Wholesaling - Is It About to Change?

Buying & Selling Real Estate
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Wholesaling - Is It About to Change?

Patrice Boenzi
Real Estate Agent · Geneva, IL · Member since 2015 · 403 posts · 172 votes

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



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Mark Fries
Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes
7y

@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.

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  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    7y

    @Jay Hinrichs. I don’t usually jump into these conversations, since I value my time, but there’s no reason to say “all wholesalers are crooks” when there’s bad people in every industry.

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  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    7y

    @Jay Hinrichs, that’s you’re opinion and I’m thankful we live in a country where we can have our own and hold them sacred. I just ask that you respect mine as well.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Scott Johnson:

    @Jay Hinrichs. I don’t usually jump into these conversations, since I value my time, but there’s no reason to say “all wholesalers are crooks” when there’s bad people in every industry. 

    Of course there are bad people in all industries.. lawyers get disbarred  doctors get kicked out of the medical profession.. brokers lose their licenses  Pilots get caught flying drunk  wholesaler rip equity from those that don't understand  its all true. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Scott Johnson:

    @Jay Hinrichs, that’s you’re opinion and I’m thankful we live in a country where we can have our own and hold them sacred. I just ask that you respect mine as well.

    absolutely I respect your opinions that's what makes BP a fun place spirited debate on polarizing subjects..  you pointed out what was wrong with a wholesaler putting a deal together and making 100k on a 300k transaction and you thought there was nothing wrong with that.

    Me I look at it like that is someone's mother or father.. would you like that to happen to your parents  ???? so to me my opinion is that was total immoral and unethical your opinion is it was not.. it was willing buyer willing seller..  so that simple really.

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  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    7y

    @Jay Hinrichs as long as the wholesaler keeps all parties best interests in mind and everyone’s happy after closing, there’s nothing wrong with a deal such as that.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Scott Johnson:

    @Jay Hinrichs as long as the wholesaler keeps all parties best interests in mind and everyone’s happy after closing, there’s nothing wrong with a deal such as that.

    agreed  but the issue is the seller many times does not realize they left a ton of money on the table granted they are happy at the time then someone /  family member says you did what ???

    I had one in your neck of the woods I rarely will engage a wholesaler as I get bombarded by them to be on their buyers lists. but this particular one in Charleston SC.. had a property in the area I am building new homes.. so that one I would go for.

    we agreed on 200k its was a tear down.. so 215k for the lot.. basically.

    and since most wholesalers never know the state of title I have my person ( a local broker check quickly) they come up with an option to buy it for 100k.. I wrote the wholesaler and said Dude not me.. how did you tell a seller that her house ( elderly lady of color) was only worth 100k.. I simply wont be a party to this transaction.. sell it to someone else.  I said if you want to make 10k or so and give the lady 190k I will buy it.. but not going to do this.. just not going to be a party to it. 

    So they list it on MLS somehow for 265k and it does not sell .. then come back to me as they know I have the cash.. but in the meantime I had run title on it.. and they had not.. I said hey guys you know there is a mortgage on that for 202k right ? crickets.. so I said here is what I am going to do.. I will pay the lady 205k and u 3k and back tax's of 2k and closing costs little more than the lot is worth .. so that's how the deal went down.. they thought they were getting rich LOL... so this is what I see with wholesalers they don't know how to check title or don't want to spend the time.. I ended up building a great 2200 sq foot home on it and sold it for 750k.. so good deal for us.. But I could have just as much passed.. If that lady would have listed with a broker they would have known most of this going in and not wasted a ton of time .

    Anyway and on most of the inner city stuff I fund there are wholesalers on those usually daisy chains this guy is making 1k this guy is making 2k this guys is making 500.  but that's my vendors choice to deal with them we just fund them I have no say in it..  

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  • Mayer M.
    Investor · Cherry Hill, NJ · Member since 2016 · 860 posts · 324 votes
    7y

    @Scott Johnson

    I believe a majority of the issue is that most if not all wholesalers misrepresent themselves as the end buyer/investor. This practice alone should be illegal and deemed fraud

    If a wholesaler was honest and said hey I’m gonna find a buyer for your house and make a profit on it without ever owning it and oh by the way there is no risk for me.....I suspect many sellers would reconsider and question everything about the transaction

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  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    7y

    @Jay Hinrichs, so that wholesaler was sloppy. Makes sense now. Yea, I pay the extra for a title search on the ones we get under contract, especially if there’s multiple owners.

