The Legality of Wholesaling

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The Legality of Wholesaling

David Pupo
Investor · Orlando, FL · Member since 2015 · 47 posts · 16 votes

Thought I would touch on this topic because of a conversation I had to other day. So I am licensed and working for an investment brokerage here in Florida. I received a call yesterday from another real estate agent who does wholesaling on the side asking about the services our realty brokerage does. 

We spoke for a while and I mentioned to him that I tried doing this on my own for a while but then switched to a brokerage to pursue it full time. He asked me why I made the switch since I could've made so much more money being by myself? I simply replied you're right but its also illegal to do it with or without a license and especially not being under a licensed broker. He was puzzled to hear that information which confused me since he was ACTUALLY licensed! If someone can be confused on this topic and was licensed, imagine someone who hasn't researched the topic!

So yes is it illegal in Florida to do wholesaling if:

A.You don't have a valid/active real estate license and are MAKING commission or profit off of a real estate transaction. 

B. If you are licensed and not under a broker and started your own real estate business (which was something I almost fell into so glad I checked it up!) 

Please make sure you know who you are doing business with or to put it simple Caveat Emptor.

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Hattie Dizmond
Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
10y
  • I wholesale.  
  • I don't receive a commission for anything.  
  • I don't market properties.
  • I don't sell properties.

I market and sell my equitable interest in properties, that being my right to purchase a specific property at a specific price, which is conveyed to me via a fully executed purchase agreement and paid for via my EMD.

I really wish people would stop making blanket proclamations.  What I do is wholesaling and IS NOT illegal in Texas.  I cannot and will not attempt to speak for its legality in other states.

I used an analogy to a newbie earlier today that it's a lot like an NFL team trading (selling) a draft pick for whatever return they choose.  They aren't trading (selling) a player, because they don't own the player that may be chosen with that pick, and that would be wrong.  They are trading (selling) what they own...the draft pick.  I'm selling what I own...the contract.  I am not selling the property, because I don't own it.  I am not receiving a commission, because I'm not selling something someone else owns.  I receive a $ amount in exchange for the contract and the right to purchase the property under contract.

I don't know why we keep having this discussion.

And...the original poster's suggestion that making profit off of a real estate transaction without being a licensed agent makes what you're doing illegal is ludicrous.  I can go out and sell any property I own for any profit I can get, and there is nothing illegal about it, because I'm selling what I own.  There are any number of ways to make a profit on property you control, but don't own, that are perfectly legal.  Again, blanket statements are dangerous.

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  • Account Closed
    Real Estate Professional · Dayton, OH · Member since 2015 · 423 posts · 187 votes
    10y

    @David Pupo

     Gee.  You better tell Blackrock and some of the other big investment houses they are breaking the law buying tapes of properties and reselling them as-is.  Better tell the note buyers, too.  Better yet, call the attorney generals in every state they are operating.

    I didn't see "licensed attorney" in your credientials.  Not sure you are qualified to render legal opinions.

    8Reply
  • Christopher Brainard
    Rental Property Investor · Rockwall, TX · Member since 2015 · 891 posts · 701 votes
    10y

    Here we go again :)

    6Reply
  • David Pupo
    OP
    Investor · Orlando, FL · Member since 2015 · 47 posts · 16 votes
    10y
    Originally posted by @Account Closed:

    @David Pupo

     Gee.  You better tell Blackrock and some of the other big investment houses they are breaking the law buying tapes of properties and reselling them as-is.  Better tell the note buyers, too.  Better yet, call the attorney generals in every state they are operating.

    I didn't see "licensed attorney" in your credientials.  Not sure you are qualified to render legal opinions.

     Well Rod the major companies like Blackrock own the properties or have used crowd funding techniques but title is owned nevertheless. If they own it that is an entirely different matter. Might want to check your spelling on "credentials" before you decide to quote.

    1Reply
  • Account Closed
    Real Estate Professional · Dayton, OH · Member since 2015 · 423 posts · 187 votes
    10y

    Ouch!

    0Reply
  • William Yeh
    Real Estate Broker · Walnut Creek, CA · Member since 2014 · 105 posts · 58 votes
    10y

    @David Pupo I think this is a perfectly valid question to explore and one that I've thought about as a licensed agent in Bay Area California. This topic was covered in the exam prep material which specifically states that it's illegal to profit from a real estate transaction without being a licensed agent or broker.

    That said I'd hazard to guess that there are at least a few wholesalers out there operating without proper licensing. It's a business decision on their part and one that seems unlikely to catch scrutiny unless enough people get ripped off and start making noise.

    And yes I spell checked this post (thank goodness!)

