What are the pitfalls of wholesaling in a lawful manner?

29 Replies

@Michael Woodruff The first thing to know is that in Massachusetts, marketing a property that you don't already own or your position in a contract to purchase is a license-required activity.  I've posted the relevant MA law many times in the forums, but you can read it for yourself here: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXVI/Chapter112/Section87PP It defines what kinds of activities require you to be licensed.

The only legal way to wholesale without a real estate license in MA is to "wholetail" - meaning that you buy the property (presumably at a meaningful discount), add your markup and then re-sell it.

Better yet is to buy it, renovate it and then resell it - that actually adds value instead of just stealing someone else's equity.

The gurus and many on this site will debate the legality of wholesaling.  Read the law for yourself though.  It's crystal clear and there isn't a millimeter of wiggle room.

Connecting the buyer and seller for a percentage is literally the definition of practicing real estate. Please don't use that as a defense if you ever get caught doing that without a license. 

@Michael Woodruff   As @Nick C. said, that is exactly the kind of thing that requires a real estate license in Massachusetts.

Here are the most relevant parts of the MA law from the link I provided above - the emphasis is mine:

''Real estate broker'', hereinafter referred to as broker, any person who for another person and for a fee, commission or other valuable consideration, or with the intention or in the expectation or upon the promise of receiving or collecting a fee, commission or other valuable consideration, does any of the following: sells, exchanges, purchases, rents or leases, or negotiates, or offers, attempts or agrees to negotiate the sale, exchange, purchase, rental or leasing of any real estate, or lists or offers, attempts or agrees to list any real estate, or buys or offers to buy, sells or offers to sell or otherwise deals in options on real estate, or advertises or holds himself out as engaged in the business of selling, exchanging, purchasing, renting or leasing real estate, or assists or directs in the procuring of prospects or the negotiation or completion of any agreement or transaction which results or is intended to result in the sale, exchange, purchase, leasing or renting of any real estate.

As I said before, there is not a millimeter's worth of wiggle room in there.

Right now, I'm working with a young couple who is selling their home here in W. Plymouth. We're now on the market at $345,000. They tell me that HomeVestors came in and looked at their home and told them that it was a dump, and that the most they could expect to get for it was their offer of $223,000. My clients had no idea of what the true value of their home was - they believed the person who was lying to their face. In fact, it needs about $5,000 in repairs.

They were about to accept the offer when they came to me as buyers.  I put a stop to that very quickly - not by badmouthing HomeVestors, but by running comps and showing them what their home is really worth.

This is what enrages me about the wholesaling enterprise.  Almost always, it involves stealing equity from people who are either uninformed or so desperate that they have to take a bad offer to solve whatever their immediate problem is.  It is almost always unethical.

If the wholesaler were honest and told the sellers that they could get $345,000 on the market and provided honest comps to support that claim and the sellers voluntarily made the decision to leave $123,000 of equity on the table, I'd have a lot less of a problem with it.

Sure, there's the occasional inheritor with a property 2,000 miles from home, in poor repair and behind on taxes that just wants to dump it.  But that's not the norm.  Normally it's cheating and lying and taking advantage of desperate people.

I don't know how people who do business that way sleep at night.

@Nick C. so you’re telling me I need a license to tell my grandmother who has property that I have someone to buy her house and if the buyer is excited and wants to pay me a percentage off of closing from an experienced closer/attorney I’m in violation.I don’t get it that is free will.Im not lying and telling them things that aren’t true.I understand their are laws but I’m not naive to the fact that I have a right to direct people in the right direction.Ever though I don’t have a license as a realtor or a broker.I also understand that you guys have a job to do or a business to run but I had a personal conversation with a Real Estate Attorney and he did not deny me that what I was doing was wrong.He told me what the closing cost was and that was final.Whats the laws on Wholesaling was the question totally different from the explanations.

You can make that argument to a stranger on the internet until your fingers are numb, I just hope you don't ever have to use that in front of a judge. I have no moral interest in what you do, I hope you do very well in this business, I'm just telling my opinion of you what you described is practicing without a license. I think a judge would agree with me, but I hope we never have to find out.

@Michael Woodruff   It's not me saying it.  It's the Massachusetts Legislature as I pointed out above.  For crying out loud, I posted chapter and verse of the state law.  There's just no way to twist it to favor your argument.

