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
- Wholesaler · Benton, AR · Member since 2016 · 11 posts · 3 votes9y
As a wholesaler, I have 2 objections to the proposed bill. First and foremost, why should it ever be illegal to sell what you have? One by one, our freedoms are rapidly disappearing, I don't want this to be one of them.
My next point is double-edged. I do agree with Eric Pinter that most wholesalers are woefully uneducated and untrained. That being said, there are some of us that study constantly, to improve ourselves and our service to our clients. Real estate changes so rapidly that we all must be diligent about keeping up with those changes. However, I have also been a licensed Broker, and my personal choice was to let that license go in favor of working independently. In my daily work, I meet a whole lot of licensed agents that don't have a clue, and I end up training them.
If this law passes, we can still wholesale. It will just end up hurting either the Rehabbers we sell to when we must pass along the costs of double closing, or the sellers we buy from, if we just can't give as much for their property because of that same double close.
I suggest that there might be more whosaler education opportunities out there that you might think. Check out your local real estate groups, some offer a wealth of training if one will avail themselves of it.
- Rental Property Investor · Little Rock, AR · Member since 2017 · 29 posts · 7 votes9y
I talked to a lawyer today about this, and paraphrasing him, he essentially thought there was no reason to make that illegal and I felt like he thought it was silly.
My thought is, it's called a free market. Don't blame me if someone finds the best deal before you. They have the right to assign you the contract with whatever fee they seem fit. This isn't communists Russia.
- Real Estate Investor · Little Rock, AR · Member since 2013 · 126 posts · 65 votes9y
For those of you who were following this conversation, I wanted to update you on a recent change regarding this topic and how it will effect assignments in Arkansas.
The originally proposed bill was pulled however during the last day of filing, when 558 other bills were also filed, this bill was proposed again. They have reworked some things and made the bill a bit stronger however there still seems to be some vagueness to it. It will be heard in Committee this Friday. We are pushing our members of the Real Estate Investors Association to call their senators and representatives, especially those on the committee, to let them know that they should vote NO on the proposal.
The proposed bill is HB2042
- Investor · Fort Smith, AR · Member since 2012 · 2 posts · 0 votes9y
Chip,
I read your post and would agree that there are many untrained and even unethical real estate agents out there but expecting the agent to buy it if it doesn't sell at the recommended price is like asking your stock broker to buy your stock if you don't get the price you wanted for the stock. An ethical agent will analyze the property and do their best to determine a price that meets the market and seller expectations. I've experienced sellers who wanted a quicker sale as opposed to getting the highest price. In most cases, it seems sellers always want the highest price in the shortest amount of time.... not always possible depending on the circumstances. Fortunately for the Fort Smith market, we are finally seeing a better balance of ellers and buyers and average prices are continuing to climb while the average DOM is moving lower. All good signs of a more balanced market compared to the buyers market we've been experiencing over the last several years. I'd be happy to discuss the market at more length if you're interested in visiting sometime. I'm an investor and broker/owner of Weichert Realtors - King Realty Group. Let me know if I can ever be of service.
- Denver, CO · Member since 2015 · 251 posts · 123 votes9y
So, here is a question for a few of you, especially @Jay Hinrichs, @Eric Pinter, and anyone else who is a licensed attorney or RE broker.....if you are licensed as a real estate agent and you talk to someone about selling their house, are you at that point bound by a fiduciary obligation to that seller to try and get them the most money for their property? For example if I am licensed and I offer the seller 30% less than market value, am I in violation of my responsibilities as an agent and putting my license at risk? Or is that not the case as long as I have not taken them on as a client at that point? This is not a troll or leading question. I don't intend to wholesale anyway but am going to actively start trying to purchase good deals and flip some and hold others. I have thought about getting licensed in order to increase my access and save on acquisition/commission fees but I really want to know to legal implications.
- Investor, Attorney, Broker · Little Rock, AR · Member since 2016 · 67 posts · 41 votes9y
I make it very clear upfront that I am a licensed broker, but I am interested in buying their house, not listing it for sale. I also tell them straight up that they can probably get more money if they list their house for sale with a regular Realtor. I say that I go fast, use cash, and buy as-is, so if you want to go with me, you'll get less but it will be easier.
