How Wholesale Real Estate Works

The six steps of a typical wholesale transaction, and what can go wrong.

The process

Six steps of a typical wholesale deal

  1. 1. Find a motivated seller

    Wholesalers look for owners who value speed or convenience over top price: inherited houses, properties needing major repairs, tired landlords or owners relocating. Outreach must follow marketing laws such as the TCPA and the Do Not Call Registry.

  2. 2. Estimate value and repairs

    Pull recent sold comparables to estimate after-repair value (ARV), walk the property, and estimate repairs. Many investors start from the formula: maximum offer = ARV × 70% − repairs − wholesale fee.

  3. 3. Sign a purchase contract

    The contract should clearly allow assignment and usually includes an option or inspection period. Earnest money is deposited with a title company. Tell the seller in writing that you are an investor and may assign the contract.

  4. 4. Market the contract with disclosure

    Share the deal with potential buyers. In Texas you must disclose that you are offering your interest in the contract, not the property itself. Do not advertise properties you do not have under contract.

  5. 5. Assign or double close

    In an assignment the end buyer signs an assignment agreement and pays your fee at closing. In a double close you buy the property and resell it in a second transaction.

  6. 6. Close at a title company

    The title company clears title, collects funds and pays the seller, any liens and the wholesaler’s fee according to the settlement statements. If no buyer is found, the wholesaler may have to cancel and can lose earnest money.

Know the risks

What can go wrong

No buyer, no fee

If you cannot find a buyer before your option period ends, you may have to cancel or risk your earnest money.

Legal exposure

Skipping disclosures or marketing properties you do not control can amount to unlicensed brokerage.

Reputation

Tying up sellers with contracts you cannot close harms them and can lead to complaints or lawsuits.

Disclosure: WholeSellIn TX (wholesellintx.com) is an independent, educational website. We are not a licensed real estate broker or agent, we do not buy, sell or list properties, and we do not guarantee any profit or outcome. Under Texas law, anyone marketing a property they only have under contract must disclose that they are selling their contract interest (equitable interest), not the property. Consult a licensed real estate professional or attorney about your situation. Full disclaimer.