Arkansas is trying to make wholesaling illegal
Investor / Rehabber · Fort smith, AR · Member since 2014 · 178 posts · 30 votes
Arkansas is trying to make wholesaling illegal
Most Popular Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes@Jacob White well look at it this way.. if you troll around BP you will see post after post
like this
Hey I am brand new I have never done a deal so I am going to start out wholesaling.
this leads folks with their only education reading posts on BP which some are good some are bunk.
and they simply don't know what they are doing... and they foul up sellers... big time.
they deceive sellers big time... and then complaints are filed.. and the state takes action
virtually every state has the same laws on the books some enforce it others don't
If there was no need for a license in real estate to bring two parties together and then make a fee
then there would be no need for a real estate industry at all.... Just like China.. anyone can do any real estate there.
But as we know there Is a Robust real estate industry here that is licensed controlled etc.. with heavy emphasis on ethics'' and of course you have unethical realtors... you see that in the monthly bulletins with all the realtors getting reprimanded or losing their license.
To me if you want to wholesale BUY THE HOME close on it then resell it.. its that simple.. trying to act like your not a REal estate broker and hide behind the quasi arguments that are touted on this site.. to me is just circumventing the industry and the law.
there are brokers who specialize in cheap defunct properties as there is a lot of that inventory in all the hoods of America.
40 Replies
- Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes9y
@Chip Chronister Do you have a link to the bill / source of this?
- Wholesaler · Central Arkansas, AR · Member since 2015 · 61 posts · 33 votes9y
Is this what you are referring to?
*SRC062*
01-12-2017 09:53:17 SRC062
State of Arkansas 1
91st General Assembly A Bill 2
Regular Session, 2017 HOUSE BILL 1163 3
4
By: Representative Rushing 5
By: Senator L. Eads 6
7
For An Act To Be Entitled 8
AN ACT TO CLARIFY PROVISIONS CONCERNING REAL ESTATE 9 LICENSE EXEMPTIONS; AND FOR OTHER PURPOSES. 10
11
12
Subtitle 13
TO CLARIFY PROVISIONS CONCERNING REAL 14 ESTATE LICENSE EXEMPTIONS. 15
16
17
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS: 18
19
SECTION 1. Arkansas Code § 17-42-104(a)(1), concerning exemptions, is 20 amended to read as follows: 21
(a) This chapter does not apply to: 22
(1) A person not licensed under this chapter who performs any of 23 the acts described in § 17-42-103(10) with regard to the property owned, 24 leased, or purchased by him or her; as: 25
(A) An owner of an individual freehold or leasehold 26 interest in real estate; 27
(B) In the case of a corporation, limited liability 28 company, limited partnership or other entity recognized by law holding a 29 freehold or leasehold interest in the real estate under subdivision (a)(1)(A) 30 of this section, a member, manager, partner or officer, who has authority to 31 and does make management decisions affecting the overall policy of the entity 32 regarding real estate activities involving only the interest of the owner; 33
(C) An individual attempting to acquire for his or her 34 personal use a freehold or leasehold interest in real estate; or 35
(D) In the case of a corporation, limited liability 36
HB1163
2 01-12-2017 09:53:17 SRC062
company, limited partnership or other entity recognized by law, intending to 1 acquire a freehold or leasehold interest in real estate under subdivision 2 (a)(1)(C) of this section, a member, manager, partner or officer, who has 3 authority to and does make management decisions affecting the overall policy 4 of the entity; 5
6
SECTION 2. Arkansas Code § 17-42-104, concerning exemptions, is 7 amended to add an additional subsection to read as follows: 8
(c) A person or entity shall not under any circumstance qualify for an 9 exemption under this section if the person or entity: 10
(1) Obtains an equitable interest in real estate with knowledge 11 that the interest was obtained on behalf of a person or entity that intends 12 to gain an interest in the real estate; or 13
(2) Strategically circumvents the requirement for licensure 14 thereby eliminating remedies available to consumers through the commission. - Investor, Attorney, Broker · Little Rock, AR · Member since 2016 · 67 posts · 41 votes9y
I support the bill.
