Wholesaling - LEGALLY

27 Replies

I see a lot of responses on how most wholesalers are doing deals illegally and why it’s a bad idea.

I want to know from people who are actually wholesalers with good intentions.. what actions are you taking to stay on the right side of the law and why.

@Nicole Draper the only truly legal way to wholesale is to buy a property yourself, at a discount. Mark it up and resell it.

The assigning of contracts that everyone does is either illegal or in a legal grey area in most states.

Originally posted by @Nicole Draper :

@Caleb Heimsoth thank you. I am starting out with assignment of contracts with my realtor and want to make sure I am aware of any potential legal situations.

The legal pitfall of doing it that way is someone reporting you to the state licensure board and you getting fined. 

Originally posted by @Caleb Heimsoth :

@Nicole Draper did a lawyer tell you it’s legal? Who told you it’s legal? 

reality is that very few agents would allow their listings to get tied up by contract assignors that would mean they totally blew it on what the property was worth.. the only thing your doing is the exact job of what a REaltor does.  And listing agents will normally sniff out wholesalers pretty quickly.    we wholesale by closing on the property then re selling it.. simple as that. 

@Nicole Draper Definitely talk to an experienced RE attorney in your state. Theirs is the only opinion that matters.

My business is not focused on wholesaling, but I know several wholesalers and I will say this. I would never make a reckless claim that I know what "most" wholesalers, or agents, or anyone else are doing out there. Nor would I claim to say what was or was not legal without knowing what the laws are in every state, and how individuals are operating in all of those different operating environments. So, I don't. I know, and more importantly, some of the very best real estate attorneys in my state define a process that is 100% aligned with the law. The fact is that each state has different laws and defines legal contractual rights of all parties, etc. So, if an experienced real estate attorney in a specific state defines a process for their clients that allows them to "wholesale" or whatever you want to call it (contract assignment, specifically, is illegal in PA, so no one I know does that specifically), then unless something changes materially in my state and everyone I know is operating under those rules, then all of the noise out there there does not matter to me because I know that those who follow those processes provided by legal guidance are acting well within their legal rights. (Long sentence, I know. My dinner is getting cold.) Again, speak to an RE attorney in your state who has investigated the issue and let them lead you.

Originally posted by @Paolo Agostinelli :

@Nicole Draper Definitely talk to an experienced RE attorney in your state. Theirs is the only opinion that matters.

My business is not focused on wholesaling, but I know several wholesalers and I will say this. I would never make a reckless claim that I know what "most" wholesalers, or agents, or anyone else are doing out there. Nor would I claim to say what was or was not legal without knowing what the laws are in every state, and how individuals are operating in all of those different operating environments. So, I don't. I know, and more importantly, some of the very best real estate attorneys in my state define a process that is 100% aligned with the law. The fact is that each state has different laws and defines legal contractual rights of all parties, etc. So, if an experienced real estate attorney in a specific state defines a process for their clients that allows them to "wholesale" or whatever you want to call it (contract assignment, specifically, is illegal in PA, so no one I know does that specifically), then unless something changes materially in my state and everyone I know is operating under those rules, then all of the noise out there there does not matter to me because I know that those who follow those processes provided by legal guidance are acting well within their legal rights. (Long sentence, I know. My dinner is getting cold.) Again, speak to an RE attorney in your state who has investigated the issue and let them lead you.

Actually the ONLY one to listen to is the state regulator I asked this question in Oregon and here is my answer

Hello Jay,

Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!

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 again for the information, if I have further questions for you during the investigation I will certainly reach out.

Best regards,

Frances Hlawatsch | Financial Investigator

State of Oregon - Real Estate Agency

Originally posted by @Paolo Agostinelli :

@Nicole Draper Definitely talk to an experienced RE attorney in your state. Theirs is the only opinion that matters.

My business is not focused on wholesaling, but I know several wholesalers and I will say this. I would never make a reckless claim that I know what "most" wholesalers, or agents, or anyone else are doing out there. Nor would I claim to say what was or was not legal without knowing what the laws are in every state, and how individuals are operating in all of those different operating environments. So, I don't. I know, and more importantly, some of the very best real estate attorneys in my state define a process that is 100% aligned with the law. The fact is that each state has different laws and defines legal contractual rights of all parties, etc. So, if an experienced real estate attorney in a specific state defines a process for their clients that allows them to "wholesale" or whatever you want to call it (contract assignment, specifically, is illegal in PA, so no one I know does that specifically), then unless something changes materially in my state and everyone I know is operating under those rules, then all of the noise out there there does not matter to me because I know that those who follow those processes provided by legal guidance are acting well within their legal rights. (Long sentence, I know. My dinner is getting cold.) Again, speak to an RE attorney in your state who has investigated the issue and let them lead you.

and the state regulators are FREE  no need to blow thousands with an attorney giving HIS or her version of the law.. keep in mind law is malleable. if the state wants to go after you.. your attorney is going to cost big bucks to keep you out of trouble.. I got into it with Oregon after my attorney said what we did was perfectly legal.. of course he wanted 100k to take us to Law court to argue the fine lines.. you cant win if the state says no dice no matter what an attorney would advise or their interpolation of the law.

@Nicole Draper You become a licensed dealer.

In my state (OR) it's $542.00 and an application. If approved and paid you get the dealers license and your good to go you can advertise and sell as many homes as you wish. Just keep good records.

