Is it legal?

Question

Hellow BP Family,

My question is:

Is it legal for a RE Agent to do wholesale?

Ben Leybovich · Answer

You absolutely have to disclose. This is the fiduciary piece. There is more, however:

The big hang-up with wholesaling is that there are basically 2 macro approaches - assignment of contract, and resale of a closed transaction. Assignment of contract is becoming an issue in many States. While it would seem that equitable interest which is transferred onto you via a legally executed p&s should be transferable unless specifically discussed in the wording of the contract to the contrary. However, this allows unlicensed people to basically play the middle man, which the Realtors are not crazy about -- so much so that they've successfully lobbied State governments...

However, since you are a licensee, you can potentially bypass this issue. Although, as a licensee, you have fiduciary duties, which make wholesaling kinda problematic.

The best option is just to buy the property, and once you are the owner of record use your license to sell it.

John Thedford · Answer

@Molly Krief You got some good answers. I am not a "wholesaler" but I DO purchase buy and hold rentals. I put specific language in the contract. Here is a sample; "Buyer is a licensed agent, purchasing below market, with a profit motive. Consult your attorney".  This puts the seller on notice more than "buyer is a licensed agent". It specifically states I am buying under market with a profit motive. As to "wholesaling" I don't know your state laws. Taking title and then selling YOUR property seems to be the most honest way of transacting business and I would still put the "buyer is a licensed agent purchasing under market, etc" in my purchase contract, then close, and then rehab/market ...whatever your strategy is. As to the comment about agents not liking "wholesalers" etc...I get it. Most are operating illegally, but more importantly, many of them victimize owners with promises to close when they have none. I actually got a PM from a "wholesaler" on BP today stating he "walked away" from a deal.  Now I see the owner marketing the property on CL. I am all for making money in an honest manner!

Molly Krief · Answer

Thank you for your answers. I appreciate it.

Ned Carey · Answer

You will get  many opinions on this. You will not get an factual answer unless someone can state an actual court precedent in MD

One could argue that if you are buying for your own account and not acting as a licensee in the transaction then yes, it can be legal. (the devil is in the details it can always be done in an illegal way)

The counterpoint would be that all agents are required to be open and honest (don't know the exact wording of the law)  with ALL parties. So it would be argued that you would have to disclose that you believe the property is worth more than you are offering.

In either case, you risk the courts interpreting wholesaling as a net listing, clearly illegal.

Is it legal?

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