After the housing crisis home flippers cash in on foreclosures

“Wholesaling is finding a bargain for a bargain hunter,” says Michael Jake, a Colorado-based real estate investor who used proceeds from wholesaling to begin renovating and flipping properties himself.

But that markup can also mean the difference between lower-income families buying a home or continuing to rent.

“Even a few thousand dollars, especially in a particularly distressed area, has a distorting effect on prices,” says Andrew Jakabovics, associate director for housing and economics at the Center for American Progress, a Washington, D.C., think tank. One way home buyers and agents establish the appropriate price for a home is by looking at comparable sales in the area. Wholesaling can muddy the picture.

“It makes the bottom [of the market] very frothy and hard to figure out where real value is,” says Mr. Jakabovics.

Increased competition for distressed properties also complicates matters for community groups seeking to turn around troubled areas. The groups “need to buy the right properties that are of strategic importance to a neighborhood,” says Craig Nickerson, head of the National Community Stabilization Trust, a Washington-based nonprofit created to put recently foreclosed property in the hands of new owners and renters. “When investors come in who don’t have interest in the community, who want to buy low and sell higher, they wind up taking important chess pieces off the board.”

Profiteer or problem solver?

How big a role wholesalers play is not clear. “It’s hard to say how much [wholesaling] is going on or how much effect it has on markets,” says Jakabovics. But he sees little value to the practice.

Mr. Nickerson agrees: “Someone who went through the licensing process and is accredited is a better person to deal with than someone who puts a telephone number on a telephone poll.”

Wholesalers provide a valuable service, counters Mr. Jake, often taking on properties in such ill repair that owners can’t find an agent to represent them, let alone a buyer in the traditional marketplace.

“I’m not going to go into a nice neighborhood and offer them some ridiculous price for their house,” he says. “There’s a good real estate agent for that.” Instead, he puts neglected homes into the hands of someone who will “make it into the prettiest house on the block.”

“The one word that makes this all work is motivation,” says Ty Taylor, a wholesaler based in Birmingham, Ala. “Whether [the home owner’s] getting divorced, they’re tired of rental business, or need money for one of their kids … the property’s not an asset to them anymore. They consider me a problem solver.”

Related:

Foreclosures hit a record in 2009. This year could be worse.

Cities, not just banks, are pursuing foreclosures too

Vacant home spread blight in suburb and city alike

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