What is a real estate wholesaler?

Real Estate Wholesaling

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The goal in real estate wholesaling is to sell the home to an interested party before the contract with the original homeowner closes. This means no money exchanges hands between the wholesaler and the seller, not at least until a buyer is found by the wholesaler. All fees associated with the sale are paid for by the end buyer, usually a home flipper. The wholesaler makes a profit by finding a buyer willing to purchase the home at price higher than the amount agreed upon by the buyer. The difference in price—paid for by the buyer—is the profit, retained by the wholesaler.

 

Example of Real Estate Wholesaling 

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Let's say a homeowner has a property they never thought they could sell because it's fairly distressed. The owner may not have enough resources to fix it up themself, but continues to live in it, thinking they'd never get a fair price for it. Enter the wholesaler, who gives the homeowner with an all-cash offer. Together, they agree to put the house under contract for $90,000. Using his network of investors, the wholesaler finds an eager buyer at $100,000. He assigns the contract to this investor, who then has a profitable fixer-upper project. The wholesaler makes a $10,000 profit without ever owning the home.

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From this example, we see that there was never actually an offer to purchase from the wholesaler. The wholesaler agreed to contract the house out for the homeowner to an interested party. Under this assignment contract, the buyer pays $100,000 to the wholesaler, who pays the homeowner $90,000, keeping the rest for themself as profit.