    0Reply
  • Matthew Kreitzer
    Attorney · Winchester, VA · Member since 2015 · 726 posts · 387 votes
    10y
    Originally posted by @David Pupo:

    Thought I would touch on this topic because of a conversation I had to other day. So I am licensed and working for an investment brokerage here in Florida. I received a call yesterday from another real estate agent who does wholesaling on the side asking about the services our realty brokerage does. 

    We spoke for a while and I mentioned to him that I tried doing this on my own for a while but then switched to a brokerage to pursue it full time. He asked me why I made the switch since I could've made so much more money being by myself? I simply replied you're right but its also illegal to do it with or without a license and especially not being under a licensed broker. He was puzzled to hear that information which confused me since he was ACTUALLY licensed! If someone can be confused on this topic and was licensed, imagine someone who hasn't researched the topic!

    So yes is it illegal in Florida to do wholesaling if:

    A.You don't have a valid/active real estate license and are MAKING commission or profit off of a real estate transaction. 

    B. If you are licensed and not under a broker and started your own real estate business (which was something I almost fell into so glad I checked it up!) 

    Please make sure you know who you are doing business with or to put it simple Caveat Emptor.

     Out of professional curiosity; what cases and/or parts of the Florida Administrative Code are you relying on?

    1Reply
  • Hattie Dizmond
    Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
    10y
    • I wholesale.  
    • I don't receive a commission for anything.  
    • I don't market properties.
    • I don't sell properties.

    I market and sell my equitable interest in properties, that being my right to purchase a specific property at a specific price, which is conveyed to me via a fully executed purchase agreement and paid for via my EMD.

    I really wish people would stop making blanket proclamations.  What I do is wholesaling and IS NOT illegal in Texas.  I cannot and will not attempt to speak for its legality in other states.

    I used an analogy to a newbie earlier today that it's a lot like an NFL team trading (selling) a draft pick for whatever return they choose.  They aren't trading (selling) a player, because they don't own the player that may be chosen with that pick, and that would be wrong.  They are trading (selling) what they own...the draft pick.  I'm selling what I own...the contract.  I am not selling the property, because I don't own it.  I am not receiving a commission, because I'm not selling something someone else owns.  I receive a $ amount in exchange for the contract and the right to purchase the property under contract.

    I don't know why we keep having this discussion.

    And...the original poster's suggestion that making profit off of a real estate transaction without being a licensed agent makes what you're doing illegal is ludicrous.  I can go out and sell any property I own for any profit I can get, and there is nothing illegal about it, because I'm selling what I own.  There are any number of ways to make a profit on property you control, but don't own, that are perfectly legal.  Again, blanket statements are dangerous.

    10Reply
  • Jeff TumbarelloPro Member
    Real Estate Broker · Fort Myers, FL · Member since 2008 · 1k+ posts · 323 votes
    10y

    We just had an investigator from the DBPR at our meeting this month. One thing I will share, they are serious about unlicensed activity. That is a new development. 

    we did a blog post to share some information gained in this meeting http://swflreia.com/2016/01/19/unlicensed-real-est...

    This information was enlightening: 475.43 Presumptions.—In all criminal cases, contempt cases, and other cases filed pursuant to this chapter, if a party has sold, leased, or let real estate, the title to which was not in the party when it was offered for sale, lease, or letting, or such party has maintained an office bearing signs that real estate is for sale, lease, or rental thereat, or has advertised real estate for sale, lease, or rental, generally, or describing property, the title to which was not in such party at the time, it shall be a presumption that such party was acting or attempting to act as a real estate broker, and the burden of proof shall be upon him or her to show that he or she was not acting or attempting to act as a broker or sales associate. All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved.

    0Reply
  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    @David Pupo

    @Jeff Tumbarello

     First, I am not a wholesaler and I do not condemn or condone the practice. 

     But, I was at the same meeting that Jeff was and she specifically said " wholesaling is not illegal".  The gist of the meeting, as reiterated by Jeff's partner, was that if there was no Malintent then you have nothing to worry about. It was  further made clear that you have to have an equitable interest in the property. And made even more clear was that they are not trying to prosecute anybody but educate. If you fail to be educated then they will prosecute.

    It is still a mystery to me why there is so much hatred towards wholesalers in Florida.

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  • Shanequa J.
    Realtor · Houston, TX · Member since 2011 · 916 posts · 296 votes
    10y

    @Hattie Dizmond 

    Per TREC: Conducting real estate brokerage activity with an inactive license is considered a violation subject to sanctions. [TRELA §1101.351(c)]

    The only way I can see wholesaling to be legal by someone without a license is to do a double close. That way the wholesaler does own the property for a short period of time. It is not illegal to sale your own house, but it is illegal to negotiate a real estate transaction and get compensated. You sell/assign your equitable interest to a buyer; that's fine if you do it once or twice. You get into a gray area when your entire business is based on that approach because those activities require a license. It falls more under brokering a deal rather than selling a house that you legally own.

