Wholesaling - Is It About to Change?

Buying & Selling Real Estate

Wholesaling - Is It About to Change?

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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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.

See this reply in the discussion

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Mark Sewell
Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
7y
@Pratik P. Good to know.
I honestly think that some folks just don’t understand what investors do. Like all we gotta do is just buy some house for market rate, like it is gold or apple shares or timber stocks, and just let it do its thing - so clearly we would pay full price for it right? I should make a video about this, in a polite way, to gently explain some of the more common ways investors make money. Unfortunately I’m not good looking or an authority on this...
And well, I will stop here. These sellers are realtors themselves, and they might even be on BP. I don’t want to call them out- never know when I can get a chance to work with them one day. Hoping their place sells, it is a gorgeous home.
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Zoran Stanoev
Real Estate Broker · Chicago, IL · Member since 2015 · 147 posts · 73 votes
7y
Originally posted by @Astasia Square:
@Jay Hinrichs Does this hold up in Chicago suburbs Lake County area?

It's a state law so it will apply in every county
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Eric Williams
Member since 2019 · 7 posts · 1 vote
7y
I live in Chicago and I’ve been doing my research on wholesaling. wholesaling would have been a method for me to generate more income. It sucks to hear that soon a brokers license will be required. Now I have to figure out my next move🤦🏾‍♂️
1 Reply
David Stewart
Fort Collins, CO · Member since 2019 · 1 post · 0 votes
7y
As someone new to real estate investing, I was hoping that wholesaling would be a good avenue to start learning the business and earning capital for future deals. Seems more and more states are cracking down.
Alternatively, couldn't a "wholesaler" just find someone who wants to sell their home for cash, introduce them to a cash buyer (or buyers), and have the homeowner close in an all-cash transaction? Then the "wholesaler" get a finders fee from the buyer?
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Omari Francis
Developer · Chicago · Member since 2018 · 3 posts · 2 votes
7y
@Mark Fries
Totally agree, the only thing that’s going to happen is that Hard Money Lenders are going to come out with a transactional funding product and the deal will get done! The wholesalers will lose a couple grand but this definitely won’t stop the deals from closing!!
2 Reply
Chris DeSisto
Specialist · SC · Member since 2016 · 79 posts · 19 votes
7y
@John Thedford
Everyone is a victim... Not saying anyone should take advantage of people. But nobody is holding a gun to anybody's head and telling them to sign. It should be common sense to get a second opinion, if a wholesaler is trying to contract the property for X amount you can bet there is 10 other wholesalers competing for that house too. Which will probably raise the value.
There is a balance of taking responsibility for yourself and someone trying to screw some old lady out of her equity. A license isn't really going to make an unethical person an ethical person.
2 Reply
Irina Belkofer
Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
7y
Originally posted by @David Stewart:
As someone new to real estate investing, I was hoping that wholesaling would be a good avenue to start learning the business and earning capital for future deals. Seems more and more states are cracking down.
Alternatively, couldn't a "wholesaler" just find someone who wants to sell their home for cash, introduce them to a cash buyer (or buyers), and have the homeowner close in an all-cash transaction? Then the "wholesaler" get a finders fee from the buyer?

That’s brokering real estate...without license - in your case.
Alternatively, why don’t get a license, sell real estate to get experience in this business, and after couple years get broker license? Same business doing legally

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Chris DeSisto
Specialist · SC · Member since 2016 · 79 posts · 19 votes
7y
@Irina Belkofer
People just don't want to do the agent thing. Retail is going to be much different than wholesaling. I'm surprised that you have to get a brokers license vs just a real estate license. I would think it will stunt a lot of deals being done, in general.
Wholesaling for a lot of people could be a side thing to make more money. Most people, want to try and get out of the rat race, they hope this gets them there.
1 Reply
Irina Belkofer
Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
7y
@Chris DeSisto well, what people want not always what is legal, isn’t it?
The other way to get out of rat race is to buy houses, fix and rent them.
Why would you nessesary do something which is not legitimate? More and more states will enforce existing fines, especially in the state where NAR is strong and lobbying it.
Personally, I don’t care if people trying to make money unless they hurt someone.....and these “someone” usually less savvy people, elderly or not understanding this business.
Besides, in this market, there are very few deals anyway. Why don’t take time and prepare for next recession when deals will be everywhere?
Once I bought a house from wholesalers (they didn’t cheat anyone, they bought it at auction and just wanted fewK’s for the hassle) and I was willing to pay, however, a title company refused to conduct the deal because it’s illegal to pay “finder fees” to an unlicesensed person in Ohio and they wouldn’t get an underwriter for the transaction. Off course, there was another company who did but nevertheless- this is not how it should be done.
Take title in your name, then sell it as an owner: happens more often than you think, no license required - just $$$
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Chris DeSisto
Specialist · SC · Member since 2016 · 79 posts · 19 votes
7y
@Irina Belkofer
I just believe the "victim" thing happens a lot less than in reality. Everyone is an adult, take responsibility for yourself. Illinois is a very liberal state, so there isn't much in the way of personal responsibility, when it comes to this type of thing. People shouldn't take advantage of others. I just don't think having a license makes someone ethical. They will swindle an old lady with or without it. Makes no difference.
1 Reply
Eric M.
Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
7y
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.
No one "needs to sell for 200K". She needed to sell. No doubt she wanted market value. She was not educated and she was duped into what market value was. That is where the issue comes in. By definition, the market value for her property was not 200K.
While we all know there is not single number for the market value, there is also a reasonableness of the range. Most people would say 200-300K is not a reasonable range.