- Professional · Little Rock, AR · Member since 2016 · 34 posts · 18 votes9y
I don't have a dog in this hunt either way. Anyone care to lay out the pros and cons of the bill?
- Investor · Fort Smith, AR · Member since 2013 · 150 posts · 32 votes9y
Anyone that believes in free markets has a "dog in this hunt". If they can limit access to one market, they can limit access to another.
- Investor / Rehabber · Fort smith, AR · Member since 2014 · 178 posts · 30 votes9y
Why do the realtors care? most of these houses are in need of bad repair and they dont want to bother with most of them anyways. And when I had my bandit signs up realtors would call me and have a bad house and want me to buy it.
- Professional · Little Rock, AR · Member since 2016 · 34 posts · 18 votes9y
Originally posted by @Robert Norvell:
Anyone that believes in free markets has a "dog in this hunt". If they can limit access to one market, they can limit access to another.
For all I know, wholesaling is a speculative strategy that adds no value to the sale of property; on the other hand, wholesaling may make the real estate market more efficient. I don't know, that's why I was asking for someone with more knowledge to chime in with pros and cons. "Free markets" function when there are few bounds on legitimate, efficient transactions but not when fraudulent and abusive practices are allowed; I'd just like to know where wholesaling falls.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Jacob White well look at it this way.. if you troll around BP you will see post after post
like this
Hey I am brand new I have never done a deal so I am going to start out wholesaling.
this leads folks with their only education reading posts on BP which some are good some are bunk.
and they simply don't know what they are doing... and they foul up sellers... big time.
they deceive sellers big time... and then complaints are filed.. and the state takes action
virtually every state has the same laws on the books some enforce it others don't
If there was no need for a license in real estate to bring two parties together and then make a fee
then there would be no need for a real estate industry at all.... Just like China.. anyone can do any real estate there.
But as we know there Is a Robust real estate industry here that is licensed controlled etc.. with heavy emphasis on ethics'' and of course you have unethical realtors... you see that in the monthly bulletins with all the realtors getting reprimanded or losing their license.
To me if you want to wholesale BUY THE HOME close on it then resell it.. its that simple.. trying to act like your not a REal estate broker and hide behind the quasi arguments that are touted on this site.. to me is just circumventing the industry and the law.
there are brokers who specialize in cheap defunct properties as there is a lot of that inventory in all the hoods of America.
- Real Estate Investor · Bentonville, AR · Member since 2011 · 8 posts · 5 votes9y
My concern is not at the surface of the bill that they are focused on - selling the rights to a contract via equitable interest. My concern is the slippery slope this could lead down to include investors of all calibers including rehabbers. Complete hypotheticals but could happen: not being able to resell with a period of time, having to disclose all profits of sale, having AREC approve the resale of property, forcing the use of a realtor to sell property, and the list could go on.
I've been on the other side as a rehab seller where a buyer ties up my property for WEEKS only to back out (real examples here) because their grandma doesn't like the location of the house, the house turned out to be too big or small for them, they didn't like the color of the flooring, and other back-outs that could have been determined before tying the house up under contract. The state Realtor group has made it public acceptance and public expectation to do away with earnest money to the seller (no EMD). And this does the very thing that the Commission is complaining about - it takes away the seller's opportunity to sell to a buyer who was truly interested in the property, while the property got tied up, went pending, forcing the buyer on to the next house. The very reason they are going against wholesalers (and that @Jay Hinrichs points out) is the hypocrisy of the Arkansas real estate community at large. If we are going to reform the way a purchase and sale of real estate happens in Arkansas, let's redo it completely instead of segmenting one area of the purchasing market.
- Investor, Attorney, Broker · Little Rock, AR · Member since 2016 · 67 posts · 41 votes9y
@Jay Hinrichs is dead on. There are lots of untrained and uninformed people out there running around claiming to be wholesalers. Really, they are just going out of their way to circumvent long established laws that regulate the real estate industry. The purpose of those laws is to protect consumers, and the laws are generally very fair and reasonable. If most of them sat down and did the math, they would find that it would be easier and they could make more $ if they just became licensed and sold RE.
