Is wholesaling legal in California?
Investor · Indianapolis, IN · Member since 2016 · 221 posts · 134 votes
Is wholesaling legal in California?
Most Popular Reply
As a wholesaler in CA, let me give you my opinion on the topic.
At a glance, wholesaling might seem to be the same thing as brokering especially for people who aren't familiar with creative investing. Like your dad put it, bringing a buyer and seller together is brokering and you absolutely need a license for that.
But when you understand the two a bit better, you'll see where they differ. A broker/agent represents the seller and helps the seller get the highest sale price possible by marketing the property on the MLS. The higher the final sale price, higher their commission.
As a wholesaler, my niche is in off-market properties. I market like crazy to certain targeted lists to find motivated sellers. These are people who are wanting a quick cash, as-is sale. I meet them, estimate rehab costs, and negotiate them down from their asking price until it makes sense for a flipper + my profit. Once I get it under contract, I can do 2 things. 1. Sell/assign the contract to an end investor. 2. Double close. I don't tell people I have a 'house for sale'. I tell them that I'm under contract to buy a house and that the contract is for sale.
In general, realtors don't do direct mail marketing, estimating rehab costs and negotiation with the seller. So maybe ask your dad if assigning/selling contracts is illegal in CA and see what he says.
50 Replies
- Investor · San Diego, CA · Member since 2015 · 290 posts · 80 votes9y
@Samantha Soto My understanding is if you do more than either 7 or 8 deals, you need a RE license.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes9y
"It seems dumb that one would need a license to do something that's relatively simple."
Managing the largest financial purchase of most people's lives I would say is a lot more complicated than you think it is. And if it is as simple as you think, then getting your license should be as equally simple.
District Invest Group545 Reviews - Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes9y
@Samantha Soto Perhaps you should read your own post. You started off by saying you are arguing with someone that is by definition an expert in something you are not. Now you come to what is basically a social media site to get people to tell you what you want to hear.
You have also posted onto a public google searchable platform using your name that you have received legal advice that what you want to do is illegal.
Listen to your father.
- Investor · Indianapolis, IN · Member since 2016 · 221 posts · 134 votes9y
Damn, @Account Closed....put me in my place! Totally true...Not a very bright move on my part. But I guess my confusion is that I listen to all of the podcasts and wholesaling is discussed quite frequently. It's hard to believe that so many people would be openly engaging in something that is illegal.
Back story on my father is that although he is a real estate attorney he has NEVER done any real estate investing. He actually seems quite clueless about a lot of the stuff I have been learning about. I am not wanting people's opinions on the matter, I am more looking for legal angels to refute what my father is saying. He just always seems to be nay-saying anything to do with investing.
Also, for the record, I have never done a wholesale deal, but have been wanting to improve my marketing skills and work on finding good deals. I have connected with a local investor who does flips and want to help him find some deals in exchange for some mentoring. My dad even indicated that me finding deals for the guy could be illegal. I'm just baffled.
Also, I'm in the process of getting my RE License. But it's just a salespersons license, not a broker's.
So I get that I sound like a bratty daughter, which to be fair, I am lots of the time...But for people wholesaling in CA without a broker's license, do you ever encounter legal issues?
Hmmm, how do I put this? Welcome to California, where the government does a blend of protect and overreach at the same time. In CA, with how things are defined with what a broker or a licensed salesperson under a broker is. Wholesale is not outright illegal, as it is not stated that way anywhere. However, it is not legal as well by definition of what the act falls under. So it's in that gray area, where if you everything goes right then you make money and you move on. However, if something goes wrong legally and the seller or buyer comes after you, you have nothing to stand on. Like if someone isn't breathing and a doctor gives them CPR, and from the pressure it just happens to crack their sternum, they might have to pay for that but it will be minimal. If you weren't a doctor and didn't have a CPR card from training and did the same thing, there is a much higher chance that the judge will rule against you if you only training is from watching doctors on TV. Hope that kind of clears it up, I know it's not black and white, most things aren't. Your dad probably seen the gray area in real estate from work and that is why he is being pessimistic about it, to protect you.
Here is my advice, and what I am doing, I am getting my real estate license as well. However, I am still learning about wholesaling so I know how that side works. Plus, I plan on working with wholesalers in the future to acquire properties for my investor clients. In all, I would work with wholesalers, however I would personally prefer to work with a real estate license on my end. Hope this advice helps and gives you another direction to go.
As a wholesaler in CA, let me give you my opinion on the topic.
At a glance, wholesaling might seem to be the same thing as brokering especially for people who aren't familiar with creative investing. Like your dad put it, bringing a buyer and seller together is brokering and you absolutely need a license for that.
But when you understand the two a bit better, you'll see where they differ. A broker/agent represents the seller and helps the seller get the highest sale price possible by marketing the property on the MLS. The higher the final sale price, higher their commission.
As a wholesaler, my niche is in off-market properties. I market like crazy to certain targeted lists to find motivated sellers. These are people who are wanting a quick cash, as-is sale. I meet them, estimate rehab costs, and negotiate them down from their asking price until it makes sense for a flipper + my profit. Once I get it under contract, I can do 2 things. 1. Sell/assign the contract to an end investor. 2. Double close. I don't tell people I have a 'house for sale'. I tell them that I'm under contract to buy a house and that the contract is for sale.
