who has done a VERY large amount of wholesaling earlier in my career and a lot more brokerage in the later part of my career, my opinion is that you typically can do better financially through brokerage than by wholesaling. If you think about it, brokerage you only need to find the buyer OR the seller and you might earn 3% of the purchase price. For wholesaling, you need to find the investor buyer AND the motivated seller and on many deals you're not even earning 3% of the purchase price. Twice the work, for often less money. Harder to find a motivated seller willing to sell at a discount or creatively than to find any old seller and easier to find any buyer than one that can buy at a big discount for cash or with creative terms. Plus, you have risk of being a principal in the transaction as a wholesaler.

One could (and some may say should), consider converting your presentation to motivated sellers to a listing presentation and not offer to buy it yourself at all.

For example, with your managing broker's permission, you could get either a full listing contract and market the property properly, get your seller maximum dollar (whether that's to an investor buyer or owner occupant buyer). Commissions are negotiated and can be more or less depending on your office policy.

Or, again with your managing broker's permission, tell the seller you know several investors that might be interested and get a listing... maybe a limited listing instead of a contract to buy it yourself... maybe as a transaction broker so you're just helping the buyer and seller consummate the sale (not representing either party as a fiduciary) and charge a commission instead of a wholesale fee.

Just spit-balling ideas for you, but check with your managing broker to structure something that does work for all of you. Some of these will need to be massaged and adapted to be compliant and legal in your area. Heck, I'd check with my attorney here if I planned to do any of that in my state (which I am not doing).

As an aside... here in Colorado, attorneys strongly advice AGAINST doing marketing as an investor (think "I'll Buy Your House") and then, if you can't buy it for your price, switching to "I'll List Your House" and represent you as an agent. I think their primary point is that it can come across as "bait and switch" the end consumer and we're supposed to be protecting consumers.

Sorry to be long-winded, but does that help at all?