This purchase agreement does not represent the sale of the property. It simply gives the buyer the exclusive right to purchase the property by assigning the contract to the buyer. This is why wholesaling contracts are also called “real estate purchase and sale agreements” or “real estate assignment contracts” — the wholesaler’s work is connecting their buyers list to their sellers to set up both parties for a smooth and easy transaction. Once this is done, the wholesaler’s role in the transaction is finished.
Wholesaling real estate is a form of short-term real estate investing. Anyone can start wholesaling — you don’t need a real estate license to take part in this investment strategy, although it is advisable to form an LLC under which you can conduct your business. With due diligence and a little real estate know-how, wholesale purchases are a great way to get familiar with the real estate world and make money in a relatively short time frame.
Wholesalers usually seek out properties priced below market value in order to turn the most profit — for example, foreclosures, properties with liens, distressed property, those that need serious repairs, or those that are owned by highly motivated sellers. Once a wholesaler strikes an agreement with the seller, the wholesaler may then work with a title company, contractor, and appraiser to properly vet the property and prepare it for any renovations they — or the seller — want to make.
When the property is ready to be sold, the wholesaler lists it at a higher price — at or above market value. The difference between this purchase price and the wholesale price accounts for the wholesaler’s cut, or the assignment fee, as well as the added value from any repairs or renovations. This can look similar to flipping a house, but wholesaling is generally a shorter, more hands-off process than a complete renovation. Additionally, the buyer is less likely to be a future homeowner and more likely to be a real estate investor.
Wholesale real estate requires unique knowledge to be successful and avoid loss. Familiarity with the real estate industry and legal documentation is helpful. Spotting the opportunities in market properties, however, is key. Success in wholesale real estate means being able to forecast factors like eventual sale price, potential rental property, and real estate market comps.
Make sure you consult with a real estate attorney to confirm that the terms of the agreement are legally sound for all parties. Here are some common parts of a wholesale contract:
No. A wholesale real estate contract gives an investor the right to buy a property from a seller. A wholesale assignment contract transfers the right to purchase a property from the wholesaler to a buyer. Using these two contracts, a wholesaler can act as an intermediary between interested sellers and buyers.