New Challenges Real Estate Wholesalers Face in 2021
Wholesaling has proven to be a lucrative real estate investment strategy. Many wholesalers earn hundreds of thousands of dollars each year. Wholesalers are great for the real estate industry since they help identify distressed properties and find and source properties for developers and investors who revitalize neighborhoods. Unfortunately, there are those who work in an unethical, predatory manner and give all the rest of the wholesalers a bad name. State governments have been increasing regulations on wholesalers in the past few years, and we expect those regulations to become the norm in more areas around the country. As wholesalers, we need to keep on top of these changes and adapt accordingly. Here are some of the changes and challenges we can expect to see in the near future.
New Regulations: Do They Help?
Earlier this year, the city of Philadelphia imposed regulations on wholesalers in an attempt to stop wholesalers from “exploiting under-informed property owners.” It was argued that many home sellers were unaware of their property’s value when they sold their property to a wholesaler, so the city stepped in to protect the home seller from what they called predatory and deceptive practices. Wholesalers working within the city are now required to follow the following stipulations:
- Obtain a residential wholesaler license which costs $200.
- Must disclose all company affiliations.
- Successfully complete a background check indicating they have never been convicted of fraud or any ethics violations within the past 7 years.
- Must have proof of insurance.
- At least 3 days before closing, the wholesaler must provide a home seller’s bill of rights. The information included in this document includes: Informing the seller how to seek legal counsel or real estate services and how to find the value in their home.
- The city will establish a do not solicit list that homeowners can choose to join.
Suppose a wholesaler conducts business without a license. In that case, the seller is allowed to back out of the transaction up until the close of escrow. So, having the license will protect a wholesaler from lost time and money.
Interestingly, the Philadelphia Association of Realtors backs the new regulations. It is well-known that Realtors and wholesalers have some animosity between them. We can’t help but wonder if they hope that the new regulations will scare wholesalers away from doing business in the area. What is also interesting is that the residential wholesaler license does not require an exam or anything that is similar to getting a real estate license. The license will not increase the experience or knowledge needed to do business. Is this a money grab at the expense of wholesalers, or will this actually improve the way business is conducted? Let’s take a look at some other city and state regulations that have been put in place to decide.
The state of Illinois requires all flippers to have a real estate license. Conducting business without one can result in a $25,000 fine! Oklahoma prohibits wholesalers from marketing properties they don’t own and has introduced a law that would make wholesaling illegal all together. Atlanta has placed restrictions on wholesalers contacting distressed home owners through cold calls in an attempt to protect them from being pressured to take an offer lower than their home is worth. These regulations seem to be an indication that the practice of wholesaling and those who practice it may be seen extremely negatively. Maybe the regulations aren’t just to get money, but are being put in place to try to prevent homeowners from being coerced into a bad deal.
More Challenges for Wholesalers
Not only are we going to have to jump through a few hoops before we can even conduct business, but we also have major corporations competing with us. Real estate giants like Zillow and Opendoor have entered the wholesaling and house-flipping industry. The even worse news is that they aren’t afraid to lose money.
Each company has millions, if not billions, of dollars to invest in real estate around the country. They operate on slim margins and give themselves room to lose money on each transaction. They have the seller use their own affiliated businesses throughout the transaction, like their lenders or title companies which is how they make money.
Zillow is the most well-known and credible real estate website available to consumers, and having to compete against them is going to be a considerable challenge. Opendoor is quickly following behind them, luring clients in with promises of an easy and convenient transaction. Both companies typically offer home sellers close to fair market value for their homes, making it difficult for a wholesaler to get an offer approved since we tend to come in lower than that. The seller does not know upfront because they are being charged a lot more in fees than they would be going the traditional real estate sale route. Should anything come up in the home inspection, you can bet that money will be taken off the purchase price. At that point, though, it would be too late, and the seller will have probably forgotten all about our offer.
Between government regulations and competition from these giants, how will we as small potato wholesalers compete?
It’s Time to Set Yourself Apart
The reason local governments have put regulations on wholesalers is because there have been too many unethical, deceitful people getting into our industry and giving us a bad reputation. Somehow, wholesaling became really popular with the get-rich-quick crowd who would do anything to make a buck. The best thing you can do to keep your business going is to set yourself apart from the crowd.
With more and more state governments requiring wholesaling licenses, it may be in your best interest to just bite the bullet and get a real estate license. Yes, the classes are boring and time-consuming, and the test can be challenging. Still, it certainly wouldn’t hurt your business to have more knowledge and more training than your competitors. With a license, you can also have the backing or a real estate brokerage, like eXp. This affiliation will offer you more training and also give you legal support should you need it.
Getting licensed and joining a brokerage like eXp also gives you access to real estate contracts, bookkeeping programs, and marketing materials. You will be provided in-house support services for transaction management and other time-consuming tasks, giving you more time to locate properties and work out deals. Plus, you will be part of the fastest-growing agent-owned brokerage in the country.
If you really want to set yourself apart from other wholesalers while being able to compete with the likes of Zillow, you can utilize Express Offers. This an innovative real estate platform that allows agents and brokers from all over the US to bring wholesale sellers and investor buyers together. This program intends to disrupt the “z-offers” and “buyers” that are hurting wholesalers and investors.
As an eXp agent, you will be compensated based on a set percentage when you represent a wholesale seller who sells on the platform. You also have the opportunity to be paid when institutional investment buyers they introduced to the platform purchase a property. So, since you should have a network of investors you work with, you could potentially bring in money on each of their transactions. Using this platform could help take your business to new heights. Express offers also offer home sellers all of the disclosures necessary to comply with local real estate regulations while giving them the peace of mind of working with a licensed real estate agent. It’s a win-win and something you should seriously consider if you want your wholesaling business to continue to be successful.
Any industry that brings in a lot of money will have people who try to take advantage of the success of others. Real estate and wholesaling, in particular, are no different. While new regulations may sound like an annoyance, they may also weed out the people who are bringing us down, which will eventually help us gain the trust of home sellers once again. We can try to fight the regulations, and we should if they become too burdensome. Still, we should also try to set ourselves apart by acting proactively to improve our industry.
If you are interested in getting a real estate license and joining eXp Realty, start here. We are in all 50 states and are ready to welcome you to our team.