If you’ve ever driven around an American city, you’ve probably seen them: those signs that scream “We Buy Houses,” with nothing but a phone number (or the occasional email address) underneath.
If you’re anything like us, you’ve probably wondered what the story is behind those signs.
Who’s making them? Do people really sell their houses by calling a random number from a sign in the street? And why would someone think signs like that were a good form of marketing?
In this post, we solve the mystery once and for all.
Part 1: The Wholesalers
When you think about someone buying or selling a house, you probably picture a real estate agent showing a home to young couple, giddy with the prospect of owning their first home, or a new family excitedly imagining their future together. But many real estate transactions don’t take this form.
The most common alternative is called wholesaling. Here’s how it works.
A wholesaler finds someone who wants to sell their house and makes them a (usually cash) offer for it. However, the wholesaler is just a middleman. Once they sign a deal with the seller, they start looking for a buyer. Ideally, they’re able to sell the property to the buyer for a bit more than they contracted with the seller for, and turn a nice little profit on what’s usually a quick transaction.
Both sellers and buyers can benefit from wholesaling:
- Sellers get an all-cash deal, and can usually sell their home as-is, even if it needs repairs.
- Buyers get a quick transaction (wholesale deals often close in just a few weeks), and access to deals that aren’t officially on the market.
At Castle, many of our customers have found great deals from wholesalers, and we often make recommendations for a few we know in the area.
And it’s wholesalers who are usually behind these scenes. But none of the wholesalers we know advertise via signs like this. So why do others think they’re a good way to get customers? And could selling your house to someone you found from a random sign possibly be a good idea?
Part 2: The Signs
You don’t need a license to be a wholesaler. As such, wholesaling is a popular way for people to break into the real estate industry.
There’s also no centralized, efficient market for wholesale properties. Most deals are done on more of an informal basis, through personal relationships, email newsletters, or even Deal or No Deal-type meetups.
So new wholesalers need to come up with creative ways to get customers. But why have so many of them settled on the same tactic?
That’s where the seminars come into play.
There are thousands of real estate seminars out there, all following the classic seminar structure: introductory course (usually free), which upsells you to the next course (usually a few hundred bucks), which upsells you to the next one, and so on. The most expensive seminars can end up costing tens of thousands of dollars.
Unsurprisingly, some real estate seminars are get-rich-quick schemes or outright scams. Others are legitimate, although if you want to get into real estate investing, you’re undoubtedly better off apprenticing yourself to a local investor, or teaching yourself through some of the many free resources out there, than you are attending a mass-market seminar.
Nonetheless, many wholesalers get their start by taking one of these seminars. And amazingly, many of these seminars explicitly recommend that you find sellers by posting these signs.
But do they actually work?
I called a few of the numbers we’ve seen driving around Detroit and asked that exact question. The buyers on the other end told me that yes, they did find sellers from their signs—but of course, if the signs were useless, these wholesalers probably weren’t going to admit that to a complete stranger.
Like everything else in real estate, I’d guess the real results vary widely. I’m sure the signs have worked for some people, but in our experience, the best and most reputable wholesalers didn’t build their business by posting signs on telephone poles.
So when you call a number from a “We Buy Houses” sign, the person on the other end is usually a wholesaler, and they’re probably one who just completed an introductory real estate seminar.
I’m no Scooby Doo, but I’d call that a mystery solved.