Are you legally wholesaling?
Real Estate Broker · Willingboro, NJ · Member since 2016 · 12 posts · 10 votes
Are you legally wholesaling?
Most Popular Reply
Flipper/Rehabber · Greensboro, NC · Member since 2010 · 623 posts · 615 votes
8yYou're correct, there is a lot of confusion here on BiggerPockets about wholesaling and one of the main reasons is people use the wrong terminology which makes understanding impossible.
Just here, you're already talking about 2 very different types of transactions.
1. Wholesaling is legal in all 50 states. Wholesaling is a way to sell properties. You purchase (close on the purchase and go on title), do nothing or almost nothing to the property, mark it up and resell it typically very quickly.
2. Assigning or assignments is not legal in all 50 states. With an assignment, you put a property under contract and sell or "assign" the contract only. You never go on title or own the property (which is why it is not legal in every state), you are simply dealing with the purchase contract only.
And you can use any Purchase and Sales contract for wholesaling since it is a regular purchase and sale. You can get a much more abbreviated contract that many attorneys will create for you.
Not all contracts are assignable so check with your local attorney to see if they are in your state.
Good question and good luck!
35 Replies
- 8yRyan BlakePro MemberLender · TX · Member since 2018 · 936 posts · 713 votes
@Harry Walker Exactly! Most wholesalers do not close on the property and are selling their "interest" in the property while someone else still holds title. Sounds a whole lot like brokering a deal which requires a license in all 50 states. It is a very gray area that seems mostly illegal but is very very rarely prosecuted.
- Real Estate Broker · Willingboro, NJ · Member since 2016 · 12 posts · 10 votes8y
@Ryan Blake I just don't get it. What Guru came up with using the term "wholesaling" for "assigning a contract?" There's a very big difference & they're creating choas & havoc in the industry. A wholesaler purchases a property & sells it to a rehabber for a discount to fix & flip it (sell it for retail). If you only have equitable interest in the contract, which creates a contractual interest, then you can only market the contract that you have an interest in, smh...
I really wouldn't care, but when you have a homeowner losing their home because they're caught up in a contract with someone who has a clause that says the contract is subject-to finding an end buyer & gives them permission to market the property it's no different than a contract that's subject-to flipping 3 keys of coke & finding a cheaper distributer. It's frickin illegal & regardless of what you're contract says it can't break the law. I'm seeing too many people lose their homes because of the ignorance. I market to pre-foreclosures & sheriff sales btw...
Each state has a real estate commision that says what you need a license to do. Just because the "Guru" sold them a $50k class does not make what they're doing legal...
Ok, just had to get that off my chest. I was waiting for a "wholesaler" to tell me I didnt know what I was talking about, lol :-) - Flipper/Rehabber · Greensboro, NC · Member since 2010 · 623 posts · 615 votes8y
You're correct, there is a lot of confusion here on BiggerPockets about wholesaling and one of the main reasons is people use the wrong terminology which makes understanding impossible.
Just here, you're already talking about 2 very different types of transactions.
1. Wholesaling is legal in all 50 states. Wholesaling is a way to sell properties. You purchase (close on the purchase and go on title), do nothing or almost nothing to the property, mark it up and resell it typically very quickly.
2. Assigning or assignments is not legal in all 50 states. With an assignment, you put a property under contract and sell or "assign" the contract only. You never go on title or own the property (which is why it is not legal in every state), you are simply dealing with the purchase contract only.
And you can use any Purchase and Sales contract for wholesaling since it is a regular purchase and sale. You can get a much more abbreviated contract that many attorneys will create for you.
Not all contracts are assignable so check with your local attorney to see if they are in your state.
Good question and good luck!
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Karen Rittenhouse this is were the confusion comes in.. I think in Wisconsin you need a license to buy and resell.. I could be wrong but I have been told that.. I did not think you did either but I am pretty sure you do.
and in Oregon you don't need a real estate license but if your buying a property to resell IE your not owner occupy you for SURE need a developers license.. and to get one is simply a fee and you need a bond and insurance..
so we cannot make a blanket statement that its legal In all 50 states.. to buy then resell..
