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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  • Jana Landreneau
    Specialist · Lake Charles, LA · Member since 2019 · 9 posts · 3 votes
    7y

    @Anthony Rosa that’s your opinion. Because one of the reasons I’m doing it is to see communities come back up again. I don’t rip people off and my attorney looks everything over to make sure everything has been handled properly. If I’ve had an overage somewhere that I overlooked or my numbers weren’t right, that overage went to the seller. I know there are so many out there operating their businesses illegally, but that’s pretty much in any line of business, there’s tons of shady people out there, I’m not one of them. I am completely honest to the seller about what I’m doing and don’t hide my assignment fee from them no matter the dollar.

    Most buy and hold, flippers, property owners, residents won’t go through the process of trying to find out who these vacant or run-down houses belong to. That’s where I help. I find the owners of those homes, offer them some money to take it off their hands, then ultimately turn it over to a buyer that wants to fix it back up and rent it or sell it himself. I don’t see the wrong in this.

    I do see the wrong in twisting the truth of what you’re actually doing, I see the wrong in gouging unsuspecting homeowners just to make a bigger profit. But like I said, I’m not one of those people, I’m honestly doing it to try to help the community and the homeowner of vacant/abandoned homes that they didn’t realize they could possibly get money for. I also am trying to get into pre-foreclosures. I realize the emotion behind this but the way I see it, I’d rather try to help the homeowner by getting them out of their situation rather than them losing their home, being forced out to start all over again with nothing and ruining their credit in the process.

    If people (specifically wholesalers) would operate in the correct way, would licensed realtors still find a problem with the way they choose to make money?

    0Reply
  • Elbert D.
    Real Estate Entrepreneur / Investor · Chicago, IL · Member since 2016 · 688 posts · 367 votes
    7y

    Hello BP, it’s been awhile since I made a post on the forum. I figure I’ll chime in on this topic since I wholesale(among other things) in Illinois and the city of Chicago. Now what @Jay Hinrichs mention about how annoying the city of Chicago is with permit pulling and inspections is totally 100% true. And some sub cities of Chicago and certain suburbs are even worse! It’s very very annoying. To be working on a project or monitoring a rehab project and go on that cities schedule. It throws off your rehab schedule. Which sometimes throws off the rehab budget. So now. To this topic. I’m not surprise to be honest lol. We live in a society where complaining thrives in America. America is a Corporation and it’s all about paperwork. Licenses. Accreditation. Degrees. Etc.....it’s used for generating revenue for the government. Now I think the realtors association is might be lobbying or complaining because of the lack of inventory that’s available to everyone. But we are in a market cycle that shows that there will be a crash soon. It’s been that way for the past few years.

    So this is affecting everyone because of the high prices. Now let’s get to the meat and potatoes. Illinois is a liberal state overall and the City of Chicago is a extremely liberal city. It’s all about money....I know a lot of people get into real estate thinking they are going make sooo much money and when reality hits they are sadden. This goes for everyone. To realtors to wholesalers and lawyers. I know many realtors who don’t make much of anything. Sometimes the cause is some realtors that aren’t that good or just plain lazy. In fact. I’m going be honest and just admit it there are many realtors that aren’t that good. It’s been many times I have tried to contact realtors and they don’t return calls or drag their feet with the smallest and simplest things. Same goes for wholesalers. Really as you gain more and more experience in a industry....you find out there are only about 15-20% of people that are very good and passionate about what they do. While the others are just looking for a check. Combine this with the fact getting into real estate the barrier of entry is kinda low so you have everyone wanting to just jump in.

    Now some people would argue “hey just go get your realtors license” but as someone already mention in this post it’s no secret that you split the commissions with the broker you work for and then with other brokers as well. Then lastly have to pay tax on that commission and any other ones you earn. Plus other broker fees. Which by the way just because you obtain a license to broker real estate doesn’t mean anything. How many people on the road are driving but can’t really drive? How many people have licenses to practice medicine or advise people about law or taxes but aren’t good doctors or lawyers or accountants? All that license is a certificate to make people feel good about themselves. Saying you went through a program or passed a test. But unfortunately sometimes doesn’t transition into the real world. That’s not to take away from your accomplishment but people should strive to constantly obtain knowledge about their industry in terms of real world experience.