@Jared Kluver there really is no slippery slope. For one, some of the things you describe are already happening, but on the lending side of the equation (see FHA & some conventional 90 day anti-flipping rule, or 180 day 2nd appraisal & proof of improvements rules some lenders have, as well as 20% over purchase price restrictions). These restrictions are forced into the system by the investors of the loans. And if a seller chooses to dance with the devil by selling to a buyer using that type of financing, then the seller agrees to play by the devil's rules.
As far as not being able to freely dispose of your property, that will never happen (unless the seller happens to choose to sell to a buyer who is using financing of the sort I just mentioned). There are long established prohibitions on certain types of "restraints on alienation", which eliminate the slippery slope you were trying to describe. It's really not something to worry about, so no need to sound the "big government" alarm.
- Wholesaler · Central Arkansas, AR · Member since 2015 · 61 posts · 33 votes9y
From my perspective, as someone who has wholesaled properties, there are pros and cons to the practice. The cons do not apply to all wholesalers or wholesale transactions while the pros are universal when a wholesale transaction is correctly executed.
Cons:
1. A property can only have one contract on it at a time. If the property is encumbered by a contract a wholesaler does not have the intention or ability to close on, the property is not available for contracts from individuals who may actually be interested in purchasing the property.
2. Con men. A decietful wholesaler who leads a seller to believe they are purchasing the property and does not explain that someone else will be purchasing the property can leave the seller angry and feeling lied to.
Pros:
1. Quick close. When a wholesaler has a buyers list they are often able to help a seller close on the property within a matter of weeks.
2. Seller has options. When a wholesaler educates the seller about the process and the seller's other options - including listing the property with a realtor - the seller can make an informed decision as to what is right for them and their property.
3. No "showings". A wholesaler with an active buyers list can send a property to multiple individuals thus avoiding having to keep the property in "showable" condition.
4. Seller decides the terms. A wholesaler can help the seller create terms that will benifit them and their situation while keeping the situation private and avoiding lengthy negotiations.
I am sure other people can come up with different pros and cons but that is my list based upon my experience with wholesaling and other wholesalers. I do think the practice has its positive points and can be very helpful in certain situations but it can be harmful when someone does not abide by ethical standards.....
I am not sure how how being licensed corrects ethics though. Ethics are personal. They do not suddenly materialize because someone has a license. Frankly, I think the whole RE system is broken. Why is it okay for a Realtor to put a contract on a property with a buyer that has not been approved for a mortgage? When the buyer backs out 5 weeks later because they could not qualify, the property has been tied up for weeks and missed other potential buyers while it was encumbered with the non-performing contract. This can be very devistating for a seller and is no different than the wholesaler who cannot close on the property. Also, why is it okay for Realtors to put a sign in the yard then list the property on the MLS simply to hope and pray another Realtor will bring a buyer so they can get paid? Or for a realtor to tell a seller their property is worth "X" just to get a contract then tell the seller to drop the price thousands of dollars a few weeks later because the proerty is overpriced? These practices hurt sellers just as much as a bad wholesaler. I don't say these things to make people upset, but to get people to think about the system and how it could be improved. It needs more than just laws targeting a few individuals who don't have an RE license.
"Strategically circumvents the requirement for licensure thereby eliminating remedies available to consumers through the commission."
This statement is the vague part that concerns me. "Strategically circumvents"; where does the line get drawn on this? So lets assume assignments are out per this new regulation (however they will still be legal and you aren't changing those English laws which have been around much longer than "long established laws that regulate the real estate industry). We aren't changing actual Contract Law so the assignment itself isn't illegal. So could the AREC decide that a double closing or a transaction funded closing isn't also part of this "Strategically circumvents" clause. What if I contract the property in a new LLC and sell the LLC. That is corporate law but is that part of the clause. What if I contract a property in a trust and assign the beneficial interest of the trust to the buyer. Good luck touching the laws regulating trusts at all. I am sure these are all methods that they would deem to fit under the clause but all of these are protected by much higher levels of law then just Assignments and Contract Law. This will just create a new niche for a Guru to come in and teach new methods and make a killing.