I know in Oregon its for sure true I have 3 separate developers licenses and have been fined twice to the tune of 6k for not having them.. it sucks and for sure 90% of the folks out there do not know they need one in Oregon but if you get caught first offense is 1k then second is 5k and any after that is more than 5k and can get you permanently banned..
- Flipper/Rehabber · Greensboro, NC · Member since 2010 · 623 posts · 615 votes8y
Thanks for this. What most laws say is that since you buy, close on the purchase and own it, you can do what you want with it. You CANNOT do this for someone else - in that case you are brokering and need a license.
But, as you and I both constantly point out, real estate is local and the most important thing to do is check with local attorneys to make sure what you want to do is legal in your state.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Karen Rittenhouse:
Thanks for this. What most laws say is that since you buy, close on the purchase and own it, you can do what you want with it. You CANNOT do this for someone else - in that case you are brokering and need a license.
But, as you and I both constantly point out, real estate is local and the most important thing to do is check with local attorneys to make sure what you want to do is legal in your state.
Correct …. its counter intuitive .. so I was like you thought hey I close on everything.. so I can resell.. but no not in this state..
So get this I get my first fine.. and I get a developers license for my personal LLC.. And its a few hundred bucks but you need a bond.. and to get a bond you need 700 plus fico generally and then you need insurance.. so it cost you over a grand to get this .. and not everyone is going to have the ability to get a bond right..
So then I have multiple projects going so for each housing subdivision I build and these are 25 to 35 home developments of 400 to 600k homes.. I am the owner and the developer.. but we put each community into a separate LLC for obvious reasons.. and my company that has the license is the co owner of the LLC.. So I figure since I have the developers license and am the managing owner I am good.
NOPE... that one cost me 5k.. the LLC that actually owns the asset needs to be licensed not just a member in the LLC.. ???
So now as stated I have 3 communities going and so I have 3 separate developers licenses.. 3 separate bonds 3 separate insurance policies. and I am closing on a big 90 lot project in December which will necessitate yet another set of licenses bonds and insurance..
So just the cost of doing business.. and the state does chase people down.. @Karen Margrave who you probably know from BP she ran into this in Oregon as well.. its quite confusing to those of us that came from CA like Karen and I and there you don't need a developers license.. but you need a Real estate license to make any kind of middle man fee.. same in Oregon.
I finally got tired of is this legal or not and sent in a copy of a direct E mail piece I got from a Quote un Quote wholesaler in Oregon that I knew was not licensed and did not own the property here is the response I got from the state.
State of Oregon - Real Estate Agency
Frances Hlawatsch | Financial Investigator
Best regards,
Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.
The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.
Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!
Hello Jay,
it copies and paste a little backward.. but by my sending this in and subsequent meetings with the state of Oregon investigators its clear that assigning contracts with no intention to buy IE its your business model and advertising in ANY manner a property you don't own is simply illegal in this state.. so this one generated an open case .. But then you have SNAP flip come to town and tell everyone its legal in all states blah blah blah.. so that's what the public runs with.
"
- Member since 2018 · 7 posts · 3 votes8y
There are usually a lot of attorneys and title companies involved in wholesaling....
I don't think all those professionals would risk their credentials if what they were participating in was illegal.
Like everyone said, look up your local laws as they are different in all 50 states but as long as you are following the language in the contract the seller has signed you should be fine.
If it says don't market, don't market, if it says no assignment, don't assign...if that's the case, get a new contract.
- Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes8y
@Jay Hinrichs In WI you dont need a license to buy, but you need a license to sell more than 3 in 5 years or 5 in 10 years. also the wording that could make wholesaling Brokering is "for a fee or something of value, and for another" now if a nonlicensed person wrote an offer as *** Buyer and or Assigns, they may sell the contract, however Intent plays a HUGE role. What will that buyer do if they cant find someone to buy the contract? well if they intend to and do close, all is well and right in the world, BUT if they went into the deal with no intent of closing if they didnt find a buyer for the contract, not that creates a Litigateable problem with the seller, and license law problem because they intend to collect a fee for the contract by marketing the home with out a license. they can argue "But im selling my contract not the house" well thats like saying im eating healthy because this Jelly filled doughnut has fruit in it, no one is buying that argument.