    So all this will lead to more people getting a realtor license. Further Crowding that segment of the market. Everyone and their mother has a realtor license that I know. Let’s think about this for a minute. Economically speaking. If we have millions of people license to broker real estate what’s that going do with the prices and fees of being a broker? It’s going to up? I think so. There are so many realtors that don’t make money and point the finger at someone else because things aren’t going there way. The same goes for some wholesalers. Many of them aren’t making money as well. All this regulating is going do is drive more people to quit real estate altogether or quit doing real estate in Illinois and go to another state and do it there or just make the influx of people get there license and people will still find ways to complain about the money they are making. To be honest we live in a crybaby society......I’m just being honest.

    I can’t count how many properties I been to where the seller. Rather private owner/landlord or a bank was asking for “market value” for their property and it needs A TON of work. All this stuff about people

    Getting screw out of equity is propaganda. Not saying it doesn’t happen at all because I’m sure it does but I don’t think it does at the scale people are making it out to be. People don’t take care of their stuff. That’s the cold harsh truth. If your property needs all kinds of tuck pointing. Roof issues. Plumbing issues. Electrical issues. Windows are terrible. Basement has leaks everywhere(many properties in Chicago do) and some minor other problems. All that stuff adds up. How do you think your going get anywhere close to market value??? No.....YOUR the one that didn’t keep things up so that you can actually get market value for your house. As far as bank properties. Many of them and those tax/sheriff sales do the same thing. Sell properties to people without you going to see it. You think your getting a deal when in reality sometimes your getting a headache with all the repairs that’s needed and city violations which by the way as a reminder.....Chicago is very annoying to deal with.

    To ethics. I seen and heard of several realtors treading the line of being unethical. Just to get a sale. It happens all the time. Sales is everything. But once again just because the majority of people are average to borderline terrible at what they do doesn’t mean there are a few that actually care and take their job serious. In reality realtors and wholesalers can coexist. I work with realtors all the time. Excuse me. Sorry about that. I work with competent realtors and wholesalers all the time and. There is never really a issue. Most realtors only know about the retail side of things which is why most of realtors don’t make money. Realtors who truly know how to hustle and work hard know it’s no issue with working with wholesalers and flippers. Other than inventory that is. But that’s dictated by the market.

    I talked enough lol. But to conclude things this bill is nothing more than putting more regulations on things to draw people elsewhere and generate more fees. How ironic that the most liberal states in America. NY and Cali and IL are also the ones in deep debt and have a plethora of issues. I’m not align with any political party nor have any of their ideologies but we have to deal with reality here and not just cater to people’s feelings. Laws like this is just one of many that addresses the surface problem and cater to people’s emotions and not address the root cause of the problem. So many laws like this exist in America. If we don’t start addressing the root cause of problems. It’s going continue to spiral downward and more and more cities across America will have these kind of laws. We have to do better.....

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

    @Anthony Rosa that’s your opinion. Because one of the reasons I’m doing it is to see communities come back up again. I don’t rip people off and my attorney looks everything over to make sure everything has been handled properly. If I’ve had an overage somewhere that I overlooked or my numbers weren’t right, that overage went to the seller. I know there are so many out there operating their businesses illegally, but that’s pretty much in any line of business, there’s tons of shady people out there, I’m not one of them. I am completely honest to the seller about what I’m doing and don’t hide my assignment fee from them no matter the dollar.

    Most buy and hold, flippers, property owners, residents won’t go through the process of trying to find out who these vacant or run-down houses belong to. That’s where I help. I find the owners of those homes, offer them some money to take it off their hands, then ultimately turn it over to a buyer that wants to fix it back up and rent it or sell it himself. I don’t see the wrong in this.

    I do see the wrong in twisting the truth of what you’re actually doing, I see the wrong in gouging unsuspecting homeowners just to make a bigger profit. But like I said, I’m not one of those people, I’m honestly doing it to try to help the community and the homeowner of vacant/abandoned homes that they didn’t realize they could possibly get money for. I also am trying to get into pre-foreclosures. I realize the emotion behind this but the way I see it, I’d rather try to help the homeowner by getting them out of their situation rather than them losing their home, being forced out to start all over again with nothing and ruining their credit in the process.

    If people (specifically wholesalers) would operate in the correct way, would licensed realtors still find a problem with the way they choose to make money?

    I understand what you are saying and I know there are honest people out there who do the right thing by others but at the end of the day we're all in it to make money.

    To answer your question: If wholesalers operated the correct way licensed realtors will still have a problem because a RE license is required to Assign the contract.


