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.
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.
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.
It seems to me that a contract or option executed in good faith would show substantial consideration.It would be wrong to tie up a 80k property for 30 days for $10.00.But if I drop $200,00 no refund consideration then I have purchased the right to negotiate on my own behalf for consideration for that same right.I'm not selling a title or property I would be selling a right a right to purchase.Just be ready to prove good faith.In this way you are taking a risk not a commission that has no risk.
@Timothy Farrell 200.00 probably does not cut it.. I suspect they would ( the regulators ) look at customary EM deposits.. which are probably quite a bit higher.
And of course this really all boils down to intent and your pattern of business.
If you routinely act as a broker IE have a flashy website.. advertise on craigslist JUST LIKE A RE broker with pictures and descriptions. appoitnments to show homes to prospective buyers . your going to have a hard time with this being a simple sale of an equitable interest theory.. But its all subject to interpretation circumstances and who decides to hammer you at the state.
So are 1/2 the other people posting on this thread. :( It's ridiculous.
It's because the verbiage of the law of each state is different and grey. We can all make claims or justifications or interpretations, but its still grey. Unless there is a legal case to reference, its all just a matter of your tolerance for an unquantifiable level of risk.
@Hattie Dizmond Just bc someone writes about a subject does not mean that they know what they are talking about. It can all be from personal experience or opinions.
I'm going to contact TREC Monday and ask them if someone can base their real estate business off of continually selling equitable interest or contracts to buyers via FB, sending out emails, etc. I'll post the answer.
In the end, it doesn't matter whether wholesaling is illegal bc people will continue to do it if they are making money.
The people that want to make it happen are going to legally.
If you feel wholesaling is illegal then don't do it. Also, don't buy a screaming good deal when a wholesaler approaches you with one.
Bottom line is there are the black and white areas, and there are the GREY AREAS. I promise, no one who has 9-10 figure type of wealth stuck to black and white. The money is in the arenas no one wants to play in.
why not just buy the house,it only costs about 500-700 dollars to close then do what you want with the property
I see wholesalers in my area often market houses they don't own to sell
I just get address of the house and contact the owner when the wholesaler can't sell
The sellers are always angry when the wholesaler can't find a buyer,it is always because the wholesaler tells them we are going to buy your house with cash and then they just use clauses to get out of the contract
I understand wholesaling well enough since I have done it a few times,i have saw first hand what happens when you go back to the seller to get a price reduction your Buyer's won't pay what you have it under contract for
If you are in this business to help people solve their problems with this house
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.
Hattie - your equitable interest is secured with paper. Does this not make the paper a security, and if so, are you not in violation of securities laws marketing a security instrument without an appropriate license...? :)
Chapter 475....475.42 to be specific...FELONY. No different than many other states.
Good lord, this sounds unduly harsh. I think a case is ripe for declaring such a statute federally unconstitutional in my professional opinion. Where I think the law may be saved, however, is in it's apparent application. Since I am not an attorney licensed to practice in your state, I would recommend you read the case of
Labruzzo v. The Lofts at South Beach, Inc., 937 So.2d 1124 (Fla. App., 2006)
for more information. Also, if you want to claim that many other states punishe this as a felony, I am going to need each and every state you claim does so, and their enabling statutes, to confirm. As illustrated above with this one case, I think you're blowing this out of proportion. Case law is a very important modifier of any statute that you may find.
NOTE: Not legal advice, not your attorney, not licensed to practice in florida. This disclaimer shall be continuing in nature.
For me personally, I have been marketed "FLIP THIS HOUSE" for years.
I have attempted to wholesale, assign, negotiate, bird-dog, and purchase real estate using OPM for over 20+ years WITHOUT getting a sales or brokers license in any state.
I have wasted $1000's on some expensive "guru" RE courses, including Profit Bandit, Success Path, Trump, D ********, to name just a couple of the MANY.
Not one online offer that I've ever generated has ever been accepted.
Now that I realize what is going on, I DO believe I had been "blocked" from this illegal activity.
WHY?
Last Fall I broke down and signed up to get my FLORIDA RE sales license. I found out how adamant that the FL DPBR is about making sure that wholesale RE transactions DO NOT HAPPEN in the state of FL, and prosecuting those who attempt to complete wholesale RE transactions of ANY KIND without a FL sales license as FRAUD.