1 Reply
Irina Belkofer
Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
7y
Originally posted by @Chris DeSisto:
@Irina Belkofer
I just believe the "victim" thing happens a lot less than in reality. Everyone is an adult, take responsibility for yourself. Illinois is a very liberal state, so there isn't much in the way of personal responsibility, when it comes to this type of thing. People shouldn't take advantage of others. I just don't think having a license makes someone ethical. They will swindle an old lady with or without it. Makes no difference

License is the thing to loose if you gave wrong estimate and bought the property by yourself instead of listing it on MLS. Once your client find out that you've cheated - the Division of Real Estate of your state will take care of that.
If you’re not licensed, the seller has to go through the court to prove that, which is much more complicated and you don’t lose much - maybe some money you’ve got from that deal.
I’ve had a listing with very tired landlord OOS who wanted to sell. It was on MLSfor market value (which I believed was reasonable). Couple offers wanted it get fixed or some other conseccions. Cash buyer came along and bought it for $50K, which I’d like to buy myself - but I can’t because of conflict of interests. This buyer sold it 2 weeks later for my listing price and he only replaced carpet - maybe $2-3K....easy $10K at least

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Gerald Williams Jr
Clearwater, FL · Member since 2019 · 13 posts · 1 vote
7y
@Nate Marshall sounds like he just agreed to a bad deal.....well; bad for him!!!
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Gerald Williams Jr
Clearwater, FL · Member since 2019 · 13 posts · 1 vote
7y
@Scott Johnson I don’t see the problem either
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Michael Ealy:
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).
AS it relates to this new proposed law in IL pretty much everything you described above will need a real estate license to be legal.. its the first state that I have seen that has specifically named wholesaling by name.. In Oregon its not legal to market you don't own and double close does not fly reason is the state takes the position that to find the end buyer you had to market the asset.. at least when I had my interview with the regulators that was their position.. its state specific for sure.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
on another thread a Chicago resident said that this proposed changes have been signed into law..
so will see if they enforce it.. will be pretty easy.. all they have to do is troll CL and anyone who does not have a realtor designation will be a target.
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Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
7y
Originally posted by @Jay Hinrichs:
on another thread a Chicago resident said that this proposed changes have been signed into law..
so will see if they enforce it.. will be pretty easy.. all they have to do is troll CL and anyone who does not have a realtor designation will be a target.

Signed into law last Friday, per the TrackBil site. I would expect there will be a lot of cease and desist letters first, but with Illinois it's hard to tell. But yes, Jay, there are ways for regulators to find FSBO sellers/buyers and certainly advertisers for broker services on social media and online sources like CL. The bill added "electronic advertisements" under the existing "Blind Advertisement" section. Not much ambiguity in the text. I'm just grateful my operation is in NC and not IL.
It's going to be interesting to see the Disciplinary Actions pages in the upcoming months....
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Chris DeSisto
Specialist · SC · Member since 2016 · 79 posts · 19 votes
7y
@Irina Belkofer
If you disclose that you are not representing them, you can wholesale that way. You can buy real estate as a realtor without using your license. Why would it be different this way? Just cause you have a license doesn't obligate you to pay more for a property just cause you have a license. Seems like the real estate commission is trying to have it both ways. There is a conflict of interest in any type of deal and really makes things worse. No matter what transaction in any walk of life, someone wants to pay less and the other wants to be paid more.
Also, who is to say what is to much in a deal? Is 5k to much? Is 100k to much? Realtor commissions are all negotiable, why wouldn't this be the same? If a wholesaler wants to make 20k per deal, who is to say that is to much? Wholesaling is a different animal because of all the variables. Just seems like a huge can of worms once regulation gets involved. Governments or commissions have so much red tape they make things worse, most of the time.
I've never wholesaled anything but I just don't trust regulatory bodies to make things better. They just seem to react to a small amount of cases and make a blanket 'fix', just like most of Dodd-Frank. The premise might be good but they almost always make things worse.
2 Reply
Patrice Boenzi
OP
Real Estate Agent · Geneva, IL · Member since 2015 · 403 posts · 172 votes
7y
Originally posted by @David Stewart:
As someone new to real estate investing, I was hoping that wholesaling would be a good avenue to start learning the business and earning capital for future deals. Seems more and more states are cracking down.
Alternatively, couldn't a "wholesaler" just find someone who wants to sell their home for cash, introduce them to a cash buyer (or buyers), and have the homeowner close in an all-cash transaction? Then the "wholesaler" get a finders fee from the buyer?