Originally posted by @Jay Hinrichs - 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
- MN · Member since 2018 · 6 posts · 0 votes8y
Andrea Souriyavong, Mn. Does anyone know what the laws are in mn for wholesalers?
- Real Estate Broker · Willingboro, NJ · Member since 2016 · 12 posts · 10 votes8y
****ALL REAL ESTATE IS GOVERNED BY THE STATE. IF YOU ARE GOING TO PRACTICE REAL ESTATE, CONTACT THAT STATE'S REAL ESTATE COMMISSION & SIMPLY ASK THEM WHAT YOU CAN & CAN'T DO****
Thanks @Jay Hinrichs I almost wet myself reading your SNAP flip comment. I hope every wholesaler especially newbies read your comment so I cyber yelled it in case they didnt read your entire post.
On another note, I never realized how much it differs from state to state. Guess it's time for me to start exploring different markets. - Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
@Karen Rittenhouse in most states you cannot market a property without a license. (For those who don't understand what constitutes marketing, it is as simple as calling someone on a buyers list. Marketing is any action to sell.) So theoretically you can close, then turn around and sell, but we know wholesales always market before closing. That is the only way a double closing would be possible.
The point is, it is difficult to prove anything illegal happened. Usually it is private communications. There also are not resources in most states to go after people for a low level crimes like this. Nor should it be a priority given the more serious things going on!
Nobody is going to wait to close on a home to start marketing it, so they find a way around the law (aka break it). I don't care, but let's all call a spade a spade. We have all rolled through a few stop signs in our lives, right?
- Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes8y
What a Broker is in Wisconsin:
(2)“Broker" means any person not excluded by sub. (3), who does any of the following:
(a) For another person, and for commission, money, or other thing of value, negotiates or offers or attempts to negotiate, whether directly or indirectly, a sale, exchange, purchase, or rental of, or the granting or acceptance of an option to sell, exchange, purchase, or rent, an interest or estate in real estate, a time share, or a business or its goodwill, inventory, or fixtures, whether or not the business includes real property.
(b) Is engaged wholly or in part in the business of selling or exchanging interests or estates in real estate or businesses, including businesses' goodwill, inventory, or fixtures, whether or not the business includes real property, to the extent that a pattern of sales or exchanges is established, whether or not the person owns the real estate or businesses. Five sales or exchanges in one year or 10 sales or exchanges in 5 years is presumptive evidence of a pattern of sales or exchanges.
(bm) For another person, and for commission, money, or other thing of value shows real estate or a business or its inventory or fixtures, whether or not the business includes real property, except that this paragraph does not include showing a property that is offered exclusively for rent.
(c) For another person, and for commission, money, or other thing of value, promotes the sale, exchange, purchase, option, rental, or leasing of real estate, a time share, or a business or its goodwill, inventory, or fixtures, whether or not the business includes real property. This paragraph does not apply to a person who only publishes or disseminates verbatim information provided by another person.
(d) Issues a written report of property value that is prepared for another person and that is not an appraisal, as defined in s. 458.01 (1).
https://docs.legis.wisconsin.gov/statutes/statutes/452
- Real Estate Broker · Willingboro, NJ · Member since 2016 · 12 posts · 10 votes8y
@Joe Splitrock I've more than rolled stop signs, lol. The problem comes in when someone rolls the stop sign & hit a deaf & blind kid that's in a wheelchair... I'm not sure if there are more wholesalers in the industry than there are real estate agents. "Wholesalers" don't have to go through the ethics, fiduciary & legal education that agents do, but they expect to make more money than agents because SNAP flip told them they could, lol. Hence as @Karen Rittenhouse reiterated, there's a distinct difference between 1. wholesaling a property that you own and 2. assigning the contract to a property that you do not own. SNAP flip never told them there was a difference so they just took what he said & ran with it. Hence the chaos we have in the industry right now. @Jay Hinrichs I'm sorry for stealing your Guru, but I almost wet my pants with your SNAP flip comment. I think we need to brand that & sell a course, lol!