- Denver, CO · Member since 2015 · 251 posts · 123 votes9y
Thank you @Eric Pinter. I imagine that full and upfront disclosure plays a huge role in insuring the seller is treated fairly and also in keeping the real estate board/commission off your case. I appreciate your reply and insight.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Bill Hamilton as a broker and a very active buyer.. the whole distinction is I am a buyer.. I buy everything I aim at.. I don't double close I don't assign.. I buy hold for some period of time rehab and resell.
these wholesaling threads are aimed at those who wish to work like a realtor and get compensated what amounts to a commission without being licensed.. and as we know sometimes wholesalers make what can be determined an unconscionable profit at the expense of a non educated or minority seller.. the same way Sub prime ruined real estate and the uneducated and Minority borrower were the lynch pin to much of it .
As a broker you simply have to disclose your an agent buying as a principal.. Your not going for a listing appointment.
Now I see brokers on the West coast run big radio campaigns saying if they can't sell your home in 60 days they will buy it for a price you both agree on.. well of course the price the realtor has in mind I am sure is a low ball... LOL
@Eric Metz when you say that realtors list 15% over market and are poor agents.. I suspect 99% of the time that's the price the seller told them to list for. having 4 decades at this I have seen very few agents that will want to list properties for far more than they are worth as they don't sell and they just wasted their time.
Now there are agents in big money markets I mean homes that are 500k to a couple million and they will do that.. they know they are in competition for the listing and will tell a seller a bigger number than reality just so they get the listing and then when it does not sell they move for price reductions.. But the seller almost always has had one agent tell them reality but still went with the agent who told them the most money.. I have a good friend and neighbor when I lived in Napa valley and he is bright owns a huge business.. but one agent told him he could get 2.7 million for his home.. it was in the best day a 1.9 to 2.0 and of course he list with that agent then beotchs forever because it does not sell .. those types of listings do no one any good.
- Investor / Rehabber · Fort smith, AR · Member since 2014 · 178 posts · 30 votes9y
@Kevin King I agree with you just like tonight I have a few houses listed with an agent and she just plainly ask me what I would take bc she has some people that want to know and then she says " you know you are not going to get full asking price no one ever does" but when she list her houses it is different (the ones she fix and flips) Now good agents are hard to find and you know the numbers better than I do and I would love to know what you think how many full time agents is in our area vs people who have their license and sell less than 5 houses a year. Also I have saw some agents getting awards for being a platinum, diamond etc realtor how is this calculated by number of sales or amount of dollars they have sold and can you break down groups? I am just curious. I know you know the market well here bc of the things I have read on line and in the paper. Thanks for doing a good job. And thanks for posting it is nice to have other people from our area on here
And with the agents sometimes it sucks to hear the truth but I would rather hear it but I hate to see people have something listed and then they tell me that there agent priced it for x and 5 months later it has only been showed 1 time so they always ask for reduction. I just with there was a way you could compare apples to apples and this is with appraisers too. I have had the experience where an older home was compared to a newer home (50 years difference) and I know an agent can not see inside but when the house down the street sell for a high number why did is sell for that? I have a house in little rock where it was appraised and in the same neighborhood there was a big difference and of course the seller wanted to go with this one that was way out of range. If appraisers would go out and price things they would know what something cost vs just giving it a number.
Thank you for your help cant wait to hear from you.
- Attorney · Little Rock, AR · Member since 2017 · 24 posts · 14 votes7y
@Eric Pinter , or anyone else, what ever happened to this Bill? From my research, it was withdrawn. Did anything ever come in its place?
- Rental Property Investor · Little Rock, AR · Member since 2016 · 157 posts · 143 votes7y
Yes, it looks like most of it must have passed. Here is the current language of that section:
17-42-104. Exemptions.
