Wholesaling - Is It About to Change?

197 Replies

The Real Estate License Act (RELA) of 2000 is about to sunset. Check out the changes they are making to the RELA regarding wholesaling. How do you think this will affect things?

Excerpt is taken from the article posted by Illinois Realtors

Title: SB 1872 or Real Estate License Act of 2000 - Explained (full link at bottom of post)


As you may already be aware, the Illinois Real Estate License Act of 2000 (RELA or the Act) was due to “sunset” at the end of 2019.

This is a regular “thing” for licensing laws, and knowing this was on the horizon Illinois REALTORS®set to work organizing a task force to study, consider and recommend changes for a rewrite of RELA.

Accordingly, the Illinois REALTORS® task forces were focused on consumer protection from the start. In addition, IDFPR has a mission of consumer protection together with establishing the standards for professional real estate licensees in Illinois.

  • With regard to business practices, in Section 1-10, the definition of "broker" has been amended to include the practice of "wholesaling" if done as a business model. Generally, "wholesaling" involves the practice of entering contracts to purchase property, then quickly assigning that contract to another buyer for a profit. When done as a business practice, "wholesaling" will now come under RELA's enforcement provisions and the wholesaler will need a real estate broker's license, as well as be subject to consumer protection provisions such as disclosure of self-interest and prohibition against dual agency.

Full Link: https://www.illinoisrealtors.org/blog/sb-1872-or-real-estate-license-act-of-2000-explained/?fbclid=IwAR34h8ys5z-ea3ks6ufLTwSPNNos-XAR1unslWPbcLlGQQ7tSnpCmxSw24M#consumer



@Patrice Boenzi

Because wholesalers are hustlers by nature. And by virtue of this they always find a way to make it happen. Maybe they come up with another name for what they are doing or find a different angle but I'm sure it will continue. Wholesaling is a billion dollar industry across America. The economy needs it, whether or not anybody likes it is a different story.

** Please note I am not a wholesaler but I am a realist and this is how society works.

@Mark Fries I hear what you are saying! I have friends who wholesale and I know Realtors who work with wholesalers. I have been looking this up and in some states it is a felony to practice real estate without a license and in some states holds a $25K fine. From what I understand, which is limited, it is all about the definition or what it means to practice real estate in your state. It will be interesting to watch how things will unfold.

@Patrice Boenzi

Most legitimate wholesalers that I know these days actually end up purchasing the homes and doing double closings or similar things. And this practice is totally legal. They might lose a couple thousand with extra closing fees but at least they are doing everything legal.

I think it will certainly change things. I don't see how it can't. and I don't think doing a double close would avoid running afoul of the law. Wholetailing would, but not a double close. While I don't doubt the hustle of some wholesalers, I also don't doubt the broker's lobby and that some brokers may push for this to be enforced.  I'm not sure how title companies will feel about this, but I think Illinois being very pro-tenant is going to also be very pro-consumer (or anti-wholesaler). 

I also think it'll affect some of the educational courses out there, which usually lead with wholesaling to entice people because it requires "no money" to start (although I think it actually may require the most). Illinois will have to be carved out as an exception. 

Originally posted by @Mark Fries :

@Patrice Boenzi

Most legitimate wholesalers that I know these days actually end up purchasing the homes and doing double closings or similar things. And this practice is totally legal. They might lose a couple thousand with extra closing fees but at least they are doing everything legal. 

it will boil down to enforcement.. if they do it will curtail it if they don't its just another law on the books that gets broken day in day out.

Double close wont fly.. I know in Oregon double close is highly regulated by title companies.. To the point they are pretty rare these days.

those that want to do this are simply going to have to close own the asset then market it.. just like a courthouse foreclosure buyer etc.

it is sweeping the country though..  but I agree that there will always be those that could care less about the laws and will keep doing what they are doing until they get shut down.. 

 

@Zoran Stanoev I agree in the sense that the Act is to protect the consumers and it will be interesting to see what is enforced. As a Realtor, I would get in a lot of trouble if I took on the appearance of advising my clients legally. I would be accused of practicing law without a license. The double closing would be very expensive for out of pocket costs and then there would be tax implications. Time will tell.