    0Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    This thing that "wholesaling is illegal" is old news. It's not illegal and you don't need a real estate license. There are ways around these "restrictions". These are just some:

    - You can assign your LLC interest that owns the property

    - You can use transactional funding to close and then sell, the same day you acquired the property (double close)

    - You can do a joint venture with your buyer and seller

    and I am sure the wholesalers on BP can add to the above list.

    Check with your real estate attorney to ensure everything is being done per the real estate law in your state. Or if you can, just get your real estate license. It has helped me when I re-started my real estate investing career. I am not a wholesaler (although I've wholesaled some of my deals in the past but most of what I do is buy deals from wholesalers to keep as part of my portfolio).

    5Reply
  • Shawn GoodPro Member
    Attorney · Palatine · Member since 2019 · 16 posts · 5 votes
    7y

    I could see the IDFPR trying to regulate this if they receive complaints from buyers/sellers that are not happy the wholesaler is getting a cut. I imagine unlicensed wholesalers are going to get away with a lot unless complaints are filed with the IDFPR. 

    0Reply
  • Patrick C.
    Investor · Highland, CA · Member since 2017 · 28 posts · 15 votes
    7y

    @Mark Fries I agree. I don’t see what is wrong with 2 parties entering a agreement. At that point who cares who makes what. Funny in society today no one wants to be responsible for their own actions. Everyone else is to blame. I don’t see someone assigning their “interest” in property to someone else changing. Been along for a long time.

    4Reply
  • Mark Fries
    Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes
    7y

    @Patrick C.

    Agreed....wholesaling will continue

    0Reply
  • Gina SternPro Member
    Investor · Boca Raton, FL · Member since 2019 · 1k+ posts · 159 votes
    7y

    @Patrice Boenzi Is this just Illinois or will other states be affected?

    [email protected]561-430-2616
    0Reply
  • Kenny M. Lewis
    Hamilton, NJ · Member since 2019 · 78 posts · 15 votes
    7y

    @Mark Fries isn’t there fines to pay if you get caught

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    7y
    Originally posted by @Gina Stern:

    @Patrice Boenzi Is this just Illinois or will other states be affected?

    In the context of the Original Post, the proposed law in question pertains to Illinois only. This topic was started about Illinois and the links relate to Illinois Realtors and (proposed) IL legislation. Clearly other states have different laws.

    0Reply
  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    7y
    Originally posted by @Chris Martin:

    @Scott Johnson NC != IL. We have it reasonably easy here in NC compared to states like IL, OH, and FL. We can just check the box on the standard Bar/NCREC Form 2-T to indicate "Seller represents that Seller:... does not yet own the Property." (See also MLSs allowing listings where seller doesn't own the property for an example of an "easy" to wholesale state like NC.)

    But Illinois doesn't play games. Illinois has some strict penalties and you can verify that by browsing through the disciplinary reports published by the Illinois Department of Financial and Professional Regulation. A few examples... from $1,500,000 fine for a guy who took off with several thousand $ in earnest money, to $5,000 fine for not presenting an offer, to $250,000 fine for advertising other's listings w/o permission... I don't know all the details, but the numbers speak for themselves. Examples from IDFPR reports below: 

    Yea, I'm originally from IL. Moved here about 20 years ago. Just goes to show why I never moved back! Lol!

    [email protected]
    2Reply
  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    7y
    Originally posted by @Matt P.:

    @Scott Johnson If you don't see what's wrong with a senior citizen getting 100k of equity stolen from them then no amount of people explaining it to you online is going to help you SMH.

    If the seller want's to sell for that price, then what's the problem?

    [email protected]
    0Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    7y
    Originally posted by @Scott Johnson:
    Originally posted by @Matt P.:

    @Scott Johnson If you don't see what's wrong with a senior citizen getting 100k of equity stolen from them then no amount of people explaining it to you online is going to help you SMH.

    If the seller want's to sell for that price, then what's the problem?

    According to State of Florida investigators most of these people that deal with these unlicensed Brokers are the elderly and people with poor grasp of the English language in short they are taken advantage of

    2Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    7y

    The State of Florida refers to these people as victims for a reason

    1Reply
  • Zachary Yelder
    Investor · Phoenix, AZ · Member since 2019 · 33 posts · 15 votes
    7y

    @Patrice Boenzi this is what the industry needs and it was just a matter of time. Start holding people in this industry accountable and to be ethical. Wholesalers do so much harm to the public but don't face the recourse us agents do because they aren't licensed. This will hopefully start leveling the playing field some more and being based out of Arizona, this will hopefully start making it's way down here.