(a) This chapter does not apply to:(1) A person not licensed under this chapter who performs any of the acts described in § 17-42-103(10) as:
(A) An owner of an individual freehold or leasehold interest in real estate;
(B) In the case of a corporation, limited liability company, limited partnership or other entity recognized by law holding a freehold or leasehold interest in the real estate under subdivision (a)(1)(A) of this section, a member, manager, partner, or officer who has authority to make management decisions affecting the overall policy of the entity regarding real estate activities involving only the interest of the owner;
(C) An individual attempting to acquire for his or her own use a freehold or leasehold interest in real estate; or
(D) In the case of a corporation, limited liability company, limited partnership, or other entity recognized by law intending to acquire a freehold or leasehold interest in real estate under subdivision (a)(1)(C) of this section, a member, manager, partner, or officer who has authority to make management decisions affecting the overall policy of the entity;
(2) An attorney in fact under a duly executed and recorded power of attorney from the owner or lessor authorizing the final consummation by performance of any contract for the sale, lease, or exchange of real estate, provided that the attorney in fact does not receive or have an expectation of receiving a fee, commission, or other consideration, directly or indirectly, for performing the act;
(3) An attorney at law in the performance of his or her duties as an attorney at law;
(4) A person acting as a receiver, trustee in bankruptcy, administrator, executor, or guardian, or while acting under a court order or under the authority of a will or of a trust instrument;
(5) A person acting as a resident manager when the resident manager resides on the premises and is engaged in the leasing of real property in connection with his or her employment;
(6) A person employed only at a salaried or hourly rate to engage in the leasing of real property for or on behalf of a licensed principal broker, the real estate firm of a licensed principal broker, or an owner of real estate, if the person:
(A) Does not engage in or offer to perform any practice, act, or operation set forth in § 17-42-103(10) other than receiving a security deposit or payment as permitted by subdivision (a)(6)(B)(iii) of this section; and
(B) Performs only one (1) or more of the following functions:
(i) Delivering a lease application, lease, or an amendment to a lease application or lease to any person;
(ii) Receiving a lease application, lease, or an amendment to a lease application for delivery to the principal broker, real estate firm, or owner;
(iii) Receiving a security deposit, rental payment, or any related payment for delivery to and made payable to the principal broker, real estate firm, or owner;
(iv) Acting under the direct written instructions of the principal broker, real estate firm, or owner:
(a) Showing a rental unit to any person; or
(b) Assisting in the execution of a preprinted lease or rental agreement containing terms established by the principal broker, real estate firm, or owner; or
(v) Conveying information prepared by the principal broker, real estate firm, or owner about a lease application, lease, the status of a security deposit, or the payment of rent to or from any person;
(7) An officer or employee of a federal agency or state government, or any political subdivision, in the performance or conduct of his or her official duties;
(8) A multiple listing service wholly owned by a nonprofit organization or association of real estate licensees;
(9) An officer of a corporation, a member or manager of a limited liability company, a partner of a partnership, or the equivalent of an officer of another form of business entity acting with respect to real property owned or leased by the entity or an affiliated entity under common ownership or in connection with the proposed purchase, sale, rental, or leasing of real property by the entity or affiliate if the acts are not performed by the officer, member, or partner for or in expectation of a commission or other compensation resulting solely from a successful transaction; or
(10) A person employed primarily at a salaried or hourly rate by a corporation, limited liability company, partnership, or other business entity acting with respect to real property owned or leased by the entity or an affiliated entity under common ownership or in connection with the proposed purchase, sale, rental, or leasing of real property by the entity or affiliate if the:
(A) Acts are not performed by the employee for or in expectation of a commission or other compensation resulting solely from a successful transaction;
(B) Primary business activity of both the entity and affiliated entity is not ownership or acquisition of real estate; and
(C) Employee is not providing real estate services to or on behalf of more than one (1) entity not affiliated by common ownership.
(b) Any real estate broker licensed by the Arkansas Real Estate Commission on or before January 1, 1985, who is engaged in the sale of real estate by auction only is authorized to employ real estate salespersons to work under the license of the broker even though the broker is employed in a non-real estate-related field and is only a part-time broker.
(c) A person or entity shall not under any circumstance qualify for an exemption under this section if the person or entity:
(1) Obtains an equitable interest in real estate with knowledge that the interest was obtained on behalf of a person or entity that intends to gain an interest in the real estate other than that of ownership; or
(2) Strategically circumvents the requirement for licensure thereby eliminating remedies available to consumers through the commission.