To those asking "why not get licensed"... Seriously? So if you can't beat them, join them? The word oppression comes to mind but that might be taking it a little far and opening another can or worms. I legally have a choice if I want to do Real Estate under the commission and their rules as a Realtor or under US law via Contract Law. I however do care about consumers and typically inform them of my intents. I don't have to be subject to certain rules being an Agent requires which I feel I shouldn't have to be.
What about the horror stories I hear on the other side of this. Please buy my house because I had a horrible experience with a Realtor. I look it up to see that it was a new Realtor who had the price set at 15% over market rates and didn't even take the time to put it on major websites that consumers use. These agents have their license hung with larger well know Brokers. I have seen this dilemma a few times. Actually here is a copy and paste from a seller I talked to today "It wont pass for a VA or FHA loan until some things are fixed and the Realtor never called me or told me we had 3 couples that made an offer." Of course I can't say if this was true or that this seller was being completely honest. I admit, these issues are few and far between but they still happen. I wish I kept count of the number of times someone didn't take my offer and decided to list but then I get a call 6 months later stating they are ready to accept my offer now. Okay I need to quit ranting now.
At the core I understand the bill, however it is infringing on rights due to US citizens per other older adopted laws. I hate that new people come in and cause a bad name for legitimate investors who choose to wholesale occasionally. Just like I am sure the AREC hates new agents who try to make the biggest commission instead of focusing on the needs of the seller. If the bill could be structured to better protect the consumer but also allot me the legal rights I have per law then I would entertain it. I respect those who chose to be a Realtor and I even respect the role the AREC play in defending consumers. It will be interesting to see how this plays out. Guess the transnational funding business will get good around here if it passes.
- Investor, Attorney, Broker · Little Rock, AR · Member since 2016 · 67 posts · 41 votes9y
@Eric Metz and others, the AREC has enforcement power against unlicensed persons as well as real estate agents. It doesn't matter if you hold a license or not. The regulations are law, and you can break them even without being licensed. The AREC can then impose civil penalties against the person.
@Allison Lane the pros you listed under wholesaling often apply to just listing a property as well. I very frequently list and close on a property within a matter of days. A wholesaler simply does not have the marketing power of the MLS. They never will. Agents also have long extensive lists of investors and other buyers. There is no more reason to have to "show" a property in the MLS than one offered by a wholesaler. The seller can still offer all the same terms they would offer if wholesaling. Many properties are sold by brokers without putting a sign in the yard and allowing the seller to keep their privacy.
I generally don't list and sell for other people. I pretty much only handle my own properties. When I first got into this business in 2004, I did some of what the kids call "wholesaling". It was shady. Illegal? No. Did it make me feel good about what I was doing? No. I was always having to have these weird conversations with people in desperate situations about why they should let me try to wholesale their house. Many unpredictable situations arose and I could see both legal and reputation issues arising in the future. So I quickly stopped and became licensed. I can do everything above board in the light of transparency without having to run around behind the scenes like some seedy underbelly black market. In life, we all have the same amount of time, and we only have 1 reputation, so we might as well use it the right way.
I have people ask me all the time about getting started in RE investing. They inevitably ask me about wholesaling, and I explain how much better they are just getting their real estate license. Or just doing something else entirely.
- Wholesaler · Central Arkansas, AR · Member since 2015 · 61 posts · 33 votes9y
Thank you for sharing your opinion @Eric Pinter. It is always nice when people can discuss a topic like adults by calling people names when we don't agree. :)
Anyway, like I said, my post was from my perspective knowing how I have helped people. I am in no way stating that all Realtors are bad or that all wholesalers are good. I am merely pointing out that both have pros and cons and bring up a few questions about the system that I believe can be improved.
@Eric Pinter I understand your response. My confusion comes into place when one law is created and it contradicts a longer standing law. Long term there is no consequence to those that are serious in this business. Between transaction funding, private lenders, and personal funds people will continue to "wholesale" within the regulations but simple at slightly lower margins.