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  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    7y

    @Mayer M. Makes sense, I’d say that’s misrepresentation. I disclose that to all of my clients.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Scott Johnson:

    @Jay Hinrichs, so that wholesaler was sloppy. Makes sense now. Yea, I pay the extra for a title search on the ones we get under contract, especially if there’s multiple owners.

    Smart move  I found this out the hard way when I stated in building houses in Charleston 6 years ago.. especially in the transition areas were we work old families that did not bother to get a divorce or do probate.. And unlike how we close on the west coast the day you open escrow you have a pre lim / title report/ title binder  what ever you guys call them  within 48 to 72 hours.. were as in SC its an attorney state so they wont routinely order title until about a week before closing.. because they don't want to get stuck with a sale fail and who is going to pay the abstractor fee.. so I see their point.. but on my deals I want title run day one..  because we do a ton of work before we close we have to get our architect plans etc etc its not uncommon for us to have 10 to 50k into a deal before we close.. so the first time I spent some money on survey and such only to find out title was buggered up with heirs and no probate I learned that no good.. so that's how I handle those areas.. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Mayer M.:

    @Scott Johnson

    I believe a majority of the issue is that most if not all wholesalers misrepresent themselves as the end buyer/investor. This practice alone should be illegal and deemed fraud

    If a wholesaler was honest and said hey I’m gonna find a buyer for your house and make a profit on it without ever owning it and oh by the way there is no risk for me.....I suspect many sellers would reconsider and question everything about the transaction 

    Yup this is the major issue.. we see this on BP  wholesaler telling other would be wholesaler how to write escape clauses so they don't lose their whopping 100 dollar EM s  no thought at all for a seller who has been mislead maybe bought another home counting on this closing or has made other financial arrangements only to have the wholesaler not perform and leave them in a bind.. that's the other thing that states don't like. and to me again immoral behavior only care about themselves and what they will make..  its coming.. regulations are going to sweep the country..  there is a big homevester franchise owner I think from NC  she post occasionally on this site.. and she is the first to say the definition of a wholesaler is one who BUYS the house and CLOSES on it with their own money BEFORE they market it.. she also says assigning is no good and basically brokering without a license..  so that's her take.. I have not seen her post in a few months. 

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  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    7y

    @Patrice Boenzi Typically, real estate agents and wholesalers are always on either side of the field. Wholesaling thrives in REI because more times than not, it is easier to get deals to the finish line.

    Now, as for the legislation, it will be down to enforcement as @Jay Hinrichs mentioned. 

    0Reply
  • Anthony Rosa
    Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
    7y

    @Patrice Boenzi - If and only if the laws are enforced things will continue as is.  Too much shady business going on in property wholesaling.  

    If enforcing that wholesaling will require a licensed RE broker, what will happen when there isn't much money on the table between RE broker fees and commission splits? The seller gets stuck in a home that won't sell because the commissions are not worth it just like it happens today in normal RE buys/sales. By law, RE agents are not allowed to avoid showing a property because their commission isn't worth it but it happens regularly.  

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Anthony Rosa:

    @Patrice Boenzi - If and only if the laws are enforced things will continue as is.  Too much shady business going on in property wholesaling.  

    If enforcing that wholesaling will require a licensed RE broker, what will happen when there isn't much money on the table between RE broker fees and commission splits? The seller gets stuck in a home that won't sell because the commissions are not worth it just like it happens today in normal RE buys/sales. By law, RE agents are not allowed to avoid showing a property because their commission isn't worth it but it happens regularly. 

    first rule of real estate Commissions are not set by law they are negotiable..  when I worked in the land sale end of it my commissions were routinely 10 to as high as 25%  .. I sold twenty two duplexs for a builder in Vancouver in 05 for a set fee of 30k each.. and sold them all in two weeks.. but I spent 50k doing a big promotion and fly buy program out of SF bay area.. all with a license.. 

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  • Astasia Square
    Member since 2017 · 1 post · 0 votes
    7y

    @Jay Hinrichs Does this hold up in Chicago suburbs Lake County area?

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    7y

    Interesting discussion. Did anyone read the bill? http://www.ilga.gov/legislatio...

    The way I read the proposed law, "wholesaling" as defined by BP Nation, "flipping", and buying a second home, if done within 12 months, all fit the definition of "broker." These activities will all require a real estate license. By definition an individual buying for his or her self interest will be a "broker" when, per the proposed law's text "engaged in one or more of these practices [buying, assigning, selling] on 2 or more occasions in any 12-month period." 