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Account Closed  too funny... the hedge funds buy their inventory and take title... that's not what the OP was talking about

    he was talking about those that tie up property.

    stick it on craigs list like its a listing.. and double close.. or assign...

    I do a lot of business in FLA.. and work with some of the largest  wholesalers in the state , they are licensed brokers each and everyone of them.. and my clients use me to come into title so they can operate legally.

    Sounds like Florida will start to monitor the activity... mortgage fraud and foreclosure rescue fraud is down this is the next target in my mind.

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  • Hattie Dizmond
    Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Shanequa J.:

    @Hattie Dizmond 

    Per TREC: Conducting real estate brokerage activity with an inactive license is considered a violation subject to sanctions. [TRELA §1101.351(c)]

    The only way I can see wholesaling to be legal by someone without a license is to do a double close. That way the wholesaler does own the property for a short period of time. It is not illegal to sale your own house, but it is illegal to negotiate a real estate transaction and get compensated. You sell/assign your equitable interest to a buyer; that's fine if you do it once or twice. You get into a gray area when your entire business is based on that approach because those activities require a license. It falls more under brokering a deal rather than selling a house that you legally own.

    Everyone here is entitled to their opinions.  That's the wonderful thing about open forums.  

    The simple fact of the matter is, I NEVER negotiate a real estate transaction.  I negotiate the sell of what I own...the contract.  I do not broker anything.  My contract is to buy a property.  The contract is not a seller's agreement nor a buyer's agreement.  I represent only myself and the contract I own.

    You have invented restrictions "once or twice...entire business model..." that do not exist either in TREC rules or case law for the State of Texas in order to justify a limited view and/or interpretation of an activity you don't support.  That's fine.  I've written on this subject enough times that I'm not going to spend additional time defending an activity that has NEVER been ruled, by any legally binding body in Texas, to be illegal.  I'm not saying it can't be done or presented in a manner that violates TREC rules.  However, if it is done correctly, it's not prohibited or illegal in Texas.

    As far as double escrows & simultaneous closings, those have been declared illegal in multiple jurisdictions, due to the practice of investors using end buyer funds to close the front end of the deal.

    2Reply
  • Carolyn Morales
    Investor · Jacksonville, FL · Member since 2015 · 504 posts · 217 votes
    10y

    I am confused. 

    4Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    @Jay Hinrichs I am taking my brokers classes. According to one of our teachers, Cape Coral is #1 for mortgage fraud in the entire US. As far as wholesaling goes, there is a legal way as well as illegal fraudsters. Tieing up the property for 60 days with lies and no intention of closing is the big problem. People that do that should be charged. Real estate is not a game. It involves peoples lives, their biggest investment, often times tremendous emotional attachment, and more. Treating everyone whether a buyer or seller with honesty should be the norm. Those that won't operate in this manner should find another line of work. I am glad to see DBPR goes after some of these frauds. We have a local guy that is facing 3 felony counts and there are probably many more that deserve the same from our justice system. BTW, having knowledge of illegal activity REQUIRES a licensee to report such activity. We will have an attorney at our next REIA meeting to discuss what constitues equitable interest in their opinion.

    1Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y
    Originally posted by @Matthew Kreitzer:
    Originally posted by @David Pupo:

    Thought I would touch on this topic because of a conversation I had to other day. So I am licensed and working for an investment brokerage here in Florida. I received a call yesterday from another real estate agent who does wholesaling on the side asking about the services our realty brokerage does. 

    We spoke for a while and I mentioned to him that I tried doing this on my own for a while but then switched to a brokerage to pursue it full time. He asked me why I made the switch since I could've made so much more money being by myself? I simply replied you're right but its also illegal to do it with or without a license and especially not being under a licensed broker. He was puzzled to hear that information which confused me since he was ACTUALLY licensed! If someone can be confused on this topic and was licensed, imagine someone who hasn't researched the topic!

    So yes is it illegal in Florida to do wholesaling if:

    A.You don't have a valid/active real estate license and are MAKING commission or profit off of a real estate transaction. 

    B. If you are licensed and not under a broker and started your own real estate business (which was something I almost fell into so glad I checked it up!) 

    Please make sure you know who you are doing business with or to put it simple Caveat Emptor.

     Out of professional curiosity; what cases and/or parts of the Florida Administrative Code are you relying on?

     A licensee or non-licensee may wholesale provided they do it legally. Simply writing a contract, not having equitable interest in the property, and then advertising it for sale IS illegal. This is what the local man did that is facing three FELONY charges. Brokering real estate without a license is a 3rd degree felony. 

