Real estate wholesaling gets misunderstood.
Sometimes even by people who work in real estate.
At its simplest, a real estate wholesaler finds an opportunity, negotiates a contract with a property owner, and then finds an end buyer for that opportunity.
The wholesaler makes money because they created value in the transaction.
They found the property.
They negotiated the deal.
They took on contractual obligations.
They found the ultimate buyer.
And depending on how the transaction is structured, they may be compensated for transferring their contractual interest or through another properly documented arrangement.
Let's Use an Example
Suppose a property could reasonably be worth:
$600,000
A wholesaler approaches the owner and negotiates a contract to purchase it for:
$450,000
Why would a seller agree to that?
There could be dozens of reasons.
Maybe the property needs substantial repairs.
Maybe the seller inherited it and doesn't want to deal with it.
Maybe they're facing financial difficulties.
Maybe they're an investor liquidating properties.
Maybe they need a fast transaction with fewer contingencies.
Or maybe $450,000 is simply the number they are willing to accept.
The seller agrees to the contract.
The wholesaler now has contractual rights — and contractual obligations — under that agreement.
The wholesaler then finds an investor willing to take the opportunity at:
$500,000
That potentially creates:
$50,000
of value for the wholesaler.
How that compensation is structured depends on the contracts, applicable state law, required disclosures, and the specific structure being used.
What Exactly Is the Wholesaler Selling?
This is where people sometimes misunderstand wholesaling.
The wholesaler may not be selling the actual real estate.
They may be transferring contractual rights.
A properly executed real estate contract can create valuable rights.
Depending on the agreement and applicable state law, those rights may be assignable to another party.
Think of it this way:
The wholesaler found an opportunity and negotiated the right to purchase that property under certain terms.
Someone else is willing to pay for the opportunity to step into that contractual position.
That contractual interest itself may have value.
What Is an Assignment?
An assignment is one common structure used in wholesaling.
Generally, the original buyer transfers their contractual rights to another party, assuming the original contract and applicable law permit the assignment.
Using our example:
- The seller enters into a purchase agreement with the wholesaler.
- The wholesaler finds an ultimate buyer.
- The wholesaler assigns their contractual interest to that buyer in exchange for agreed consideration.
- The ultimate buyer then completes the purchase according to the applicable agreements.
- The wholesaler's assignment fee or other properly documented compensation can be accounted for through the transaction.
How Much Can a Wholesaler Make?
Potentially quite a bit.
Using our example:
Original negotiated price: $450,000
Ultimate transaction economics: $500,000
Potential wholesaler compensation: $50,000
And this is where people sometimes become uncomfortable.
They see someone receiving $50,000 who isn't the listing agent or buyer's agent and immediately think:
"Isn't that basically a commission?"
Not necessarily.
A real estate commission and consideration paid for the transfer of contractual rights are not automatically the same thing.
However, this is also exactly where state law matters.
States have increasingly adopted laws governing real estate wholesaling, including requirements involving disclosures, advertising, licensing, equitable interests, assignments, and how wholesalers represent what they're actually selling.
So there is no single nationwide answer that applies to every wholesale transaction.
It's Not Title's Job to Decide Someone Made "Too Much Money"
This is an important distinction in how we approach these transactions.
If someone legitimately negotiated a valuable contractual position and stands to make:
$5,000.
$20,000.
$50,000.
Or considerably more.
The amount alone doesn't determine whether the transaction is legitimate.
And it's not the title company's job to decide:
"That's too much money for that person to make."
That's not our lane.
Our responsibility is to understand the transaction we're being asked to close and insure.
That means we're concerned with things like:
Ownership.
Authority.
The purchase contract.
Assignments.
Amendments.
Liens.
Payoffs.
Required disclosures.
Closing instructions.
Lender requirements.
The flow of funds.
Fraud prevention.
Underwriting requirements.
Applicable regulatory concerns.
And ultimately:
Can we properly close and insure this transaction?
What Is a Novation?
A novation is another term you'll sometimes hear around investment and wholesale transactions.
And it isn't simply another word for an assignment.
Generally, a novation involves replacing an existing contractual obligation or party with a new agreement or obligation, with the necessary parties consenting to that change.
The exact structure can vary significantly depending on the transaction.
From our perspective, the important questions are straightforward:
Who originally contracted with whom?
What changed?
