Wholesaling with RE License

10 Replies

I have in the past wholesaled deals as a licensee, although I now purchase all deals and either flip them or wholetail the properties. From the legal stand point, we use a disclosure signed by the home owner that we are purchasing directly from that states that we are purchasing the property as an investment and our intent is to make a profit on the property. In the last 3 years our attorneies has expanded the disclosure to include the market price of the property (what we would be able to list and sell the property on MLS in its current condition) and also what the property would cost if it were fully rehabbed.

Well lots of wholesalers do shady things....not all, but plenty....if you get caught doing shady things and you ever end up in court, then it could very well be the judge or jury hold you to a higher standard.  

Most brokerages won't permit wholesaling as any $ made as a licensee must be paid to the brokerage in the form of commission. While it may vary by state, you cannot make profit on a property you don't hold title to... def. potential legal ramifications and liability for the Broker.

@Corey Smithfield Let's clarify definitions first.  Wholesaling in the "traditional" sense means that you put a property under contract when you don't have both the money and intent to buy it, then mark up the contract and sell your position in the contract to another party.

Here are the problems that can spring up:

I know that you're licensed, but for those who are unlicensed, this is illegal in almost all states (and maybe all). Marketing a property that you don't already own (as in your name is on the deed) is a license-required activity.

For real estate agents, wholesaling is virtually indistinguishable from taking a net listing, which is illegal in most states and strongly discouraged in others. That's because of the tremendous potential for the seller to be abused by a presumably more astute real estate agent.

Next, wholesaling means that you have to get the property at such a steep discount that you can mark it up and still make it a good deal for the eventual buyer. That means that you're stripping equity from the seller.

Finally, when you enter into a contract without both the ability and intent to fulfill your part of it, you have committed "fraud in the inducement".

Your broker will most likely tell you that it's not permitted. It's also highly unlikely that your MLS will allow you to list a property for resale when you don't already own it.

All it's going to take for the poop to hit the fan is for a family member or friend to discover that you screwed Grandma out of $20,000 of her equity. A complaint to the Attorney General and/or the real estate commission is going to be VERY ugly. And, BTW, it's unlikely that your E&O will cover the damages and legal defense costs.

@Corey Smithfield

I'd say it definitely could. I don't do it but I know some licensees and even some brokers who have. I will say the crowd who preaches "its better to wholesale unlicensed because you're not as regulated" is grossly mistaken. The law governs everyone. As was stated previously I think the main thing is making it clear to the owner that you are an agent and what your intentions are, and making sure the paperwork you and the owner sign clearly defines that. I also don't agree when people record the contract as a lien against the property.

Mainly I think wholesaling is just harder to do than most make it seem. It takes a lot of volume marketing. The western PA market where I’m at isn’t exactly the San Fran of the Midwest but there’s still wholesalers putting $20k a month into marketing that are basically small companies, not just one person on the side. I would like to get into it but it’s a tough racket IMO.

@Charlie MacPherson   I basically agree with Charlie, but there are plenty of brokerages like Zillow, OpenDoor, Door, Knock, Orchid, Redfin, and Keller Williams now wholesaling homes.  Even if you put all the disclosures in there for the seller to sign that you intend to buy below market value and resale at a profit, there is probably risk in there that someone gets upset and sues....maybe that is built into the model.