I think people have taken the negative components of wholesaling and completely demonized it. There are people who make a successful living doing solely wholesaling. They don't come under the scrutiny of government but if they did they could show they were following the rules. I doubt they feel that they are "shady" because just like and Agent they have choices on what is ethical and what they will or wont do. That is a personal choice. It seems your experience put you in a personal dilemma. Why are some agents extremely successful while some others just aren't? Why are some wholesalers brought under scrutiny while larger more successful ones aren't? They are educated differently, they implement different systems, the have different belief systems, etc. I say all that to say just because you found yourself feeling shady it probably has to do with the education you received and the systems you implemented. That doesn't mean others followed suit in the same footsteps you did to make it work. To each their own. I thank you for your story and point of view however.
Your comment on marketing made me smile. Ask a few real wholesalers to show you their days from signing a contract with the seller to signing with a buyer and closing. Someone who really understands marketing, which is at the core of wholesaling, doesn't have a problem getting in front of the right people with their equitable interest.
I am enjoying this conversation between everyone here and the tone that it has been presented in. It is okay to have a difference of opinion and the right of everyone as free Americans.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes9y
@Jay Hinrichs and @Eric Pinter are right on the money here. The 2 biggest problems with wholesaling, as I see them:
1. The wholesaler often (not always, but I might even say usually) has no ability to actually close on the property and therefore deceives the seller into thinking his/house is going to be sold, when in reality a wholesaler is just as likely to default as they are to close. This is especially true if little to no earnest money is involved.
2. There's no mechanism, short of a seller trying to sue someone in court for fraud, to clamp down on unethical individuals. Someone in example #1 could do that multiple times with no consequences whatsoever. A licensed agent, by contrast, has plenty to lose, from his license and livelihood to fines and even imprisonment.
Other than not wanting to pay for licensing or continuing education, I personally don't understand why an ethical wholesaler wouldn't get licensed. He/she does not have to work for a RE agency, and having a license wouldn't preclude one from wholesaling, but he/she could present to the seller "I'm a licensed agent, here's my license, beware anyone else coming by to put you under contract without a license".
Skyline Properties - 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@JD Martin most states an agent has to perculate under a broker for 2 years some 3... then they can take the brokers exam and be free agents.
the trick is finding a fee based broker that simply charges a flat fee per transaction.. like out here its as low at 199.00 per deal... they put you under their E and O no extra cost.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes9y
Originally posted by @Jay Hinrichs:
@JD Martin most states an agent has to perculate under a broker for 2 years some 3... then they can take the brokers exam and be free agents.
the trick is finding a fee based broker that simply charges a flat fee per transaction.. like out here its as low at 199.00 per deal... they put you under their E and O no extra cost.
Aha, I see. Makes sense - few want to put that time in. My agent has asked me a dozen times if I want to come work for them on my own schedule (he's part owner). I've turned him down a dozen times, but I may just do it when I retire from the W2 in a couple of years.
Skyline Properties - 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@JD Martin ah yes retirement realty is what I call it.. favorite pass time of retired airline pilots the world over...
I had a few in my office I had to let them go... they come in drink all your coffee and just chit chat the whole time LOL>>>
- Investor, Attorney, Broker · Little Rock, AR · Member since 2016 · 67 posts · 41 votes9y
In Arkansas I believe it is still 2 years for an agent to have an active license (under another broker) before being able to become a broker. There is an exception for those who can demonstrate that they have more experience and the AREC may reduce that 2 year period. Again, I see those as being good things. I already think the barriers to entry are way to low to become a real estate agent. Agents spend 60 hours in a classroom, take a simple test, then they are licensed. Arkansas does not require attorneys to be involved in RE transactions (many states do). So between low barrier to entry of being an agent, and zero attorney oversight, there are lots of ways for consumers (general public) to get screwed in dealing with what is often the most expensive asset/investment they will ever buy/sell. Add to that a bunch of people running around sticking "WE BUY HOUSES" signs on telephone poles (illegally), trying to "wholesale" properties, generally not being able to perform, and often suckering unsophisticated people into tying up or relinquishing rights to their property. It makes for a bad combination where many people get taken advantage of. Notice I didn't say "all wholesalers are bad", but I do think MOST are. It's way too easy to just go get your RE license, find a broker to let you work there (it costs the broker nothing if you pay your own MLS & Realtor fees), that it just doesn't make sense to try and be a wholesaler. It's way too easy to find funding or use your own $ for the deal and close on it yourself, then sell it the right way as an owner. You can still do all of the same things, just in the light of day.