In general, realtors don't do direct mail marketing, estimating rehab costs and negotiation with the seller. So maybe ask your dad if assigning/selling contracts is illegal in CA and see what he says.
- Specialist · Los Angeles, CA · Member since 2016 · 221 posts · 58 votes9ySamantha Soto I'd like to connect as I'm looking for a local RE attorney. Also would love to talk RE investing from your perspective. Thanks
- 9yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
Hi @Samantha Soto,
I will disagree with @Pratik P. a bit. The MLS has nothing to do with being an agent except you need to be to get on there. To engage in marketing a house to the public you need a license. You need a principal to represent, which you have a duty towards.
Now Wholesaling involves finding a property, getting a form of equitable interest in the property (You have a contract to purchase it so now you have rights to it). Then you market your contract.... not the property to a private list you have of people who like buying contracts like the one you have. Now you can't market the house.... just the contract.
DISCLAIMER: Not legal advice, not moral or ethical advice, just ramblings giving an opinion on the OP's original question of how to refute her fathers stance. This poster takes no responsibility for anything the OP or others choose to do with the information.
Best of luck in your business
- Attorney · Bay Area, CA · Member since 2016 · 164 posts · 135 votes9y
California has taken steps to address this issue and have have even codified certain real estate related restrictions in the Business and Professions Code.
Your father may have an easier time deciphering this code but take a look at this link of the California Business and Professions Code:
http://www.leginfo.ca.gov/cgi-bin/displaycode?section=bpc&group=10001-11000&file=10130-10149
Pay particular attention to the following:
Section 10130. It is unlawful for any person to engage in the business of, act in the capacity of, advertise as, or assume to act as a real estate broker or a real estate salesperson within this state without first obtaining a real estate license from the department...
Section 10131. A real estate broker within the meaning of this part is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others:
(a) Sells or offers to sell, buys or offers to buy, solicits prospective sellers or puchasers of, solicits or obtains listings of, or negotiates the purchase, sale or exchange of real property or a business opportunity.
(e) Sells or offers to sell, buys or offers to buy, or exchanges or offers to exchange a real property sales contract, or a promissory note secured directly or collaterally by a lien on real property or on a business opportunity, and performs services for the holders thereof.
Based on the above rules, only a broker or salesperson can solicit buyers and sellers, market property, negotiate real estate contracts, and sell real estate contracts for another person. So, if you actually buy the property first and then sell to another, then you are not violating this part of the law.
However, the Code further states:
10131.1. (a) A real estate broker within the meaning of this part is also a person who engages as a principal in the business of making loans or buying from, selling to, or exchanging with the public, real property sales contracts or promissory notes secured directly or collaterally by liens on real property,...
(b) As used in this section:
(1) "In the business" means any of the following:
(A) The acquisition for resale to the public, and not as an investment, of eight or more real property sales contracts or promissory notes secured directly or collaterally by liens on real property during a calendar year.
(B) The sale to or exchange with the public of eight or more real property sales contracts or promissory notes secured directly or collaterally by liens on real property during a calendar year. However, no transaction negotiated through a real estate licensee shall be considered in determining whether a person is a real estate broker within the meaning of this section.
Accordingly, it appears that even if you act as a principal (meaning you are acting on your own behalf and not for another person), then you are limited to 8 transactions per year, otherwise you are acting as a broker.
This response neither constitutes legal or tax advice nor establishes an attorney-client relationship. Inquirers must seek the advice of their own legal counsel prior to undertaking any course of action related to this inquiry.
- Attorney · Santa Cruz, CA · Member since 2015 · 345 posts · 358 votes9y
Hi Y'all. @Samantha Soto
I'm a real estate attorney, here in California. I work with a lot of investors.
The answer to your question is: It depends!
First wholesaling, in general, is not illegal. I have lots of clients wholesaling property!!! It's a significant industry. And with the internet making it easier and easier to get information, and find properties not listed in the MLS, the industry is growing. This is what @Pratik P. was trying to explain.
The licensing requirements also depends on your definition of wholesaling, and your source of funding.
If you are taking money from investors to buy property, this is a form of selling securities, that could fall under state or federal securities laws which require brokers licenses under the Corporate Securities Law of 1968 and the federal Securities Act of 1933.
If youre using your own money, its a different story.
All the best,
Jen the lawyer
- Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes9y
It is a lawyer's primary job to say, "No!" That is the advice they give all their clients. Why? Because it keeps them out of trouble. Anytime a client asks their lawyer, "Should I...." the answer will almost always be "No!"
You probably heard that a lot growing up. Personally, if my father were a lawyer, I'd not ask him for any business advice.
- Investor · Indianapolis, IN · Member since 2016 · 221 posts · 134 votes9y
Thanks for the input everyone.
- Bakersfield, CA · Member since 2018 · 5 posts · 0 votes8y
Hello everyone, New member here and i'm learning about wholesale and since I don't have capital or credit, I'm learning this area. Good information here on the different angles of it, thank you for the information all of you guys/ladies put.