@Patrice Boenzi  just one more thing about the double close - the reason it wouldn't get around the new law is because the wholesaler would still be marketing their contract or position when trying to sell to the ultimate end buyer. to avoid being a wholesaler, they will need to be the actual owner of the property before being able to sell it, which means they will have to actually purchase it before trying to sell it. i'd guess that most wholesalers would rather spend the money on getting their license rather than paying the costs of double closing on every transaction.  

but yea, time will tell...

Colorado is about to go after wholesalers in a big way. Mainly because a state legislator's relative has a friend who they feel was taken advantage of. 

1st wholesaler contracted it for 200K,had a buyer already for 300K who sold it to another for 350. They rehabbed it and sold it for 520K. The lady's son knew the aunt of a state legislator. 

Originally posted by @Mark Fries :

@Patrice Boenzi

Because wholesalers are hustlers by nature. And by virtue of this they always find a way to make it happen. Maybe they come up with another name for what they are doing or find a different angle but I'm sure it will continue. Wholesaling is a billion dollar industry across America. The economy needs it, whether or not anybody likes it is a different story.

** Please note I am not a wholesaler but I am a realist and this is how society works.

Mark, another little tidbit but I don't know if you have ever done business in Chicago City of I have done a lot of it. and if the real estate regulators get half as aggressive and the city is with building permits and fines and such.. they will stop selling of property before you legally own it.. these guys are very proactive in their version of protecting the public.. I mean your in the business of remodeling your rentals you would be just astounded how difficult it is to work in that area in that city.. So it will really come down to enforcement or lack thereof.

 

Originally posted by @Nate Marshall :

Colorado is about to go after wholesalers in a big way. Mainly because a state legislator's relative has a friend who they feel was taken advantage of. 

1st wholesaler contracted it for 200K,had a buyer already for 300K who sold it to another for 350. They rehabbed it and sold it for 520K. The lady's son knew the aunt of a state legislator. 

Yup that's all it takes unconscionable profit taking  and wholesalers can get sued for that as much as agents can..  At least if the first wholesaler had just paid cash and held it for a time.. maybe its different but when they rip out a 100k fee for flipping paper you can see how folks are going to get miffed.. Its really a fine line.. I mean I can buy a sherrif sale that has those kinds of spreads and that perfectly fine its a public auction etc etc..  But this thought that wholesalers provide value to sellers is in many cases just in their dreams.. the only value they provide it to themselves at the expense of someone's life savings may be tied up in that one asset..  

These bigger teams are now robo calling in the Portland market.. I went along with the call.. of course they wont say what they will pay so I just blurted out 550k.. ( my home is worth about 1 mil give or take) they himmed and hawed and wanted to beat me down another 50k saying it was just too tight etc etc.. but in 30 minutes I had a DocuSign contract for 550k.. then I go back to them and said hey Zillow says this and then of course you get the algorithm excuse which can be true I don't put a lot of stock into Zillow personally.. then they say that well maybe 700k Maybe .. LOL.. And we kind of left it at that and they quit calling.. you have all these big well financed outfits now making cash offers on homes Offer pad Open door etc.. but the difference Is they will put a fairly close market value on the home but then charge you fee's and renegotiate repairs etc to get their price down.. but they are licensed brokers and they buy then resell.. big differnce

 

Originally posted by @Mark Fries :

@Jay Hinrichs

You are right...I have never even been to chicago..I love my little bubble here in Jacksonville...lol

For fun google DAWGS home security systems Chicago.. and you will see what you have to deal with there.. 

also its the only place I know were the pipefitters union has kept a hold on plumbing  Pex is not allowed you must use copper.

so you can imagine those trying to steal said copper..  :)

 

Originally posted by @Nate Marshall :

Unfortunately the legislator is one of the rising stars in Colorado politics and has a lot of pull. 

Depends on what side of the fence your on .. right ? me I think its great.. level the playing field.  