@David Stewart interesting thought, but I would be interested to see that implemented especially if someone does not pay. Fact: Realtors send clients to other agents and agree on a Referral "fee" even with the proper paperwork sometimes payment never comes in. I think that would be more suspicious because you would be connecting a seller to a buyer - that is why there are license laws.
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Patrice Boenzi
OP
Real Estate Agent · Geneva, IL · Member since 2015 · 403 posts · 172 votes
7y
Originally posted by @Chris DeSisto:
@Irina Belkofer
If you disclose that you are not representing them, you can wholesale that way. You can buy real estate as a realtor without using your license. Why would it be different this way? Just cause you have a license doesn't obligate you to pay more for a property just cause you have a license. Seems like the real estate commission is trying to have it both ways. There is a conflict of interest in any type of deal and really makes things worse. No matter what transaction in any walk of life, someone wants to pay less and the other wants to be paid more.
Also, who is to say what is to much in a deal? Is 5k to much? Is 100k to much? Realtor commissions are all negotiable, why wouldn't this be the same? If a wholesaler wants to make 20k per deal, who is to say that is to much? Wholesaling is a different animal because of all the variables. Just seems like a huge can of worms once regulation gets involved. Governments or commissions have so much red tape they make things worse, most of the time.
I've never wholesaled anything but I just don't trust regulatory bodies to make things better. They just seem to react to a small amount of cases and make a blanket 'fix', just like most of Dodd-Frank. The premise might be good but they almost always make things worse.

@Chris DeSisto many Brokerages have rules against that because of the E&O insurance.
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Chris DeSisto
Specialist · SC · Member since 2016 · 79 posts · 19 votes
7y
@Patrice Boenzi
Rules about what buying real estate for yourself? You are not representing anyone but yourself. I wouldn't want to be under the E&O insurance. They are trying to tell you you can't buy a good deal cause you have a license? You have to do what's best for a seller, even though you don't represent them? That's why you disclose that you are a realtor and I am not representing you. That's the point isn't it? Telling them I am here to make a profit for myself. So don't rely on me to help you.
Them forcing people to get a license creates a conflict by nature... Good job regulatory bodies!
1 Reply
Pratik P.
Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
7y
@Chris DeSisto I have a friend leaving a certain brokerage and coming to mine because they won't let him flip houses while he's an agent with them. I think it's ridiculous that he can't buy for investment/profit even if he discloses that he's not representing anyone.
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Chris DeSisto
Specialist · SC · Member since 2016 · 79 posts · 19 votes
7y
@Patrik P
This is America, correct? You can't do that without a license, but once you get that license, you can't do that here... It's a conflict of interest... Wtf! Why do you require me to get a license then??
They want it both ways!
1 Reply
Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
7y
Lots of people are missing the point.
The law doesn't say everyone must get a license. The IL law defines, or maybe a better way to put it is the law now more clearly refines, the definition of what "broker" means.
Many state RECs frown upon "self dealing" because it has proven to be problematic. And (brokers can correct me if not) some E&O policies have clauses relating to self dealing coverage. The reality is that investor transactions make up a small part of real estate brokerage transactions, yet account for a big part of brokerage violations. In a similar way that's partly why, for instance, OO loan have better terms. NOO default rates are higher.
This is America, but I need a license to fly an airplane, a license to drive a car, a different license to drive a tractor trailer, etc. I don't need to get a CDL to receive or send a package, I just use a service where the drivers have a CDL.
1 Reply
Chris DeSisto
Specialist · SC · Member since 2016 · 79 posts · 19 votes
7y
@Chris Martin

im sure the insurance and all that gets dicey... But to require something that can't be used is just so short sited. I mean they know insurance will be an issue, then you can't require people to get a license that prevents them from doing exactly what they are told they can do, but can't cause of insurance.

So you can't do this under a broker but you have to do it under a broker... Seriously... I mean how does something like this get passed? If you are required to get a license they should require that the broker has to let you do it.. but you can't because of insurance.

Hence, you probably can't or shouldn't make people get a license. This is what I mean by regulatory bodies screwing things up.

Make an entire separate License for wholesaling that has it's own ethics and codes or something. A branch of NAR or something.
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