Ark. Code 17-42-104 Exemptions (Arkansas Code (2018 Edition))
- Goshen, AR · Member since 2017 · 267 posts · 159 votes7y
@Beau Fugitt ... See @Mark Rogers post for the latest and greatest on this fun subject. https://www.biggerpockets.com/forums/547/topics/67...
- Attorney · Little Rock, AR · Member since 2017 · 24 posts · 14 votes7y
@Dustin Davis, thank you!
- Specialist · Little Rock, AR · Member since 2015 · 95 posts · 149 votes7y
Yes, this law passed two years ago. I was representing the State Landlord Association at the time as the President. This law clarification was enacted based on a case the RE Commission had been prosecuting previously that today is still in process against a woman from Florida. She was declared guilty but appealed to the Circuit court and lost but then appealed to the State Appeals court and the court remained it back to the Commission for further clarification/prosecution. The law mentioned above was to close a perceived loophole the lady was trying to exploit. During the testimony that I gave and questioned the Executive
Director, who was testifying for the Bill, He specifically stated on record in the House hearing that "Wholesaling" or assigning contracts is legal if done correctly. The problem is most people who claim to be a wholesaler, don't do it correctly.Last month I testified before the full RE Commission and we had a good discussion on this point. As mentioned in another thread, the Commission hates the word wholesaling. They understand and agree that assigning contracts is legal. But their stances is and will prosecute a person if that is all they do. If your business s assigning contracts and you never buy and close then you are circumventing license law. You are brokering real estate for a profit without a license, in their opinion. If you double close they have no problem. If you buy and hold or rehab and sometimes assign they have no problem because you are acting as an investor and putting money at risk. But if you always or predominately only assign or cancel contracts because you can't assign then you violate the law.
Red flags they look for:
Inspection periods that match the closing date
Weasel clauses that give you a right to cancel up to date of closing without a bonafide reason.
Not having earnest money in the game especially when combined with one of the above
Unilateral right to extend or do something without both parties agreeing to the change.
Placing liens on properties without the intention of closing and not removing the lien if the contract is cancelled.
This last item was one of the reasons the Commission has gone so hard after the "Wholesaler" from Florida.
One other point that my discussion with the Commission cleared up for people in this state. They flatly said that Bird dogging is illegal here. You cannot pay a person a fee or commission based on getting a deal. You can a company or employee a flat salary or fee per lead but their cannot be any type of bonus paid because you closed a deal. Example- Paying a company $1 per each lead they send you would be and example of a flat fee. But if you pay a $250 or $500 fee or bonus because you close a deal you just broke the law. Look at it like pay per click.
Violating the law here is a Class D Felony. Up t 1 year in jail and $5,000 fine per instance. I have never heard of any jail sentence but fines yes. But the most important part is with a Felony record you lose the right to have a gun, no hunting, no voting, no passports to travel out of the country, even Canada or Mexico, lose the right to work in certain industries like investments, real estate license, and other security areas that might have to do with bank or credit card transaction. The pain of that cold change your whole life going forward forever.
The Commission mandate is , any reported complaint has to be investigated. Most of their complaints will come from two sources for this item. A realtor who doesn't like investors/ wholesalers, or more often a consumer who thought they had their house sold but a wholesaler cancels at the last minute. If that seller has already moved or "spent" that money in advance then watch out. They will be the person who files the complaint and at that point you are on the radar screen of the Commission. They can then look back at all you business, marketing, deals, etc for possible fraudulent advertising, acting as a realtor, and many other things. Each instance they find you did something wrong is a count. Each count is a possible fine of up to $5000. If they find you guilty you cannot file bankruptcy and get rid of the fines. Judgments for illegal activity is not dismissed in bankruptcy so you are stuck until paid off.
Hope this helps everybody. Join your local REIA's and learn what they teach. Keep up on the laws as they are constantly changing.
- Goshen, AR · Member since 2017 · 267 posts · 159 votes7y
@Randy Thomason thank you for the more detailed explanation. Very good info there and I hope all those folks running down the "no risk Guru get rich quick method" read this and think twice. @Henry Washington @Ryan Blackstone
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