- 9yThomas ChapinPro MemberRental Property Investor · Little Rock, AR · Member since 2015 · 22 posts · 18 votes
As one who has purchased homes from both the MLS and from wholesalers I have come to appreciate both sides, but as a licensed agent in Arkansas I tend to agree that this bill is probably best for the initial seller. It appears to me that wholesalers, in the form being discussed, exist because realtors have been unsuccessful at reaching them through the allowed advertising guidelines, or have chosen to ignore these niches due to a perceived lack of return on time/effort. Either way, a portion of the market has been underserved. Do you have any suggestions that might bridge the gap?
- Investor, Attorney, Broker · Little Rock, AR · Member since 2016 · 67 posts · 41 votes9y
@Thomas Chapin the vast majority of licensed real estate agents do not have an investor mindset. I think that may be part of the problem. They consider themselves to be salespersons, just like a used car salesman, and with only slightly more training. That being said, the vast majority of agents that homeowners come into contact with only know one way to deal with a property. I don't know that wholesalers really fill a useful gap. I think that they probably just convince a seller that their way is best, just like an agent would try to do. Some people buy Fords, some buy Chevy, but they all get you where you need to go.
My issue with wholesaling is that, as low as the barriers are to entry to being a licensed agent, there is at least SOMETHING. There are zero barriers to entry for being a wholesaler. And the lower the barriers to entry, the less informed and educated the people will be. I am also an attorney. The barriers to entry for being an attorney are quite high (undergraduate degree, LSAT entrance exam, admission to law school, successful completion of law school, pass the bar exam, undergo fitness of character investigation). Real estate agents are practicing law within strict guidelines, so they need to be competent in those areas. Most are not as competent as I think they should be, but at least they have some relevant training and have passed exams and are under the supervision of a principal broker. And as I've mentioned above, the benefits of wholesaling to the seller can still exist (and even surpass) by using a licensed agent to help sell.
I'm not talking about value added. I do my own version of "wholesaling", but I actually close on the property, then list it for sale in the MLS. I often don't do anything more than change the locks. I might get trash cleaned out or have the yard mowed, but that's about it. So I have no problem with turning properties quickly without really doing anything to them. But I actually solve the problem by buying the house, not just pretending that I'm going to solve the problem by getting a property under contract then trying to find a real investor with actual money and hoping they will solve the problem. That setup is what leads to causing actual damage to sellers, when wholesalers tie up properties and don't deliver. The seller often ends up in a worse position than they were before. I see it a lot when I buy foreclosed properties. I come across unscrupulous wholesalers who have talked an unsophisticated homeowner into deeding the property to them for no real benefit to the homeowner. The wholesaler fails to deliver, then the house gets foreclosed on anyway. Similar situations happen with contracts which tie up the property and prevent the homeowner from seeking additional methods of selling.
Add all that up and combine it with the fact that it's super easy to just get a RE license, allowing that person to have better access to real estate sales data and to legally accept commissions for helping people sell, and I just don't get why people even bother wholesaling.
- Investor / Rehabber · Fort smith, AR · Member since 2014 · 178 posts · 30 votes9y
People on here has said the problem with wholesalers is that they are under no obligation to buy the property and I agree with you on that but their is realtors out there that go and list a house and it sits for a while and it just goes on the mls and when the owner gets mad about it after several months the agent says lets lower the price then later lets lower the price and then the owner gets mad and fires them or takes a bad offer. So in my mind what is the difference? So if you are going to make wholesaling illegal then should there be a law that if a realtor is going to list it and tell you what to sell if for then they should have to buy it if they can not sell it? I have met some pretty bad agents and some want a be investors too. The bad ones makes everyone in their field look bad and it takes 10 good ones to make up for them.
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