BiggerPockets

I keep hearing about wholesaling bordering on the line of brokering, where can you get in trouble and not get in trouble.

Can you only market the property if you have a written agreement, option, or contract?

I've heard of some wholesalers having handshake or verbal agreements with sellers, and market the property that way.

How do you skirt the line, w/o crossing it?

Brokering deals is the only wholesaling I engage in, and is exactly what I teach my students. It keeps your risk in the deal at almost zero. If you close and take title, but can't find a buyer, you are stuck with that property, sitting on it for months, or longer.

Always use a binding purchase contract. As Ryan said, if the seller attempts to go around you, while the contract is in place, you can take legal action, or simply cloud the title, which will keep the seller from being able to sell the property.

Act as the middle man, by bringing a motivated seller and a motivated buyer together, via a purchase and assignment contract, and make yourself a lot of money, while also keeping your risk very, very low.

Originally posted by Minna J

Andrew tell me how you do this as a broker. As a broker you're bound to get the seller the most the market will bear right? So how do you wholesale as a broker and stay within the legal obligations of acting as the sellers fiduciary? Aren't you really just taking a net listing which is illegal anyway? This is one of those areas where becoming licensed works against you from an investor stand point. I've always wondered how to get around that and never did find an answer.

You have to by law disclose that you are a broker/agent to your seller regardless if it's for personal or business. As long as you disclose that you are a licensed broker I don't see anything wrong with investing.

But if it were me I would just put the license in escrow and just concentrate on investing seems like a pain in the neck situation having to make sure you are in compliance with RE laws in regards to brokering and personal deals.

I think Andrew was merely describing what he does and maybe he used the wrong nomenclature. I don't think Andrew is utilizing real estate brokerage in his wholesale deals. You want to be careful not to describe wholesaling as brokering, because any type of brokerage requires at least a real estate license.

Wholesaling in practice can appear very similar to brokering but again the difference is the wholesaler is utilizing an equitable interest in the property while a real estate broker/agent is utilizing agency laws.

Now Minna, net listings are not illegal in all states, but they are very touchy. You also could just charge a flat commission (i.e. $5,000 or $10,000 for a 30 or 60 day listing).

Also in Texas you not only have to disclose you are a realtor to a seller if you are buying their property, but you also have to disclose to them what the Fair Market Price is for their house, IF you came across them in your normal real estate agent duties (which is open to debate).

Either way being a licensed agent can be more of a liability than an asset when wholesaling. Not to say that you can't do it, but it requires more hoops to jump through to protect yourself.

I do think you can still fulfill your fiduciary duties to a seller in a wholesale situation by being open and frank with the seller.

i.e. Mr. Seller your house that you inherited from your parents is a piece of crap and I've gotten an As-Is offer for $50K that can close in 7 days. Now if you clean up your house, paint the inside and outside, put a new roof on it, and put new carpet in, I think we can get more like $90K sometime over the next 6 months or so. I know you don't have the $15,000 or $20,000 to fix it up and that you need the money now because your property taxes are behind and you can't keep a job, so my recommendation is to sell it now for the lower price.

I think you would still be fulfilling your fiduciary duties by doing something like this. You have informed them fully of the situation and are taking reasonable care to accomplish what they need and want. Now this definitely won't fall into a standard real estate brokered deal, but I don't think it has to bring any liability onto the agent for not fulfilling their fiduciary duties. Many agents won't even take the listings for wholesale type properties because they know they won't sell under the normal circumstances of most real estate deals.

Gotcha Andrew. Guess your use of the term brokering threw me off to my legalities of brokering tangent.

The traditional word "Broker" that most people know and utilize CAN get you into trouble depending on the state. Therefore I don't even use the word to describe what it is I do and teach.

Wholeselling or Assigning a contract is mearly selling a piece of paper thus your interest in the deal. I don't sell property (that IS a broker), I sell a contract to pruchase a property. It seems that as more and more people become involved in this business, the terms seem to become more and more clouded.

Case in point, this forum is called Wholeselling. That term has even become clouded as the true term is Assignemnt.

I appoligize for changing the direction of this string. But I hope this clarifies your question Terry.

Robin

I would never use the term broker, nor wholesaler, when speaking to a seller. I just say I'm a real estate investor, looking to purchase a few houses this month.

The term wholesaling is the buying and selling of a product or service at less than a perceived market price. That is what we do. We buy (contract) a property on wholesale, and we sell property on wholesale. I've never discolsed, or even thought to disclose, the fact that I'm licensed or unlicensed.

I'm not exactly up on the legalities of what we do. However, I am confident in my motivation, which is to assist the seller and make some money. I seriously doubt any distressed seller is going to be hiring an attorney and taking you to court, because you didn't disclose something, or aren't licensed in some way. They just want out... and that's our specialty.

Here is something to put in your pipes and smoke.

A sells land to B, with right of assignment
C claims a due course title to the assignment and offers to split the gross proceeds with real estate agent D if D can procure a buyer for the assignment rights.

How do you describe D's role in this arrangement, which is based on the details in a lawsuit?

Ryan, Robin is correct....When "wholesaling", you're merely assigning your interest in the contract to another investor for a fee...however, in regards to a double closing, that's just an alternative to assigning the contract

Here is what I came up with.

Broker - someone who has no money, small operation in most cases, works a full time job in another field, has no money, no team, always looking for the easy way out with no real commitment, never buys from the bank.

Wholesale Investor- Full time career, has a team and has money with the ability to close deals and not back out, can put down ernest money, basically works this like a business and gets the best deals from the bank.