- Malibu, CA · Member since 2018 · 77 posts · 32 votes8y
If you're using the C.A.R purchase contract in California, you need to get the Seller's permission to Assign the contract FYI
- Realtor · Mountain View, CA · Member since 2017 · 120 posts · 108 votes8y
@Samuel Pawlitzki It is true the CAR contract says that the seller must approve if contract is assigned. However, CAR contracts are assigned to real estate agents. Our names are on the bottom of them. Who ever has their name on the contract is responsible for the contract. As a result it is not easy to pry an original CAR contract out of a realtor. I guess someone could retype the contract but I would guess most wholesalers have their own contracts.
- Real Estate Agent · Sacramento/Placer ~ San Francisco Bay Area counties · Member since 2012 · 1k+ posts · 743 votes8y
There's no way a C.A.R. contract is assignable.
- 8yBryan ZuetelPro MemberAttorney · Orange County, CA · Member since 2017 · 242 posts · 99 votes
Paragraph 26 of the current version of the C.A.R. Residential Purchase Agreement reads, "Buyer shall not assign all of any part of Buyer's interest in this Agreement without first having obtained the separate written consent of Seller to a specified assignee. Such consent shall not be unreasonably withheld." So, yes, the C.A.R. Residential Purchase Agreement can be assigned pursuant to this paragraph.
@Marcy Moyer Real estate brokers are not parties to the Agreement and are not assigned to the contract. Please see paragraph A on page 10 of the current version of the C.A.R. residential Purchase Agreement.
- Realtor · Mountain View, CA · Member since 2017 · 120 posts · 108 votes8y
@Bryan Zuetel My previous broker told us that the CAR contract can not be shared with Buyers who were not represented by an agent because our names were pre printed on it and there was a recent court case that stated a buyer does not have an agent and the seller does, the seller's agent is presumed to be working as a dual agent. Additionally I believe that ZipForms gives us a license to use the forms and it is not transferable. So I am thinking I am mixing the 2 issues up. in any case, if I gave a copy of a CAR contract to someone who used it, i would be breaking my license agreement at the very least.
- Bakersfield, CA · Member since 2016 · 378 posts · 307 votes8y
Let's just get a few things out of the way, because I see some statements that I disagree with:
1. Is the CAR purchase agreement is assignable? From what I understand, yes, both legally by it's own terms and in everyday practice. There is a specific paragraph in the standard CAR purchase agreement, as @Bryan Zuetel correctly stated, that provides that any assignment must be consented to by the seller via a separate written agreement. CAR even has their own assignment agreement you can include with the CAR purchase agreement, and this is what a escrow company generally needs to do an assignment. Some escrow companies prefer to use their own assignment form, and it's always signed by the seller because the escrow companies are used to the CAR purchase agreement that requires seller consent. The CAR purchase agreement is assignable, and CAR even has their own assignment agreement to do this. The assignment-friendly escrow companies I know of do assignment escrows all the time with these CAR forms.
2. Is wholesaling illegal in CA? As other lawyers have stated, it's complicated and it depends. You should consult with an attorney familiar with the legalities of wholesaling, what the B&P prohibits specifically, best practices, etc. There are certain practices that should keep you from being under the CBRE/DRE's radar and you should strictly follow them, but there are always risks no matter what. You want to reduce the risks as much as possible by using certain contractual terms in your agreement, being transparent to all parties about the assignment and what that means, how you structure the transaction, etc.
- San Diego, CA · Member since 2018 · 18 posts · 6 votes8y
It's not. Just double check your contracts with a lawyer or with your Escrow Company, and don't hide anything from anyone.
From the lender's perspective, wholesaling could trigger the due on sale provision of the note. Also, if the seller is in default , you could be subject to your transaction being viewed as a foreclosure consultant, which could require you to be licensed with the state, whether it's one transaction, eight transactions or a hundred.
- Medical Coding Consulting/Business Owner · Ellenwood, GA · Member since 2015 · 3 posts · 1 vote8yYoir father is correct
- Investor · Oakland, CA · Member since 2015 · 141 posts · 82 votes7y
From all I've read in this post and my research online Wholesaling in CA is LEGAL!!!
The caveat is what the contract states and in my mind above ALL ELSE what have you
said verbally ... how have you acted in your acquisition / performance as a wholesaler.
Have you acted in a manner that others thought you were a real estate agent or broker?
Have you unknowing given legal, financial, mortgage, tax advice? What does your business
card, website, answering service say? Have you covered all your bases. Do you have E&O?
If you don't know what that stands for .. you are in trouble!!!
Resource: Google wholesaling in California some lawyers give good advice as has some on
post.
- Member since 2019 · 3 posts · 1 vote7y
Hello,
Can anyone suggest any legitimate education material on wholesaling in its entirety. After reading all the above post I want to ensure I know all there is to know to protect me and as I start this business from scratch. I’m beginning to think it’s best to be licensed for the sake of grey areas.
Thanks in advance.
Carlise G.
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