I'm very interested in starting a part-time wholesaling operation in D.C., but I have some questions to pose to experienced wholesalers and investors in the area.
I've read about how Ohio and some other states are cracking down on wholesalers, claiming that they're acting as a real estate broker without a license.
Many states seem to define "real estate broker" just like D.C. does: D.C. Code 47-2853.161 defines it as someone who "for a fee, commission, or other valuable consideration, lists for sale, or sells, exchanges, purchases, rents, or leases property."
Now, there are about 10 different ways to interpret most statutes, and there do not seem to be any judicial decisions on this statute that would offer any guidance as to whether a wholesaler constitutes a "real estate broker." So, until this issue is actually litigated, whether or not wholesaling is currently illegal in D.C. basically depends on how the D.C. Real Estate Commission chooses to treat it.
I'm not going to start a wholesaling business if there is any significant chance that it is, or in the near future may become, illegal. My questions are: Does anyone know if the D.C. Real Estate Commission has taken a stance on wholesaling? If so, do they actually take action against wholesalers? Have any wholesalers on here run into any legal issues with the D.C. Real Estate Commission?
@Kasey Nordeen :
Do you want to be the wholesaler that finds out? If you think you're doing something illegal, you probably are. Get on title and sell for a profit.
If you contact the real estate commission they will likely give you an answer. I'd at about twice a year I seek guidance from the commission on issues and they are always happy to answer.
@Kasey Nordeen I don't know what a Wholesaler calls the money they collect on a Wholesale transaction, a Fee, a Commission, Finders Fee, Facilitation Fee? Whatever it's called the DC Code seems to have covered all options by using the language "or other valuable consideration" Unless you're doing it for free there is some form of value being obtained by the Wholesaler period.
You can contact the Real Estate Commission as recommended by @Russell Brazil , with my experience with contract law the language stating "valuable consideration" would be what DC would most likely argue as the violation in a legal matter.
Even with the code in place I will say that I've encountered many Wholesaler trying to conduct transaction in DC, I'm assuming the code enforcement just hasn't caught up to the illegal practice taking place.
Instead of Wholesaling maybe you can propose an enforcement arm to the RE Commission to shut down the illegal Wholesaling and make money that way.
Thank you both for the feedback, I'll take it into consideration.
In regard to proposing that wholesaling be shut down, it seems that the statute is written so broadly that that just listing your own property for sale on craigslist could constitute "brokering" real estate, but I doubt anyone would argue that a license would be required in that scenario--so I don't think that the statute unambiguously requires wholesalers to have a license. Regardless of whether I get into the business, I think that wholesalers who operate ethically provide a valuable service that benefits both sellers and investors, and I think it would be a shame if the commission tried to stop the practice here.
I would say the only way to be safe would be to do a double close until you find out for sure, or check out the laws in Maryland and Virginia as a possible alternative to paying the closing cost of a deal that has a double closing.
@Wendell Raboteau I appreciate the input, that's actually what I was thinking.
Wholesaling (done correctly) is NOT acting as a broker/agent, whereas Bird Dogging (generally) IS, and here's why...
1) When done correctly, as a wholesaler yo are actually stepping into the path of the transaction by putting the property under contract. When you put the property under contract to become the "Contract purchaser" and therefore you have certain rights (which bird dogs do not), such as the right to assign or sell your contract, even before you close. This right is protected by the U.S. Constitution. Specifically, the right to own property. Even though you don't (yet) have title, the contract itself has value. If I remember my Contract law class correctly, every contract had the inherent right if assignment, unless the contract itself stipulates that it can not be assigned. Even aboard of Realtor contracts (agreements) do not prohibit assignment. They (almost) all say that assignment must be by mutual (written) consent, but there is rarely an absolute prohibition. Doubtful that any efforts by the state of Ohio (or others) would withstand a court challenge, IF, the intent is to prohibit the assignment if contracts. Therefore, it's important that if you are truly acting as a Wholesaler that you place yourself, or entity, in the path of the transaction and be prepared to honor the contract (what ever it says) including buying the property, if you can't find a buyer, or you don't have a valid (written into the signed contract) "Out" clause.
2) Bird Dogs (or Scouts) are a totally different matter. As a Bird Dog you have "no skin in the game". Your not in the path of the transaction, you are merely an observer, or facilitator. You are truly making money (a fee) by simply passing on information, or putting two parties together, because you have NOT actually placed the property under agreement with the seller. YES! Almost every state has its own definition of "brokerage activities" and in almost every case, Bird dogs are doing the exact same things real estate brokers (and their agents) do. So, pretty much every Bird dog is acting like an agent without a license, unless of course they go and get one. Every state (and DC) looks at this differently, depending upon how strong the state Board of Realtors® Is. In DC, you can generally get away with it (for a limited number of transactions) because of the "Peggy Cooper Cafritz" law, but in Virginia, when you get caught (3 times) it's a class 6 felony and a $3,000 fine.
It's important to know whether or not you are actually a Bird Dog, or Wholesaler, not by heat you call yourself, but by what you are actually doing. One requires a real estate license in almost every state (Bird Dog) and the other (Wholesaler) does not.
P.s. Although I went to law school, I'm not a lawyer, nor do I pretend to be one, but I am a licensed Broker (licensed for 30+ years) and I'm pretty confident of what I've shared in this issue...
@Sherman Ragland That's really helpful, thanks for the input. I think the Ohio real estate commission's position is that, if you sign the sale contract with the intent to assign it from the onset, with no intention of actually purchasing the property yourself, then the contract is not valid and you don't actually acquire any interest in the property at that point. However, like you mentioned, I'm not sure that position would hold up in court.
Glad I'm not in Ohio ;-)
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