What would stop me from striking up a mutually beneficial arrangement with some private lender, and just go buy houses and closes on them? I can then fix them, not fix them, list them or not list them, whatever.

This is what I honestly don't get about wholesaling - it is SO freaking hard to actually do. The stars and the planets have to line up. Just seems to me it is so easy to go get your funds lined up and go shopping. Network hard (which you are already doing if you are a serious wholesaler) and find some money partners that are looking for a quick turn. Close and proceed from there. In other words, embrace 'wholetailing' instead. Totally legal, and to my mind, probably a lot easier to actually implement.

Originally posted by @Mark Sewell :

What would stop me from striking up a mutually beneficial arrangement with some private lender, and just go buy houses and closes on them? I can then fix them, not fix them, list them or not list them, whatever.

This is what I honestly don't get about wholesaling - it is SO freaking hard to actually do. The stars and the planets have to line up. Just seems to me it is so easy to go get your funds lined up and go shopping. Network hard (which you are already doing if you are a serious wholesaler) and find some money partners that are looking for a quick turn. Close and proceed from there. In other words, embrace 'wholetailing' instead. Totally legal, and to my mind, probably a lot easier to actually implement.

the reason mark   its because it does not fit the wholesale how to gurus narrative.. its a tough gig and of course some do very well but those type of folks would do well at any sales job..

also if you spent 5k a month on promoting your self as a broker you would just kill it.. the guys that spend 30 to 50k month on marketing just think what that would do for you as a broker..  

Every single law has a loophole. And with this law there will be a loophole. The wholesaler will have to change tactics. Maybe they will have to sell it as a partnership or a equity position or a X or a Y or a whatever magical thing that someone can think of to make it legal again.

     This all only applies if the law is being enforced like @Jay Hinrichs has said above.  

@Jay Hinrichs , someone needs to sell for 200k and another persons wants to buy for 300K. Both people get what they want. I’m failing to see the lack of morality in that.

Maybe it’s because I do what’s best for my sellers and buyers in all cases, even if it means cancelling a contract.

Originally posted by @Account Closed :

Every single law has a loophole. And with this law there will be a loophole. The wholesaler will have to change tactics. Maybe they will have to sell it as a partnership or a equity position or a X or a Y or a whatever magical thing that someone can think of to make it legal again.

     This all only applies if the law is being enforced like @Jay Hinrichs has said above.  

Hand writing seems to be on the wall these days.. seems to me the place that actually came out with a ruling basically in favor of it was Texas.. as long as full disclosure it made.. IE how much everyone is making..  the one were the lady got swindled and sold a 350k house for 200k .. I bet if full disclosure of what the guy who made the the 100k was given that deal would have been renegotiated. 

 

Originally posted by @Scott Johnson :

@Jay Hinrichs, someone needs to sell for 200k and another persons wants to buy for 300K. Both people get what they want. I’m failing to see the lack of morality in that.

Maybe it’s because I do what’s best for my sellers and buyers in all cases, even if it means cancelling a contract.

Well if I have to point it out I will... I will bet 99% that the wholesaler told the lady her property was only worth that amount.. and she believed him.. lot of people need real estate agents or lawyers to help them establish fair market value not some wholesaler who just see's a mark its totally immoral .. and its these types of transactions that are going to come to light and the regulators are going to take action.. you can see it flowing from state to state.. but you know that's your morals and we all have to live by our own moral code right

 

@Jay Hinrichs , if the wholesaler lies to them about their houses value, then I can see that, but people who do that will eventually get what’s coming to them.

I confirm they want to sell, walk the property and give them my offer. If they ask why I respond, “that’s the number that make sense for me.” I never say “here’s what it’s worth”, because that’s irrelevant. My clients need to sell NOW. Most don’t care what it’s market value is as long as they can get out.

I made an offer two days ago, and the reason he accepted it? “I don’t want to work with a realtor.” He wants an easy, fast transaction. You guys provide value in one way, and we’re providing value and solving our clients problems in a different, and legal, way.