Some may not be super familiar with the term “wholesaler”; especially when it comes to real estate. Essentially it’s an investor or investment group/company that ties up a property with a seller and then resells the property to another buyer at a higher price, thus making a profit for being a ‘ middle man’. The wholesaler uses little or none of their own money to secure the transaction and sometimes double escrows the deal so they never really own it. This practice has really gained in popularity over the last handful of years all over the country, but in the Phoenix Market, these things tend to amplify.
Everyone knows there is a huge inventory problem right now and significant lack of housing supply to satisfy the demand. This has led prices to spike with rapid gains, often by the week.
The wholesalers have now moved into the mainstream market and not just “fixer-uppers” aimed for remodeling… this means ordinary people trying to buy a home for themselves and/or their families are having to pay more to buy a home. How you ask… well, let’s use this scenario:
- A Home is listed on the open market for $295,000.
- Wholesaler sends a cash offer for $300,000.
- Seller accepts the cash offer.
- Wholesaler immediately advertises this home for sale with a price of $320,000.
- Due to market conditions, an owner-occupant agrees to pay $320K and absorb any appraisal shortfall.
Whereas the owner occupant could have purchased this home around $300,000; instead, they are paying an additional $20K (6.7%) to buy it. This now sets a new “baseline” for other homes hitting the market and then more people will pay more for their homes too.
We live in a free market / capitalist society so this is allowable most of the time, but it hurts “the little guy”. As someone who works with a ton of first-time home buyers, they are the ones really feeling the pressure right now with many being priced out of the market completely and forced to rent longer. That means they are not building equity and rental rates are high so it’s even costlier than buying.
I’ve been a big proponent of thinking ‘big picture’ in this market with my clients. Every situation is unique and different, but your choices will affect many down the line. Think about that before signing on the dotted line.