    3Reply
  • Ron Hall
    Investor · Joplin, MO · Member since 2015 · 76 posts · 78 votes
    7y

    @Mark Sewell, I agree, just buy the house and either fix and flip or mark up and sell as is, much easier than trying to arrange a double clossing.

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    I am always intrigued as to how banning wholesalers "protects consumers". Do they hold the public at gunpoint and force them to buy houses they don't want?

    Wouldn't it make more sense to fund educating the public on buying a house and what to look for?

    8Reply
  • Mark Sewell
    Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
    7y
    A good wholesaler or anybody doing direct acquisitions will start by asking the seller why they don't want to list the house. That should always be part of the initial conversation any potential seller - wholesaler or whatever the exit strategy is. If they have a reason (it doesn't have to be a logical one or a good one, but it is THEIR reason) then we can talk about the value of the house and what we might be able to do with it. At this point, I reach out to some bigger pockets buddies that might be looking for this type of opportunity. If the numbers work then we might go look at it - together, if possible. Then we structure some kind of arrangement, based on who has what to contribute. Doing one like this right now.
    4Reply
  • Mark Sewell
    Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
    7y
    I do get leads periodically from people that HAVE listed their house. DOM is way up over 100 days... you get it. House is gorgeous hi-end, luxury listing. Nothing I can do with that. Best thing I can do is make friends with their realtor, show some integrity, and network for future opportunities that might come up.
    0Reply
  • Mark Sewell
    Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
    7y
    Last post on this subject - what happens when you list a fixer on MLS. You get the same price. It isn't going to net you a higher price just because your realtor is a really swell chap. The MLS listing isn't going to bring in some magic super buyer -- this buyer isn't going to move in and make their 'dream home' and treat it like 'blank slate' to create whatever blah, blah, blah. No - your house, in most cases, needs work. You, as the seller, don't have the will or the means to prep the house for sale. Your realtor is going to write some lame description about 'just needs a little TLC' and 'great bones' and all that, and predictably, he/she will get smashed with lowball offers from wholesalers of all shapes and sizes (good ones and frauds), as well as from investors (fewer in number). It will be up to them to sort out the contenders from the pretenders. And not all are good at this, BTW. It is amazing to me how many local realtors will try to tell me how they have multiple offers and then they produce some POF funds letter from a local HM lender. Please, folks. The real risk here is accepting the highest office from some wholesaler that doesn't really know their numbers, and won't be able to close. But the math is the math, the house needs work and that isn't going to change. The potential rental rate isn't going to increase and the cost of the renovation isn't going to be any less, just because it is on the MLS. It is the same house, that attracts the same people -- us, and a whole lotta wholesalers. The only difference is the seller gets to pay that realtor for the excruciating effort of writing up a listing and throwing a lockbox on the door, and helping them sort through disappointingly low offers. But sure, theoretically you protect yourself, as the seller, from getting taken by a some bad actor.
    10Reply
  • Pratik P.
    Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
    7y

    If it makes everyone more comfortable with wholesaling, flipping, etc, I wouldn't care much especially since I'm licensed. But no one should be representing a seller with their license AND wholesaling at the same time. That's a huge conflict of interest and violation of their fiduciary duty. Lot of people seem to think wholesaling is the same as being an agent, it's definitely not.

    3Reply
  • Pratik P.
    Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
    7y
    Originally posted by @Mark Sewell:

    I do get leads periodically from people that HAVE listed their house. DOM is way up over 100 days... you get it. House is gorgeous hi-end, luxury listing. Nothing I can do with that. Best thing I can do is make friends with their realtor, show some integrity, and network for future opportunities that might come up.

    We've been getting those same leads. People calling us from direct mail or online advertising about their house that's just sitting on the market for months. People think MLS is the magical answer for getting a house sold, which isn't necessarily the case. A lot of my serious buyers don't even look on the MLS for their deals. They get deals brought to them by wholesalers and marketing.

    1Reply
  • Roderick Dewar
    Realtor · Newburyport, MA · Member since 2019 · 18 posts · 3 votes
    7y

    @Mark Fries

    Can you please explain what you mean by “hustlers”?

    0Reply
  • Mark Fries
    Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes
    7y

    @Roderick Dewar

    Movers, shakers, do-ers, solution minded, think outside the box, do not take no for answer, can sell ice to an eskimo...= hustlers....

    1Reply
  • Roderick Dewar
    Realtor · Newburyport, MA · Member since 2019 · 18 posts · 3 votes
    7y

    @Nicky Reader

    Yellow postcards?

    0Reply
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