    0Reply
  • Dell Schlabach
    Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
    10y
    Originally posted by @Adam Bartomeo:

    @David Pupo

    @Jeff Tumbarello

     First, I am not a wholesaler and I do not condemn or condone the practice. 

     But, I was at the same meeting that Jeff was and she specifically said " wholesaling is not illegal".  The gist of the meeting, as reiterated by Jeff's partner, was that if there was no Malintent then you have nothing to worry about. It was  further made clear that you have to have an equitable interest in the property. And made even more clear was that they are not trying to prosecute anybody but educate. If you fail to be educated then they will prosecute.

    It is still a mystery to me why there is so much hatred towards wholesalers in Florida.

    I would vote for you twice if I could. It is always interesting to see how two people listening to the same information can present two such different summaries. 

    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    10y

    Yet again the people who say Wholesaling is illegal ignore the words "For Another" that are in virtually every state law. 

    I seriously doubt any "Presumption of guilt" statue would hold up to a serious legal challenge.

    I still stand by the statement that in every state including Ohio, wholesaling can be done in a legal way. And in every state wholesaling can be done in a way that is illegal.

    4Reply
  • Matthew Kreitzer
    Attorney · Winchester, VA · Member since 2015 · 726 posts · 387 votes
    10y
    Originally posted by @John Thedford:

     A licensee or non-licensee may wholesale provided they do it legally. Simply writing a contract, not having equitable interest in the property, and then advertising it for sale IS illegal. This is what the local man did that is facing three FELONY charges. Brokering real estate without a license is a 3rd degree felony.

    I'm not saying you're wrong or anything (although I'm surprised if it truly is a felony charge), I would merely like the code citation being used here for my own review

    1Reply
  • Account Closed
    Investor · Cleveland , OH · Member since 2016 · 17 posts · 9 votes
    10y

    This is frustrating. As a newbie, my first interest is the wholesale strategy. I'm in Cleveland, Ohio and hear that it is illegal. But I'm sure many are doing it. There HAS to be a legal way. I just hope I can find the right people to help me learn and understand this!

    3Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    You know a very easy way to get guidance on the issue, that people never do, is to simply call the real estate commission in your state and get clarification on what is a legal activity, and what activities are illegal.  Ive found the real estate commission here in MD and in DC very willing to answer questions on a variety of subjects (though Ive never inquired about wholesaling)

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  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y
    Originally posted by @Matthew Kreitzer:
    Originally posted by @John Thedford:

     A licensee or non-licensee may wholesale provided they do it legally. Simply writing a contract, not having equitable interest in the property, and then advertising it for sale IS illegal. This is what the local man did that is facing three FELONY charges. Brokering real estate without a license is a 3rd degree felony.

    I'm not saying you're wrong or anything (although I'm surprised if it truly is a felony charge), I would merely like the code citation being used here for my own review

     Chapter 475....475.42 to be specific...FELONY. No different than many other states.

    1Reply
  • Hattie Dizmond
    Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Carolyn Morales:

    I am confused. 

     So are 1/2 the other people posting on this thread.  :(  It's ridiculous.

    2Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y
    Originally posted by @Russell Brazil:

    You know a very easy way to get guidance on the issue, that people never do, is to simply call the real estate commission in your state and get clarification on what is a legal activity, and what activities are illegal.  Ive found the real estate commission here in MD and in DC very willing to answer questions on a variety of subjects (though Ive never inquired about wholesaling)

     I am sure that in your state as well, there are activities an owner can do but cannot do for another without licensing. We use the abbreviation: A BAR SALE. Auctions, Leasing. Selling. Appraisals, etc. The key is "for another". You can wholesale in FL provided you have an equitable interest. No equitable interest: illegal without a license.

    0Reply
  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    @Russell Brazil

    They were at a REIA meeting and they wouldn't give a solid answer. Every senerio was answered with "it depends".

    She was clear that it is not illegal.

    People just don't like wholesalers or some of the practices that they use. It stirs up a lot of emotion. That's why it keeps coming up. Similar to being a democrate or republican, the other is always wrong

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  • Federico Gutierrez
    Realtor · Cleveland, OH · Member since 2015 · 2k+ posts · 857 votes
    10y
    Originally posted by @Account Closed:

    This is frustrating. As a newbie, my first interest is the wholesale strategy. I'm in Cleveland, Ohio and hear that it is illegal. But I'm sure many are doing it. There HAS to be a legal way. I just hope I can find the right people to help me learn and understand this!

     Step 1. Get a RE license

    Step 2. Join Holton-Wise property group

    Step 3. Earn a commission selling someone's house legally and without lining your pocket illegally

    Step 4. Get referrals for the great work you did helping a seller out of a jam and never putting pressonal profits ahead of theirs

    3Reply
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