Any transaction involving a contract = Equity in a property PERIOD. If one does not own the property, then one does NOT have the right to buy, sell, or negotiate it's equity without a state license or brokers license. It is illegal, PERIOD.
It would not surprise me if the state of FL becomes the nation's model for all other states to follow suit.
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.
Close on it, then sell it and no one or government entity can do a thing. Its that simple. we put that meeting out and the next luncheon as a PSA. The sheriff has awakened from his very long slumber. I see too many people staking their future, their treasure and potentially their civil rights on the advice of a guru selling information products. Instead of a competent Attorney.
Yes, take title, and there are ways to do that without a lot of money, but none of them are the ways people are doing things!
Most using options have no idea what an option really represents or how it is valued, if you don't know how to value it, you cannot determine any "significant" interest. Say $200 won't usually be enough, it could well be $1,000 or $5,000, it could be $20,000.
A sale contract without the actual intent to perform as agreed, without the ability to buy, is a voidable contract, the state law just sited voided such contracts. It doesn't really take state law to void those contracts, they are already voidable under contract law. You can't have an equitable interest in a contract that is voided. If you represent to another that you have a good contract, is that not fraudulent dealing? I'd say so.
Mom and pop who have a nice home who are not distressed sellers will be entitled to greater consideration to say you have an equitable interest that is marketable. A seller who is going to foreclosure, needs repairs will require much less in consideration to grant a significant equitable interest. There are compensating factors as to what a significant interest is or would be. This aspect is clearly missed by most declaring they have an equitable interest. What are the benefits and what are those benefits really worth will be the question.
There is also a bi difference between wholesaling a distressed property or dealing with a distressed seller than a property or seller that is not. When we have marketable properties with average motivated sellers, wholesaling can easily turn to predatory dealing. Making an offer is an implied statement of value, if I am to say I'll give you $35,000 for the house, I'm making an offer and in that I'm also saying, if I'm dealing in good faith, that my valuation to me is at $35,000. If I'm known to be in the business and have expertise, it's easy for an owner to think that other investors would probably make a similar offer, again, if that seller believes I'm dealing in good faith.
Your valuation becomes less implied if you start listing repairs and giving justifications to a lower price, especially if they are not true.
If that house is really worth $52,000, and it's a marketable home as it sits, attempting to buy at $35,000 is predatory dealing, taking advantage of an owner. That's not investing it's basically attempting to cheat an owner from a fair price. Attitudes of most wholesalers here seem to be dig in the seller's pocket and sell the contract for a big profit, those posting such claims are seen as heroes in a way, when actually they are predatory dealers if they are justifying to a naive seller a lower price or using sales methods to over charge their buyer. The spread that is sought should be within the realm of your value of services provided, especially when you do no more than a broker and never touch the property or add value to the property. Is predatory dealing illegal, well, it can be, most often it will be highly unethical and can be more of a civil wrong, a tort, if your dealings are further away from justifiable fair pricing, buying or selling.
This "attitude" comes from fair dealing and the way real property is viewed differently than personal property in society and at law. Real property serves a much higher use than does personal property that can be replaced, land cannot be replaced and it serves a required purpose, not simply a purpose that fits a desire like a car (but, that's not saying real estate is not desirable). Land ownership is at the foundation of our rights as citizens, that is why real estate owners are held to a higher level of protection. In courts, an owner/seller is more favored than a buyer.
There is plenty of profit to be made in real estate dealing honestly, ethically and legally. Learn to take title and you can avoid having to deal basin your real position on misinformation, lying to owners or creating unknown hardships that a wholesaler isn't aware of. :)
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.
Hattie - your equitable interest is secured with paper. Does this not make the paper a security, and if so, are you not in violation of securities laws marketing a security instrument without an appropriate license...? :)
Ohio thinks so. Florida this so as well...
@Ben Leybovich Well...leave it to you! That's a interesting interpretation, and I've seen it postulated previously. However, I don't think it would withstand a broad based challenge, unless those same states want to call any assignment of a contract a securities transaction, which is going to garner challenges from heavy-weights in a number of industries. From my perspective, this is simply another case where I'm extremely grateful to live in Texas, a very business friendly environment. I don't see Texas declaring the practice of contract assignment illegal. I would think this argument of it being a security would impact the ability to sell a rental, with a valid lease. You're transferring the lease to the new owner. The lease is only paper. Wouldn't that also qualify as a security? I hate big government. :)
I'm following this closely bc wholesaling is something I'd like to do.
