Wholesale or a Realtor

What would you rather do for a profession while in real estate making or creating cashflow? There are many active jobs as I covered in a previous blog her on BP. It is great to have options in real estate that will continue to create a flow of money, and these two we’ll go over are the most common in the space of real estate. Let’s review the options of agent or wholesaler for who you would like to be.

What is a Wholesaler

This is a professional within real estate that finds off market properties, once they source the property, they sell the property to another person for a price and wrap their fee of finding the property into the deal. Let’s chat about what these fees look like and how they incorporate them in the deal. For example, a home that is going to be sold at $500,000 and the after-repair value (ARV) to be $650,000; the wholesaler will sell it to a rehab investor for $515,000 and the wholesaler will get the $15,000 check for connecting the buyer and seller off market.

How does a Realtor get Paid

Most the population are familiar with the services of a real estate agents and what they do. The way they get paid at times is a little ambiguous to some people, and we’ll break it down here in a quick way for everyone. Let’s take the same list price as above, and that is $500,000 to list a home; the owner has $200,000 of equity in the home, and the listing fee is a total of 5% of the sales price. As the 5% is split between the buyer’s agent and the listing agent; and it does not include escrow, title, home warranty, and other miscellaneous fees will total 6% of the sales price approximately. That means the 5%-6% will be coming out of the home equity (or the $200,000), which is paid by the buyer from their offer price of the home. If the buyer pays less for the home and the home is marketed improperly, negotiations are subpar etc. the amount that is out of the equity goes down.

For the example above, 2.5% to the buyer’s agent which is $12,500 and 2.5% which is $12,500 to the listing agent puts us at $25,000 of the sales price. The difference in price on market expense verse offer market seems drastic, so let me iron it out for you a little bit. These numbers are just off $500,000 for ease; however, the wholesaler route usually gets the property at a 10%-35% discount, so the seller will usually be willing to take that hit for it due to the fact that they know the property needs some repairs and it’s being sold “as-is.”

The Big Question (Realtor or Wholesaler)

One needs to be licensed in all states, and the other (wholesale) does not need to be licensed in all states. The licensing scares some people from jumping into the realtor route, and the guidelines that agents have to abide by when working on a deal is another barrier to entry. Some states do require wholesalers to be licensed so make sure you know the laws in your state. The guidelines for realtors that require the agent to disclose all the material facts is something that pushes real estate investors to wholesaling as well.

The professionals are paid about the same for their work and the marketing expense, negotiations, and building the business are all equal. Customer service for both sides should be the same; however, as the realtor you to tend to clients more than a wholesaler which would be a con for some investors with the high expectations. Another factor is the liability for the realtor and the wholesaler is still held to a standard due to the fact that anyone can be sued for anything.

Each profession has their pros and cons, and I believe that it’s up to the person and their personality on which way they should go to build that flow of money. Know going into each one that you will have liability and customers to work with, the businesses are the same in the way that it’s a marketing plus, leads plus, converting the leads plus, managing expenses and income while growing the business. One has to focus on owners looking to get rid of the properties without a larger profit and the other has to work with owners looking for the highest profit along with more eyes looking at the property while on market.