5 Terms That Every Wholesaler Needs to Know
May 28th, 2021
Knowing how to “talk the talk” is crucial to your success. In this article, you’ll learn the 5 terms that every wholesaler needs to know...
Term 1: MLS
The MLS is short for Multiple Listing Service. This is where all licensed real estate agents list and find properties. It is a huge database of “on market” properties. It is a great way to find deals, but you need to have a real estate license or work with an agent to access the MLS.
Term 2: Comps or CMA
These two terms mean the same thing. A CMA is a Comparative Market Analysis, and a “comp” is short for comparable. Comps are important because you need to know what houses are selling for in the same area as your subject property. When looking for comps, you want houses with similar features (such as sq ft, bed/bath, foundation, pool, garage, and year built). You also want comps to be close to the subject property, preferably in the same neighborhood. You can find comps on the MLS if you are working with a real estate agent, or you can use free sites such as Zillow.com, Redfin.com, Realtor.com, or Trulia.com. The general rule of thumb is to find at least 5 comps (but no less than 3).
On a side note, ALWAYS find comps for yourself. Do not leave it up to a real estate agent. Remember, you are the one who is fully vested in your success (not anyone else) and agents won’t give comps the time and attention they need.
VIDEO TIP:
Watch this YouTube video where Jerry Norton teaches you how to comp a property the easy way!
Term 3: ARV
ARV or After Repair Value is the potential value of a house after repairs are made. When wholesaling houses, your ideal buyer is a rehabber (who will fix it up and resell it). You need to know ARV, because that’s what the cash buyer (the rehabber) will sell it for. Your offer price (and wholesale fee) must factor in the final sale price (ARV).
To find ARV, first calculate the average price per square foot of each comp. The formula for price per square foot is the sold price divided by the total square foot of the property.
For example:
Take a 2,800 square foot house that sold for $350,000. Divide 350,000 by 2,800 to get $125 per square foot.
After you do this for each comp, calculate the average of all the house’s price per square foot by adding up the 5 amounts and dividing by 5 (or however many comps you used). Then, take that average and multiply it by the square feet of your house. That final number is your ARV.
Click here to read an entire article dedicated to ARV.
VIDEO TIP:
Watch this YouTube video where Jerry Norton shows you (with examples) how to calculate ARV.
Term 4: Motivated Seller
A motivated seller is a property owner who needs to sell their house to alleviate the burden and stress it is causing them. This can be either financial distress (where they can no longer afford to own the house) or the house itself is distressed and they don’t have the money, time or motivation to fix it up.
Here’s what is important to remember about motivated sellers: they will gladly trade equity for peace of mind. A motivated seller is eager to sell an unwanted house at a discount to be rid of the headache the property is causing them.
Term 5: Assignment
An “assignment” is what you do to complete the sale of the property (with no money of your own) using an assignment contract. The process involves 5 steps:
- Step 1: Find a property from a motivated seller
- Step 2: Make an offer
- Step 3: Sign a Purchase and Sale Agreement contract
- Step 4: Assign your Purchase and Sale Agreement to a cash buyer with an Assignment Agreement
- Step 5: Close and collect your fee!!
Click here to read more about assignment contracts.
The key to making assignments work is having the right contracts in place. Luckily, Jerry Norton has them in his free Quickstart Kit. This kit includes all the contracts you need to wholesale houses without risk, plus... step-by-step training on how to find leads, talk to motivated sellers, use agents to your advantage, find cash buyers, and much more!
