When selling a house, some main objectives are finding a buyer quickly and getting the best price. Unfortunately, these two things don't always go hand in hand.
If a homeowner wants to sell the property as quickly as possible, working with a wholesaler is an option that can expedite the process. While working with a wholesaler might be the quickest way to sell property, there are some disadvantages.
You could lose money when selling property to a wholesaler. We'll explore how you might get lowballed and less money for your home when selling to a wholesaler. So, keep reading to find out if that would be the right choice.
What Is Real Estate Wholesaling?
First things first, let's start by explaining what the term wholesaling means in real estate. If you're wondering, ''How does real estate wholesaling work'', here's what you need to know.
Real estate wholesaling is when an intermediary finds an investor to buy a property at a below-market price and then assigns the contract to them. The middleman, also known as a wholesaler, doesn't own the property but makes money through the assignment fee charged to the investor.
The goal of wholesaling is to make a quick profit by selling the property to real estate investors before taking ownership, thus avoiding having to fix it up or go through the hassle and expense of selling it on the market.
How Does Wholesaling Real Estate Work?
The real estate wholesaler finds a property that is either sold by an owner who wants to get rid of it quickly or is in foreclosure. The wholesaler then contacts an investor and tells them about the property. If the investor is interested, they will contract with the wholesaler.
The contract stipulates that the investor will buy the property at a specific price, and the wholesaler will find a buyer for the property. The wholesaler then markets the property to potential buyers, and once they find a buyer, they will assign the contract to them. The investor will then buy the property from the original owner and sell it to the new buyer for a higher price, making a profit.
The Cons of Wholesale Real Estate - How You Lose Money
While this may seem like a great way to sell your home quickly, some risks are involved. Here are a few ways you could lose money when selling property to a wholesaler:
1. The wholesaler could cancel the contract.
2. The wholesaler could find a buyer but back out of the deal.
3. The wholesaler could lowball you on the price of the property.
4. You could fall victim to a real estate scam.
You can mitigate these risks by researching and working with a reputable real estate wholesaler. But even then, there's no guarantee that you'll make a profit from the sale.
1. There Are No Guarantees - Contract Cancellation
When you sign a contract with a wholesaler, there's always the chance that they could cancel the deal. If the wholesaler cannot find an interested buyer, they can back out of the contract. While this is not necessarily common, it's still a risk that you need to be aware of.
If the wholesaler cancels the contract, they will keep the earnest money deposit you paid when you signed it. So, not only are you losing the deal you were counting on, but you're also not getting your deposit back.
2. The Wholesaler Could Find a Buyer But Back Out of the Deal
It's also possible that the wholesaler could find a buyer for your property but then back out of the deal. This could happen if the wholesaler gets a better offer from another buyer or decides they don't want to go through with the sale. If this happens, you could be left in a difficult situation where you need to find a new buyer quickly.
3. Lowballing You on the Price of the Property
Another risk is that the wholesaler could lowball you on the price of the property. This could happen if the wholesaler is desperate to find a buyer or if they think you're desperate to sell. And agreeing to a price below market value is a sure way to lose money when selling your property.
In order for this to be a lucrative business, the wholesaler needs to buy property at a significantly lower price. When reselling the house to an investor, they will raise the price and earn a hefty profit. In this equation, you are the one who is losing out on the chance to get more money for your property.
When you're selling to the end buyer, your chances of getting a fair offer are much higher. Listing your home is a good way to ensure getting the best price for your property. Even if you need to fix up your home before listing it, sometimes it's worth the effort.
When working with a wholesaler, you're getting less money but saving valuable time and avoiding the hassle of doing repairs. So it's up to you to decide what is more important to you.
4. Beware of Scams When Selling Your Home to a Wholesaler
Shady real estate deals are, unfortunately, quite common. And when you're working with a wholesaler, you could risk falling victim to a scam.
One type of scam is when the wholesaler asks for earnest money but never follows through on the deal. Another is where the wholesaler tries to get you to sign over the title to the property without paying you.
Although wholesaling is completely legal, certain wholesalers use unethical strategies to force homeowners to sell at a lower price. For example, they might inflate the estimated repair costs and convince you that the value of your home is significantly lower than it actually is. And if you feel like the wholesaler is pressuring and rushing you, or they aren't being transparent, take it as a red flag.
Should You Sell Your House to a Wholesaler?
Selling your house to a wholesaler can be an excellent way to avoid the hassle of repairs, showings, and open houses. But you need to be aware of the risks involved in this type of sale. There's always the chance that the deal could fall through or that you could end up losing money on the sale.
So, if you're considering selling your property to a wholesaler, we advise you to do your research and consult with a real estate agent to ensure that you're getting the best possible deal.
