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
7yYou'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
- 7yPeter TverdovBusiness MemberDeveloper · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
If we're being honest it's a scummy way to make money. I don't trust any of them and YES, it's illegal in NJ. Get your realtor license and stop trying to rob stupid people looking to break into real estate investing.
- Property Manager · NJ · Member since 2017 · 786 posts · 396 votes7y
@Harry Walker I don't want to go of on a rant here but modern day wholesaling (which is typically nothing more than assigning a contract) appears to have morphed into the new get rich quick plan for many or its the new way to get started in Real Estate with "no money down" so many people that I come in contact with and who on occasion attend my meetups want to use wholesaling as a way to get the capital needed for their first property. If people were wholesaling the way they should (buy the property below market value and sell it for a profit) I wouldn't take issue with the practice. The problem is because so many people involved in these transactions are taking shortcuts there are a ton of issues that i've seen from people disappearing with buyers deposits to people trying to sell wholesale "deals" that they pull off of Zillow (after adding a $10k fee of course). Dealing with wholesalers these days is touch and go as you never know what you're going to get when walking into a deal with one of them. REI is like anything else in life IMO there are no magic pills & no shortcuts there is success to be had and wealth to be built but it typically doesn't happen overnight and isn't sold at a conference or on an infomercial for $99.95.
- Real Estate Agent · Belmar, NJ · Member since 2017 · 370 posts · 200 votes7y
@Harry Walker I'm just curious when you say it is legal to market your contract (for me I think options contract on a stock as a similar example) versus the actual property. I'm reading that as If I had a buyers list and marketed a contract for my fee that would be legal versus marketing the actual property even though I have the right to close on that property via my contract.
Would also be curious to hear what other NJ based attorney's think.
- Flipper/Rehabber · Ho-Ho-Kus, NJ · Member since 2017 · 42 posts · 16 votes7y
THIS MAY NOT BE RELIED UPON AS LEGAL ADVICE.
@Cody Z. NJ attorney here. (Disclaimer: I am an attorney, but I am not YOUR attorney. This is not legal advice.) I think the issues boils down to: (a) what is the individual's relationship to the property, and (b) what exactly is the individual marketing for sale?
First let's cover the two black and white scenarios, then we will get to the gray area:
Scenario 1. If an individual owns a property, they have an absolute right to market that property for sale without the involvement of a licensed real estate broker (i.e., "For Sale By Owner").
Scenario 2. If an individual does not own the property, they may not market someone else's property for sale unless they are a licensed real estate broker.
Now the "gray" area of wholesaling:
Scenario 3. If a wholesaler (who is not, also, a licensed real estate broker) has a property under contract, they may (arguably) market for sale their contract (i.e., their right to buy the property upon certain terms), but they may not market the "property" for sale, generally.
The nuance exists in what the wholesaler owns (a contractual right to buy vs. the actual property) and what they are marketing for sale (the contractual right to buy vs. the actual property).
It's a fine line.
THIS MAY NOT BE RELIED UPON AS LEGAL ADVICE.
- Flipper/Rehabber · Ho-Ho-Kus, NJ · Member since 2017 · 42 posts · 16 votes7y
On a humorous note, and I hope everyone can take this comment with the playful jest it is intended...
As a licensed attorney I always chuckle when licensed real estate brokers get bent out of shape about wholesalers brokering real estate without a license. This is a bit of the proverbial "pot calling the kettle black." Ask any NJ attorney and they will tell you that it is real estate brokers that are the ones practicing law without a license (in preparing contracts of sale)! It's true! Look it up. In 1982, the NJ State Bar Association sued the NJ Association of Realtors. It went all the way to the NJ Supreme Court. The Court held that, in fact, the realtors were engaged in the unlicensed practice of law by preparing real estate contracts. A special accommodation was reached to allow NJ realtors to prepare these contract, but only if they parties had a right to have the contract reviewed by a licensed attorney. That's why every standard form real estate contract in NJ includes a three day attorney review period.
- Attorney, CPA, Broker & Author · Scottsdale, AZ · Member since 2018 · 532 posts · 488 votes7y
@Ryan H. Arizona had something similar to NJ back in 1961, except the lawyers ultimately lost big time.
The AZ Supreme Court ruled that such work constituted the "practice of law" and was therefore illegal (State Bar of Arizona v. Arizona Land Title & Trust Co.). The realtors mounted a campaign, vigorously opposed by the state bar, to overturn that decision by amending Arizona’s constitution. The public voted in favor of the amendment by almost four to one.
That's why, in Arizona, many transactions (especially residential ones), do NOT have a lawyer involved.
It boggles my mind that someone will make what might be the largest purchase they've ever made in their life without having a lawyer look things over. 99% of the time things work out fine, but that 1% of the time is when I usually get the call (and it might be too late by then) ...
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Ryan H.:
On a humorous note, and I hope everyone can take this comment with the playful jest it is intended...
As a licensed attorney I always chuckle when licensed real estate brokers get bent out of shape about wholesalers brokering real estate without a license. This is a bit of the proverbial "pot calling the kettle black." Ask any NJ attorney and they will tell you that it is real estate brokers that are the ones practicing law without a license (in preparing contracts of sale)! It's true! Look it up. In 1982, the NJ State Bar Association sued the NJ Association of Realtors. It went all the way to the NJ Supreme Court. The Court held that, in fact, the realtors were engaged in the unlicensed practice of law by preparing real estate contracts. A special accommodation was reached to allow NJ realtors to prepare these contract, but only if they parties had a right to have the contract reviewed by a licensed attorney. That's why every standard form real estate contract in NJ includes a three day attorney review period.
Hey this is great info I was always wondering about that clause .. and well real estate is just so regional.. as you know west coast are not attorney closing states.. so really we never deal with them with vanilla real estate closings.. Full charge escrow officer and a title officer keep you out of trouble .. and realtors are suppose to know the line between broker and practicing law.. there are not enough lawyers on our coast to take care of the massive volume of real estate transactions ala the way its done in attorney closing states.. there would be a big need to scale up if all of a sudden attorneys had to be involved not to mention slow things way down..
the other one that we simply don't do out our way is all the surveying that gets done.. its rare to the extreme to survey a property that was in a lot and block subdivision … but since I build in Charleston you MUST survey there there are encroachments all over the place. but like in Texas they survey lot and block as well. I guess just because it customary.. same thing though there would not be near enough surveyors to handle the thousands of transactions in the resi space.. I get it on rural lands large commercial that wants alta policies etc.
However back to is wholesaling legal in some states.. I got fed up with this argument so I sent in a email solicitation I got from a wholesaler to my department of real estate .. here is there response.
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,
Copy and paste goes backwards :) but you get the gist.. its simply not legal to advertise a property you don't own in our state. At least the way 99% of wholesalers go about it.. you must close first then resell.. and in our states no title company will do an A to B to C using end buyers funds to close the deal and cutting a check for the delta to the middle man ( wholesaler)… so anyway.. like she says its like speeding it just depends if you get caught..
- Specialist · San Antonio, TX · Member since 2012 · 865 posts · 351 votes7y
I get emails from one group that tells about the subject property and makes it clear that they are selling thier interest only and it’s an assignment of contract. Most seasoned investors have assigned a contract a time or two even if it was not their business model. I have personally assigned some of my contracts, but it wasn’t and is not my business model today. I have also bought a contract from another investor that had a property he contracted sub2 the underlying loan. I am a buy and hold investor, so any wholesalers that gets a subject 2 deal assign it to me not the crybabies. ;)
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