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GlossaryInvestingStrategy

Wholesaling

2 min read
Short answer
Wholesaling means putting a property under contract and then assigning that contract to an end buyer for a fee, rather than buying it. The wholesaler never takes title and never funds the purchase. The value they add is finding a property the end buyer would not have found, and the legal boundaries around it vary by state.

Wholesaling means contracting to buy a property, then assigning that contract to someone else for a fee — without ever taking title or funding the purchase.

The mechanics#

The wholesaler signs a purchase agreement with a seller, typically containing an assignment clause and an inspection period.

They then find an end buyer willing to pay more, and assign the contract for a fee.

At closing the end buyer performs the contract. The wholesaler receives the assignment fee and exits. They were never on title and never brought purchase funds.

What is actually being sold#

Access to a property the end buyer would not have found.

That is the honest version of the value proposition. Wholesalers spend on marketing, direct outreach and list-building to find owners who are motivated and not on the market. An investor who does not want to do that work pays for the result.

Where that is the transaction, it is a service with a price.

Where it becomes a problem#

Marketing a property you do not own. Advertising a house to the public, rather than assigning a contract to a known buyer, edges toward brokering without a licence. Several states have legislated on this and the boundaries differ.

Contracts with no intention to close. Very long inspection periods used as free options, tying up a seller's property while the wholesaler shops it.

Non-disclosure to the seller. A seller who believes they are dealing with the buyer, and discovers otherwise at closing, has been misled about a material fact.

The reputable practice is straightforward: tell the seller you may assign, use reasonable timelines, and be prepared to close yourself if the assignment fails.

The distressed-property angle#

Wholesaling concentrates on exactly the population this glossary is about — owners in foreclosure, inherited property, tax delinquency, deteriorated buildings.

Which means wholesalers are frequently the first party to contact a homeowner in difficulty, and in Minnesota that contact can fall within chapter 325N where the property is a foreclosed homeowner's residence and the arrangement amounts to a reconveyance or foreclosure consulting.

A homeowner approached by anyone offering to solve a foreclosure should speak to a HUD-approved housing counsellor first. The advice is free, and it is not attached to a transaction.

For a seller weighing an offer#

Ask two questions.

Will you be closing yourself, or assigning?

What happens if you cannot find a buyer?

Both answers are legitimate. Not getting them is how a property sits under contract for two months and then comes back to the market having lost its momentum.

Common questions

Is wholesaling legal?
Assigning a purchase contract is generally lawful where the contract permits assignment. What draws regulatory attention is marketing a property you do not own, which in some circumstances edges into brokering without a licence. The line varies by state and is worth advice rather than assumption.
How does a wholesaler get paid?
An assignment fee from the end buyer, paid at closing, in exchange for taking over the contract. The wholesaler's profit is the difference between the contracted price and what the end buyer will pay.
What is the risk to the seller?
That the wholesaler cannot find an end buyer and the contract fails, wasting the seller's time. Sellers should ask directly whether the buyer intends to close themselves or assign, and should be wary of very long inspection periods that function as free options.
Keep reading
Assignment of contract
Transferring the rights under a purchase agreement to another buyer, who then performs the contract in the original buyer's place.
Assignment fee
The amount a wholesaler is paid to transfer a purchase contract to an end buyer, typically settled at closing.
Purchase agreement
The binding contract setting out the price, terms and conditions on which a property will be sold, and the deadlines both parties must meet.