Who agreed to the change?
What documents created that change?
Who is ultimately purchasing the property?
Who is receiving money?
Why are they receiving it?
What has been disclosed to the parties?
And do the documents support the transaction we're being asked to close?
Why Do Title Companies Look More Closely at Wholesale Transactions?
Because they're not always cookie-cutter.
Complicated doesn't mean bad.
It means we need to understand what happened.
A traditional residential purchase might involve one purchase contract, a buyer, a seller, a lender, and fairly predictable closing documents.
A wholesale transaction might include:
An original purchase agreement.
An assignment.
One or more amendments.
A novation agreement.
Compensation agreements.
Additional disclosures.
Investor financing.
Seller financing.
Other agreements affecting someone's contractual interest.
That's more moving pieces.
More moving pieces mean more things that need to be reviewed.
Multiple Assignments Can Get Messy
This is one area where title may slow things down and start asking questions.
Imagine:
- Party A signs the original contract.
- A assigns rights to B.
- B assigns something to C.
- There's an amendment somewhere along the way.
- Another agreement changes compensation.
- And Party D ultimately appears on the transaction.
At that point we're going to say:
Show us everything.
Who currently has the contractual rights?
Were the assignments permitted?
Were they properly executed?
Does anyone still retain an interest?
Is someone still owed money?
Were required disclosures made?
Does the buyer's lender permit the structure?
Are payments being properly disclosed?
Does our underwriter have additional requirements?
Do the documents actually tell the same story as the money?
Those aren't unreasonable questions.
They're exactly the questions title and escrow should be asking.
"Don't Worry About That Agreement" Is Never the Right Answer
Transparency makes these transactions substantially easier.
If you're bringing Viking a wholesale, assignment, novation, or another unconventional transaction:
Tell us what it is from the beginning.
Give us the original contract.
Give us the assignments.
Give us the amendments.
Give us the novation documents.
Give us the compensation agreements.
Give us the required disclosures.
Tell us who's receiving money and why.
If there's an unusual piece of the transaction, tell us about it.
We would much rather review something early than discover an important agreement immediately before closing.
This Is Also Why Experienced Attorneys Matter
Wholesale and other nontraditional transactions can cross into areas where title, contract law, lending regulations, licensing rules, disclosure requirements, and state-specific real estate laws intersect.
That's not something we believe should be handled casually.
Get the right professionals involved.
For the types of complex and nontraditional transactions Viking works with, we generally involve a closing attorney experienced with the transaction structure when appropriate.
That's an important additional layer.
The attorney can review the transaction and its documents from the legal side.
Title can address ownership, liens, title defects, insurability, underwriting requirements, and the public record.
Escrow can handle funds according to the applicable agreements, closing instructions, and requirements.
The underwriter can address any additional title-insurance concerns.
Each professional has a different job.
And when you're dealing with an unconventional transaction, having experienced people in each of those roles matters.
Wholesaling Isn't Automatically a Red Flag
We work with investors.
We understand that not every real estate transaction looks like:
Buyer finds house.
Buyer gets traditional mortgage.
Buyer closes.
Seller moves out.
Done.
Real estate can be considerably more creative than that.
Wholesale transactions.
Assignments.
Novations.
Subject-to transactions.
Seller financing.
Land trusts.
Portfolio transactions.
Commercial deals.
Other investment structures.
Unconventional does not automatically mean improper.
But unconventional transactions deserve the right level of scrutiny.
Our Approach Is Pretty Simple
We don't believe complicated automatically means bad.
We believe complicated means:
Understand the transaction.
Get the right professionals involved.
Bring in experienced legal counsel when appropriate.
Document it correctly.
Disclose what needs to be disclosed.
Make sure the money matches the documents.
Satisfy applicable lender and underwriting requirements.
And make sure everyone understands what they're signing.
That's how Viking approaches wholesale, assignment, novation, and other nontraditional real estate transactions.
If you have a transaction that doesn't fit neatly into the traditional real estate box, talk to us early.
We'd much rather help structure the closing correctly from the beginning than try to untangle it at the end.
Real estate wholesaling, assignments, novations, disclosure requirements, advertising rules, licensing requirements, and permissible compensation vary by jurisdiction. Complex or nontraditional transactions may require closing-attorney, lender, and/or title-underwriter review. This article provides general educational information and is not legal advice.
