Using a Realtor vs a “We Buy Houses” Company

You’ve probably seen those signs… they call them “bandit” signs… tacked to telephone poles or stuck along the median: We buy houses! Any condition! Cash fast! You may have wondered: why would anyone trust a person who scrawls a sign on cardboard and sticks it to a phone pole, to handle a transaction as important and complex as a house sale?

The people who put those signs up are called wholesalers. A wholesaler gets houses under contract, and then quickly resells them, or, just resells the contract, usually to a house flipper or rental investor. Sometimes, the markup is substantial, but sometimes it is a thousand bucks or less, so a wholesaler must move many houses to survive. Thus the signs, postcards, letters, and phone calls.

This is very different from the job a realtor does, although the basic fact is the same: you begin by owning a house, and you end by having money but no house. The wholesaler, like the realtor, acts as an intermediary in that process.

But there are some fundamental differences.

First, your realtor works for you. He is bound by a code of ethics, part of which involves his duty to get the best deal he can, for you, not for the buyer and not for himself. Your realtor should know the local market very well, and be able to set an optimal asking price for your house. He also knows all the ins and outs of the sales process and can guide you through it.

Second, your realtor will be licensed. The license shows that they have the core knowledge they need to do the job. They can’t operate without that license, and can lose it if they violate the code of ethics. In some jurisdictions, wholesalers are supposed to be licensed too. But the requirement is often not enforced. In reality, some wholesaling companies have a licensed realtor on the team, and some do not.

So far this sounds like an explanation of why you should never sell your home without a realtor. But consider the following.

First, as the sign says, cash fast! Sometimes time is of the essence. In cases of inheritance, job change, illness, or any number of other situations, a wholesaler might be a lifesaver. Wholesalers act fast.

The acquisitions manager at my company, when he goes to look at a house, will always take a contract with him. If he likes the house, and thinks we can resell it, or keep it for ourselves, he will offer to sign a contract on the spot.

If you sell through a realtor, to a homeowner, it will take time to find a buyer, and then you will have to wait and hope while they do an inspection, arrange financing, etc. The entire process could take anywhere from a few weeks to months. And sometimes it falls through, at which point you get to wait while your realtor starts over from the beginning, finding another buyer.

Second, any condition! In a normal retail sale, condition and appearance of the house are extremely important. It is not unusual for someone to live in a house for many years, and only spend the money to put it in perfect shape when the time comes to sell it. The retail market for damaged, rundown, or even outdated houses is limited. Most homeowners want to move right in and have their dream kitchen waiting for them.

For reasons of time, money, or other circumstances, this may not be feasible for some sellers. But a wholesaler will buy anything if the price is right. We have bought everything from move-in-ready houses to gutted wrecks.

There are a host of other factors that could make a quick sale to a wholesaler a good option.

It may be hard to sell a distressed house in a distressed area to another homeowner, but wholesalers are often looking for these houses, to be resold as rentals.

Some houses may be worth so little that it is difficult to motivate a realtor for a 3% commission on that amount; but a wholesaler works on markup, not commission, allowing them to make a profit on deals at any price point.

Of course, it will be impossible to sell a rental house occupied by a tenant, to a homeowner, but a wholesaler will likely know investors who are eager to buy it. A wholesaler may be more willing to deal with a home that has tax or other liens. And the whole process of dealing with inspections, contingencies, and conditions is much more streamlined with a wholesaler.

So, if you’re looking to sell Aunt Stella’s million-dollar Victorian palace in a desirable area, you probably want a licensed realtor. But there’s a lot of room below that, and there are a lot of cases where using a wholesaler to sell your house might suit your needs.

By the way, those signs are called bandit signs for a reason: they are illegal in many jurisdictions. A sign tacked to a pole may not be the best way to find a wholesaler. Some legitimate businesses do use them, but if you can’t find any other proof of existence: a website, an office, or even a billboard, you may be right to be suspicious.

There are legitimate real estate wholesaling businesses who move a hundred or more houses a year, have a network of ready buyers, and know every aspect of the business. And then there are those who just tack some signs up and hope for the best.

Do some research and choose carefully.

Photo Credit: FitSmallBusiness.com.