    Sometimes poorly written and/or executed bills make it through state legislatures. This looks like one of them.

    1Reply
  • Anthony Rosa
    Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Anthony Rosa:

    @Patrice Boenzi - If and only if the laws are enforced things will continue as is.  Too much shady business going on in property wholesaling.  

    If enforcing that wholesaling will require a licensed RE broker, what will happen when there isn't much money on the table between RE broker fees and commission splits? The seller gets stuck in a home that won't sell because the commissions are not worth it just like it happens today in normal RE buys/sales. By law, RE agents are not allowed to avoid showing a property because their commission isn't worth it but it happens regularly. 

    first rule of real estate Commissions are not set by law they are negotiable..  when I worked in the land sale end of it my commissions were routinely 10 to as high as 25%  .. I sold twenty two duplexs for a builder in Vancouver in 05 for a set fee of 30k each.. and sold them all in two weeks.. but I spent 50k doing a big promotion and fly buy program out of SF bay area.. all with a license.. 

    You are correct but my point is when the commission in a sale becomes too low due to a typical 4 way commission split many agents will not want to show the property. The higher the commission the more drive to show and sell. Many realtor would not want to show a listed property if it's not worth it. If I'm not mistaken, by law they must show it if a buyer is interested.

    1Reply
  • Storm S.
    Real Estate Agent · Santa Barbara, CA · Member since 2016 · 518 posts · 283 votes
    7y

    @Patrice Boenzi buying and selling purchase and sales agreements more than 8 times a year is explicitly defined as brokering real estate in California laws.

    0Reply
  • Patrice Boenzi
    OP
    Real Estate Agent · Geneva, IL · Member since 2015 · 403 posts · 172 votes
    7y
    Originally posted by @Scott Johnson:

    @Patrice Boenzi. So I would double close instead of assigning the contract.

    So, what would be your holding time frame?

    0Reply
  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    7y

    @Patrice Boenzi 15 minutes? 1 hour? Depends on when we schedule the closings of buyer and seller

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  • Patrice Boenzi
    OP
    Real Estate Agent · Geneva, IL · Member since 2015 · 403 posts · 172 votes
    7y
    Originally posted by @Scott Johnson:

    @Patrice Boenzi 15 minutes? 1 hour? Depends on when we schedule the closings of buyer and seller

    That is what I thought. My understanding is that the title companies frown upon this. 

    0Reply
  • Patrice Boenzi
    OP
    Real Estate Agent · Geneva, IL · Member since 2015 · 403 posts · 172 votes
    7y

    Great conversation! So, how does everyone think this will be enforced? 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Scott Johnson:

    @Patrice Boenzi 15 minutes? 1 hour? Depends on when we schedule the closings of buyer and seller

    I bet this wont fly anymore.. the presumption will be that you had to market the property to find this end buyer .

    I know when I sat down with the Oregon regulators they were very focused on this fact..  IE how can you have a double close if you have not marketed the property to another party and gone into contract on a property you don't yet own.. I think they were just as concerned about these as the assignments which are clearly just broker fee's if its your business to do that..  

    Its much like making private loans in states were licenses are required for any loan on a 1 to 4 regardless of entity or business purpose there are 12 states were license is required .. The states have a carve out for those that want to do a few a year in their iRA.. like it looks like IL is saying hey you can do one but if its your business model then you simply need to get a license and let us regulate your activity. 

    I don't know if there are closers out there these days that will allow  A to B using C s funds  again I know in Oregon B has to have funds they wont close a transaction with C's funds..   And of course there has to be full disclosures to all parties as well. 

    At some point as this rolls around the country it seems to me those that want to sell real estate need to just get a license and have at it.. you know commission are negotiable and I suspect the main reason most of you do this activity is to make more than 3 to 6 % on a closing I get that..  Or you do what we have always done we close fuss around with the property clean it paint it etc.. then resell it.  Or if its really tough to sell properties back in my sales day and of course this is well 15 to 40 years ago.. I negotiated commission hard on tough to sell properties.  Nothing wrong with that.. you just cant take a net listings in most markets.. but you can take a flat fee . .I see it on plenty of huds in low value asset areas were banks are dumping something for 5k and the broker charges minimum 3k  that type of thing.. 

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  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    7y

    @Patrice Boenzi, it’s a state-by-state thing. Here in NC our laws are more or less wholesaler friendly.

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  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    7y

    @Jay Hinrichs, I don’t market properties. I market contracts.

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