Howdy, folks. Today, we’re gonna tackle a terrific question sent in by one of our readers:
“Hi Cody, I’m still trying to figure out this whole RE investing thing…lol. I’m a little confused on the biggest difference between a real estate agent and a wholesaler, other than the license. Aren’t they both just bringing a buyer and seller together for a commission? Can you please spell out the differences in plain English for me? Thanks!
Great question, Gerald. This is actually a common question asked by many new investors, so I thought I might as well do an entire lesson clarifying the difference between a wholesaler and a real estate agent for you guys…
First off, before you continue reading, I recommend that you read my lessons How to Wholesale Part 1 and Part 2, and also Should Real Estate Investors be licensed?. Those will give you a nice foundation (pun intended) for today’s lesson.
Basically, a Wholesaler is…
Anyone who wants to earn quick cash by finding deeply discounted properties (on/off MLS), then serves up those properties to other investors (typically landlords or rehabbers) at a discount by creating a spread between the two.
A wholesaler does NOT need a license because they are a PRINCIPLE in the transaction…
Meaning that they have the property under contract to purchase. Since they have that contract, they now have control over that real estate just long enough to flip it to a cash buyer and make their assignment fee or wholesale spread.
A Licensed Real Estate Agent is…
Someone who goes to school to get their license and then pays dues to become a Realtor – in order to buy and sell property on other people’s behalf and earn a commission while doing so.
One is an Investing Strategy and the Other is a Career Choice
Realtors (since they’re working on behalf of someone else) have certain fiduciary responsibilities to the buyers and sellers that have hired them to buy or sell property.
Whereas an real estate wholesaler is essentially doing this for themselves as a strategy to make quick cash. Most real estate investors use wholesaling as an entry point into investing because they don’t have the capital to go out and just buy real estate. They just want to make a fast buck at very low risk.
It’s also worth mentioning that a lot of people confuse whether an REI is supposed to be licensed. If someone (like a real estate agent) ever accuses you of practicing the sale of real estate illegally, say something like:
I see your point, but actually, I’m not acting as anyone’s agent… I’m a principle in this transaction. See my name there on the contract? That’s me as buyer/seller. As a principle in the transaction itself, I’m just acting as a regular buyer/seller… and as such, there’s no reason I can’t assign my principle interest over to someone else, or contract to sell the property, or whatever the heck else any other buyer or seller can do, right?”
The Bundle of Rights Analogy
You can think of a bundle of rights like a bundle of sticks. As long as you have a stick, you own a part of that bundle of sticks. When the sticks are given out to people, different aspects of ownership are given away.
When you enter in a contract with someone, you give them 1 stick (1 piece of ownership called equitable interest). It’s that stick (that equitable interest) that makes it so that you don’t have to be licensed.
It’s important to also note that when you are an investor, you are not legally representing anyone but yourself (whereas a real estate agent is representing someone else and their best interest).
Equitable Interest Vs. Legal Interest
Keep in mind, when you are a real estate wholesaler who has entered into a contract, you only have equitable rights until the date listed on the contract. You do not have legal rights until your name is on the deed after the closing process.
I hope this brings clarity to your confusion, Gerald, and that the rest of you learned something new…
See ya soon,
Cody’s Cliff Notes
- Educate yourself by reading the previous lessons I suggested above.
- Take note of the differences between investors and real estate agents.
- Prepare how to respond to accusations that you’re selling real estate illegally.
- Understand the bundle of rights and the difference between equitable interests and legal interests.
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