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Joe Splitrock:
@Karen Rittenhouse in most states you cannot market a property without a license. (For those who don't understand what constitutes marketing, it is as simple as calling someone on a buyers list. Marketing is any action to sell.) So theoretically you can close, then turn around and sell, but we know wholesales always market before closing. That is the only way a double closing would be possible.
The point is, it is difficult to prove anything illegal happened. Usually it is private communications. There also are not resources in most states to go after people for a low level crimes like this. Nor should it be a priority given the more serious things going on!
Nobody is going to wait to close on a home to start marketing it, so they find a way around the law (aka break it). I don't care, but let's all call a spade a spade. We have all rolled through a few stop signs in our lives, right?
back in the day when I was really active in Jackson MS funding 5 different turn key operators there.. one of my vendors.. kept on putting properties on his website that he did not own.. he got in a fight with a buyer buyer realized it.. turned him in and he got a cease and desist and fine.. I then created a transactional product for him to legally take title then he put them on his website.. it worked great for a few years.. until we fell out of favor he went right back to his same method since he did not have me to fund his transactional.. side got caught again and this time it was very serious.. so even in little Mississippi if your turned in they will fine you and cease and desist you.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Harry Walker:
@Joe Splitrock I've more than rolled stop signs, lol. The problem comes in when someone rolls the stop sign & hit a deaf & blind kid that's in a wheelchair... I'm not sure if there are more wholesalers in the industry than there are real estate agents. "Wholesalers" don't have to go through the ethics, fiduciary & legal education that agents do, but they expect to make more money than agents because SNAP flip told them they could, lol. Hence as @Karen Rittenhouse reiterated, there's a distinct difference between 1. wholesaling a property that you own and 2. assigning the contract to a property that you do not own. SNAP flip never told them there was a difference so they just took what he said & ran with it. Hence the chaos we have in the industry right now. @Jay Hinrichs I'm sorry for stealing your Guru, but I almost wet my pants with your SNAP flip comment. I think we need to brand that & sell a course, lol!
there are many gurus who teach illegal wholesaling Snap flip just came to mind..
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
Originally posted by @Brian Adams:
There are usually a lot of attorneys and title companies involved in wholesaling....
I don't think all those professionals would risk their credentials if what they were participating in was illegal.
Like everyone said, look up your local laws as they are different in all 50 states but as long as you are following the language in the contract the seller has signed you should be fine.
If it says don't market, don't market, if it says no assignment, don't assign...if that's the case, get a new contract.
I can't imagine any attorney ever advising their client how to break the law without getting caught. That would never happen. All closing companies research buyers and sellers to make sure the entire transaction is following all laws. Just like if your accountant does your taxes, there is no way the IRS will ever audit you and find you out of compliance.
- 8yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
"but as long as you are following the language in the contract the seller has signed you should be fine. If it says don't market, don't market, if it says no assignment, don't assign...if that's the case, get a new contract."
The contract cannot give you the ability to do something that is illegal. The contract can say "Buyer may market until their hearts content and take out TV ads on this property". If you are unlicensed I would pretty much dare someone to take out a TV ad a property they don't own. I might take the day off work just to sit in the Department of State office when the ad ran without a Brokerage listed, phone number to the licensed brokerage listed. Just to watch the multitude of phone calls come in reporting it. While as a general rule it would take quite a bit for me to report something (I have not to this point) there are plenty of people who sit around just reporting silly things like "The font of the brokerage number is not as pronounced as the cell number" or "Doug is licensed as Douglas". I can't imagine a TV or Radio spot.
The contract between 2 parties cannot override regulations.
- Real Estate Broker · Willingboro, NJ · Member since 2016 · 12 posts · 10 votes8y
LOLOLOL. I thought SNAP flip was just a made up name, ROTFL!!!!!!!!!!!!!! I'm so out of touch!
- Member since 2018 · 7 posts · 3 votes8y
Originally posted by @Mike Cumbie:
"but as long as you are following the language in the contract the seller has signed you should be fine. If it says don't market, don't market, if it says no assignment, don't assign...if that's the case, get a new contract."