I should add that I do this with manufactured homes which are personal property and there is likely different rules for brick and mortar homes 🤘🤑 Happy investing. I'm Not an attorney and that's not advice it's just my experience. 🤦‍♂️🤷

Originally posted by @Ben Naught :

@Nicole Draper You become a licensed dealer.

In my state (OR) it's $542.00 and an application. If approved and paid you get the dealers license and your good to go you can advertise and sell as many homes as you wish. Just keep good records.

I should add that I do this with manufactured homes which are personal property and there is likely different rules for brick and mortar homes 🤘🤑 Happy investing. I'm Not an attorney and that's not advice it's just my experience. 🤦‍♂️🤷

U don't need a real estate license to become a licensed dealer ????  so your just selling homes in parks ?  once its affixed to the land its real property and that would require a license correct. ?   Nice niche !!!  roseburg is a nice area.. my aviation partner built the subidivsion up on the hill due east of town just north of the airport and above the new box stores.. we used to fly into there a lot.. I think he still has his hanger.. sure 45 minute flight sure beats the 3 plus hour drive from PDX>. 

@Jay Hinrichs

That's correct, oh very cool! I love the Roseburg area it is stunningly beautiful. I have actually just today moved back toy home market of the Yakima valley Washington wine county area !

Very excited to start new Investments here and be with my family full time.

Originally posted by @Jay Hinrichs :
Originally posted by @Ben Naught:

@Nicole Draper You become a licensed dealer.

In my state (OR) it's $542.00 and an application. If approved and paid you get the dealers license and your good to go you can advertise and sell as many homes as you wish. Just keep good records.

I should add that I do this with manufactured homes which are personal property and there is likely different rules for brick and mortar homes 🤘🤑 Happy investing. I'm Not an attorney and that's not advice it's just my experience. 🤦‍♂️🤷

U don't need a real estate license to become a licensed dealer ????  so your just selling homes in parks ?  once its affixed to the land its real property and that would require a license correct. ?   Nice niche !!!  roseburg is a nice area.. my aviation partner built the subidivsion up on the hill due east of town just north of the airport and above the new box stores.. we used to fly into there a lot.. I think he still has his hanger.. sure 45 minute flight sure beats the 3 plus hour drive from PDX>. 

 Definitions can vary -- you can be both a first time homebuyer, and not a first time homebuyer, at the same time, depending on if you are asking the IRS or the mortgage industry. Pizza tomato sauce is a vegetable, and not a vegetable, depending on if you are asking a nutritionist or the US judicial system. And so on.

With that said, permanently affixed to land is almost there, but not quite, for the mortgage industry definition. It's got to be affixed to the land, and the person who owns the structure must also own that land, for our purposes.

@Nicole Draper ,

If you want to learn about what is legal or not in wholesaling, talk to local people in your market, a local attorney or lawyer, and other wholesalers who are actually doing this.

Laws vary from state to state. Also, while it can certainly be legal, and usually is, it can also be done illegally - just like driving.

@Nicole Draper As others have said, the best way to wholesale is to buy the properties yourself and then resell them at a higher price. Most people getting started in wholesaling dont have the capital to wholesale this way.

You said you were planning on using a real estate agent. Im not quite sure why you are doing that. Wholesalers dont need agents in order to wholesale....

As for the legality of wholesaling, well thats a murky issue. Every state has laws on the books that are archaic or outdated that no one does anything about or bothers to enforce. Some states have written laws targeted specifically at wholesalers. Ohio is a great example and I believe I read about Illinois recently. In some states its legal, TX for example doesnt have a law prohibiting wholesaling but they did recently pass a law that defines how wholesale contracts can or cannot be marketed.

You should definitely consult with the real estate commission in your state and learn what your specific state laws are. I would also suggest speaking with other wholesalers in your area and ask them what they do to be compliant with the laws. Hope this helps!

Currently, the Illinois Real Estate License Act of 2000 does not require an investor to have a license to wholesale real estate. However, the Real Estate License Act is due to sunset at the end of 2019. Lawmakers are proposing amendments and the Governor is said to sign the bill.

One of the proposed amendments applies directly to wholesaling as a business practice. Section 1-10 may see an amendment to the definition of “broker” to include the practice of “wholesaling” if practiced as a business model. The business practice of wholesaling will change under the enforcement provisions of the Real Estate License Act. The bill will likely require wholesalers to need a real estate broker’s license and be subject to consumer protect provisions.

Some people believe that wholesalers are acting as brokers in a deal without being licensed and therefore are doing an illegal activity. However, others defend the practice claiming that they are not selling property, but rather selling the ownership of a real estate contract. In Illinois, wholesale real estate is a legal profession, but there is a fine line between illegal real estate transaction. A good wholesaler will know their local rules and regulations in the profession.



Some people believe that wholesalers are acting as brokers in a deal without being licensed and therefore are doing an illegal activity. However, others defend the practice claiming that they are not selling property, but rather selling the ownership of a real estate contract. In Illinois, wholesale real estate is a legal profession, but there is a fine line between illegal real estate transaction. A good wholesaler will know their local rules and regulations in the profession.

Updated over 2 years ago

Just a few weeks ago, he governor has passed the act that now requires Illinois to be licensed to do wholesales if they perform more than 2 per year. So, under the legislative update, higher-volume wholesalers should expect to procure a license.

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