It's not as easy as they make it sound, learn to take title and sell and you won't have the issues around wholesaling. You really need to learn real estate, not wholesaling, if you're just starting off.
There are several ways to take title, one simple way is to have the seller finance it to you, then sell and payoff your note! That's not hard to accomplish and it keeps your seller in the loop as to what is really going on. The seller won't know what you sell it for and your buyer won't know what you bought it for, unlike trying to assign contracts and take a fee off a contract. :)
@Bill Gulley I'm currently reading all of your blog posts on wholesaling. All current and future wholesalers should read it too.
Can a RE agent wholesale provided they disclose that no agency relationship is created?
Not really, they have "net listing" issues, obligations of disclosure with value, brokers would rather see them list and your wholesaling probably won't be covered under your E&O policy. :)
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.
Hattie - your equitable interest is secured with paper. Does this not make the paper a security, and if so, are you not in violation of securities laws marketing a security instrument without an appropriate license...? :)
Ohio thinks so. Florida this so as well...
@Ben Leybovich Well...leave it to you! That's a interesting interpretation, and I've seen it postulated previously. However, I don't think it would withstand a broad based challenge, unless those same states want to call any assignment of a contract a securities transaction, which is going to garner challenges from heavy-weights in a number of industries. From my perspective, this is simply another case where I'm extremely grateful to live in Texas, a very business friendly environment. I don't see Texas declaring the practice of contract assignment illegal. I would think this argument of it being a security would impact the ability to sell a rental, with a valid lease. You're transferring the lease to the new owner. The lease is only paper. Wouldn't that also qualify as a security? I hate big government. :)
Hahah - all I am saying is that this is exactly what Ohio and Florida have been doing. And as to TX, let me tell you - the dealer's association has blocked the sale of Tesla in TX, all because Tesla utilizes a direct to consumer model, bypassing the dealers. The most "limited gov-nt, free market State in the nation" has passed legislature prohibiting access of its citizens to a good.
Now - who do you think pushed the cases through in Ohio and FL...Realtors, of course. TX has shown its colors, and soon enough, when Realtors there realize they can get rid of some competition...
I would not be building a model based on the notion that this wholesaling party will never come to an end in TX. The road has been paved - just a matter of time now :)
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.
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.
This seems to sum it up, if you don't own the property, you cannot broker it to another person without a license, no matter what you call it.
Chapter 475....475.42 to be specific...FELONY. No different than many other states.
Good lord, this sounds unduly harsh. I think a case is ripe for declaring such a statute federally unconstitutional in my professional opinion. Where I think the law may be saved, however, is in it's apparent application. Since I am not an attorney licensed to practice in your state, I would recommend you read the case of
Labruzzo v. The Lofts at South Beach, Inc., 937 So.2d 1124 (Fla. App., 2006)
for more information. Also, if you want to claim that many other states punishe this as a felony, I am going to need each and every state you claim does so, and their enabling statutes, to confirm. As illustrated above with this one case, I think you're blowing this out of proportion. Case law is a very important modifier of any statute that you may find.
NOTE: Not legal advice, not your attorney, not licensed to practice in florida. This disclaimer shall be continuing in nature.
I was happy to look this one up for you. Feel free to do your research on the other states. Not my job..and not being paid:)
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.
@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!)
Is it also illegal in the state of Ca, to host a Seminar and tell the audience they do not need a License to do Wholesaling? I just attended one stating that as well. There are topics Online that also clearly state the same info. I am completely ready to start Wholesaling, but not if it is illegal.
If you have questions as to the legalities of wholesaling. Get competent legal help from an Attorney who specializes in this type of law for your particular state. Is it worth a few hours of legal time to not be charged with a felony? A neat lesson from this, make sure your attorney gives you the statutes and the case law as well. One without the other is a partial picture.
For Florida, that presumption was a game changer, once it was pointed out to me. They can be over reaching in what they deem to be an interest but it costs time and treasure to fight them. Pioneers and crusaders always come back tired and with arrows sticking out of them.
Its neat how these threads always turn into a debate of one narrative versus another, all fueled by confirmation and cognitive bias.