The contract cannot give you the ability to do something that is illegal. The contract can say "Buyer may market until their hearts content and take out TV ads on this property". If you are unlicensed I would pretty much dare someone to take out a TV ad a property they don't own. I might take the day off work just to sit in the Department of State office when the ad ran without a Brokerage listed, phone number to the licensed brokerage listed. Just to watch the multitude of phone calls come in reporting it. While as a general rule it would take quite a bit for me to report something (I have not to this point) there are plenty of people who sit around just reporting silly things like "The font of the brokerage number is not as pronounced as the cell number" or "Doug is licensed as Douglas". I can't imagine a TV or Radio spot.
The contract between 2 parties cannot override regulations.
Yes I agree, running a television commercial or radio ad for 1 wholesale property you have under contract wouldn't be the smartest idea...marketing something you don't own can definitely get you in trouble.
However, the original question in this thread is if wholesaling is illegal. If you sign a purchase and sale agreement with the intentions of buying the property, and another interested party offers you more money so that your contract can be assigned to them, you can do that with no problem because that is legal in my state.
- Real Estate Broker · Willingboro, NJ · Member since 2016 · 12 posts · 10 votes8y
Originally posted by @Brian Adams:
Originally posted by @Mike Cumbie:
"but as long as you are following the language in the contract the seller has signed you should be fine. If it says don't market, don't market, if it says no assignment, don't assign...if that's the case, get a new contract."
The contract cannot give you the ability to do something that is illegal. The contract can say "Buyer may market until their hearts content and take out TV ads on this property". If you are unlicensed I would pretty much dare someone to take out a TV ad a property they don't own. I might take the day off work just to sit in the Department of State office when the ad ran without a Brokerage listed, phone number to the licensed brokerage listed. Just to watch the multitude of phone calls come in reporting it. While as a general rule it would take quite a bit for me to report something (I have not to this point) there are plenty of people who sit around just reporting silly things like "The font of the brokerage number is not as pronounced as the cell number" or "Doug is licensed as Douglas". I can't imagine a TV or Radio spot.
The contract between 2 parties cannot override regulations.
Yes I agree, running a television commercial or radio ad for 1 wholesale property you have under contract wouldn't be the smartest idea...marketing something you don't own can definitely get you in trouble.
However, the original question in this thread is if wholesaling is illegal. If you sign a purchase and sale agreement with the intentions of buying the property, and another interested party offers you more money so that your contract can be assigned to them, you can do that with no problem because that is legal in my state.
Hey Brian, its not a question of if it's legal, wholesaling is definitely legal. It's a question of how to legally do it. If you have a contract & are marketing a contract, that's legal, atleast in NJ. If you have a contract & are marketing the property it's illegal in NJ and I would be pretty sure it is in most if not all other states. In NJ Title 45 Chapter 15 clearly states what actions require a license.
- Rental Property Investor · Cleveland, OH · Member since 2018 · 191 posts · 432 votes8y
Wholesaling to me is just a huge grey area. I don't see an issue wholesaling. I have actually bought from some and still do. They really bust their tail. But the realtors I know it annoys them.
- Attorney · Akron, OH · Member since 2016 · 535 posts · 389 votes8y
If you are in Ohio, I'd probably watch this: National REIA Interview with Ohio Department of Commerce Division of Real Estate
- Rental Property Investor · Fond Du Lac, WI · Member since 2016 · 215 posts · 136 votes8y
- Rental Property Investor · Cleveland, OH · Member since 2016 · 653 posts · 769 votes8y
I once went to a real estate meetup where the topic was legal issues of wholesaling and it was put on by a real estate attorney. It sounded like while wholesaling is legal, the majority of wholesale deals are done illegally in some capacity since there are so many gray areas, but most legal issues fly under the radar.
At some point, the speaker said "wholesaling is like murder. If you bury the body deep enough, you probably won't get caught." hahaha.
I'm not a wholesaler. Sounds like way too much work!
Join the conversationCreate a free account to reply, vote on answers and follow this thread.