You don't own the property.  You are marketing it.  You expect a fee.  That absolutely requires a license.

These laws are in place to protect the public.  

- You are not a trained Realtor.  
- You don't have access to the tools to do a proper job of marketing her home, which is what it takes to get the highest possible price. 
- You are highly likely to leave money on the table that should have gone to your grandmother.
- You are clearly putting your own interest in making money over your grandmother's interest in getting the most money for her home.

You're free to ignore the law if you like, but expect to pay the consequences if you get hauled in front of a judge.

@Michael Woodruff your allowed to connect buyers and sellers, you have every right to do so. The law is not about that. The law is about doing it for compensation. You can connect sellers and buyers all day long as long as your doing it for no compensation. The moment you start doing it for compensation you need a license. Sure if all your deals work out your probably won’t get sued, but the moment a deal goes sideways, you can always control that, but your going to get sued and then it’s game over.

Originally posted by @Charlie MacPherson :

@Michael Woodruff   As @Nick C. said, that is exactly the kind of thing that requires a real estate license in Massachusetts.

Here are the most relevant parts of the MA law from the link I provided above - the emphasis is mine:

''Real estate broker'', hereinafter referred to as broker, any person who for another person and for a fee, commission or other valuable consideration, or with the intention or in the expectation or upon the promise of receiving or collecting a fee, commission or other valuable consideration, does any of the following: sells, exchanges, purchases, rents or leases, or negotiates, or offers, attempts or agrees to negotiate the sale, exchange, purchase, rental or leasing of any real estate, or lists or offers, attempts or agrees to list any real estate, or buys or offers to buy, sells or offers to sell or otherwise deals in options on real estate, or advertises or holds himself out as engaged in the business of selling, exchanging, purchasing, renting or leasing real estate, or assists or directs in the procuring of prospects or the negotiation or completion of any agreement or transaction which results or is intended to result in the sale, exchange, purchase, leasing or renting of any real estate.

As I said before, there is not a millimeter's worth of wiggle room in there.

Right now, I'm working with a young couple who is selling their home here in W. Plymouth.  We're now on the market at $345,000.  They tell me that HomeVestors came in and looked at their home and told them that it was a dump, and that the most they could expect to get for it was their offer of $223,000.  My clients had no idea of what the true value of their home was - they believed the person who was lying to their face.  In fact, it needs about $5,000 in repairs.

They were about to accept the offer when they came to me as buyers.  I put a stop to that very quickly - not by badmouthing HomeVestors, but by running comps and showing them what their home is really worth.

This is what enrages me about the wholesaling enterprise.  Almost always, it involves stealing equity from people who are either uninformed or so desperate that they have to take a bad offer to solve whatever their immediate problem is.  It is almost always unethical.

If the wholesaler were honest and told the sellers that they could get $345,000 on the market and provided honest comps to support that claim and the sellers voluntarily made the decision to leave $123,000 of equity on the table, I'd have a lot less of a problem with it.

Sure, there's the occasional inheritor with a property 2,000 miles from home, in poor repair and behind on taxes that just wants to dump it.  But that's not the norm.  Normally it's cheating and lying and taking advantage of desperate people.

I don't know how people who do business that way sleep at night.

the laws literally read verbatim in all 50 states.. its just whether the state wants to enforce the law.. and they will if your turned in.. or if your sued you have zero defense. 

Originally posted by @Michael Woodruff :

@Nick C.so you’re telling me I need a license to tell my grandmother who has property that I have someone to buy her house and if the buyer is excited and wants to pay me a percentage off of closing from an experienced closer/attorney I’m in violation.I don’t get it that is free will.Im not lying and telling them things that aren’t true.I understand their are laws but I’m not naive to the fact that I have a right to direct people in the right direction.Ever though I don’t have a license as a realtor or a broker.I also understand that you guys have a job to do or a business to run but I had a personal conversation with a Real Estate Attorney and he did not deny me that what I was doing was wrong.He told me what the closing cost was and that was final.Whats the laws on Wholesaling was the question totally different from the explanations.

first thing you will learn is Lawyers are not regulators if your just talking to a closing attorney they could give a rip if your breaking licensure laws.  

Originally posted by @Michael Woodruff :

What is it to have equitable interest in a property does it still require a license in Massachusetts

The only way to potentially get around the law is to actually purchase and close on the deal and then flip it. Look into transactional funding.