I just got a pretty severe lecture from a house buyer. Trying to figure out this game and making your way as a wholesaler title companies etc are going to look at you like you've got two heads from time to time.
"People just don't do that," "Sounds like what some people did in the 70s & 80s" etc etc
(I didn't argue)
He did make a good point, however, and this leads to my questions.
1) Ultimately we ARE brokering transactions between sellers and buyers, are we completely protected by the contract language?
2) If I consult an end buyer to glean his/her expertise on numbers BEFORE I have the property under contract am I truly acting as a broker and am I doing something illegal? I mean at that point it can be argued that I'm negotiating on the end buyer's behalf.
Thanks for any feedback
You are not acting as a broker. Broker's get a contract to market and sell a property. When you get your offer accepted, you actually have an equitable interest in that property. As a wholesaler, you are assigning that interest to another party.
I hear you, thanks for feedback. But what about if I speak with a potential buyer about a soecific property BEFORE I have it under contract, am I operating unethically or breaking a rule if some sort?
You can talk to anyone about any property. No laws against talking.
Of course it can be illegal. Doesn't mean it is, that depends on what state laws actually say. But don't listen to people who say (Aaron hasn't, but someone likely will), "That LAW of CONTRACT!!!! Blah, blah, blah!!!! Can sell anything I OWN, no matter what the state says!!!"
Because that is nonsense. Absolute nonsense.
The fact that the common law of contracts allows you to sell something does not mean that other law cannot be superior. Under contract law, I have the right to sell you this handful of Oxy pills I own. Because I own them! They're mine! The state can't keep me from selling something I own!
But you know what? I actually don't have that right.
So, bottom line, you need to look into the law in the jurisdiction you are operating in.
Thanks for feedback. It still throws me a bit when people who have been in the business for so long say that you can't wholesale properties.
Interesting Q, as in CA our regs can be more pro-consumer than other states. Are you licensed as a RE agt/brkr? - Here's something of interest I found with a simple search of 'flipping' on the CA RE regulator's site...though it references short sales, 'wholesaling' and flipping scenarios may be of interest to you. - (imo, the answer to your Q, is that the devil is in the details, of your method/transaction
for CA, new Bureau of RE site: http://www.bre.ca.gov/
Thanks, I'll check that out
Most real estate agents will say wholesaling is illegal. I wish someone would post a case where a wholesaler was fine or went to jail for wholesaling.
"Can wholesaling be illegal?" - Yes, just as driving can be illegal, but Only if you break a law. In of itself, wholesaling, which more specifically would be contracting a property for purchase, then either assigning that contract or closing on it, becoming owner and reselling to another, is NOT illegal. Now, f you operate in some state and do something specifically that violates a law, then yes, it became illegal.
Thanks for asking this question because it has been something I have been thinking about. I have been getting into wholesaling and hope to get a few properties under my belt for experience as well as some liquid before flipping my first property. We just have to do our due diligence and make sure we are not doing anything that could get us in trouble.
Haha, absolutely Joe
People who say stuff like "I wish someone would post a case where a wholesaler was fine or went to jail for wholesaling" should do some looking themselves. You will find examples. Just look. Especially someone like Joe who makes statements about his investigating skills like "I have what I need at my finger's tips from the city to the federal level". Well... then post it and show us how smart you are. But I know you won't... because you can't.
What I think you will find, when you dig for it, is that agents have exposure and get hammered too. Agents/brokers know what is going on. Unless they are just stupid... then I guess they deserve what they get. Most brokers are not dummies, and when the seller feels like they are getting screwed, that's when the &#%! hits the fan. Example NC REC Disciplinary Action:
JRDR (Charlotte) – By Consent, the Commission suspended the broker license of JRDR for a period of three years effective DATE. The Commission found that JRDR acted as an agent in a transaction in which his client appointed him to act under the client’s power of attorney, and that prior to purchasing the property himself, the client entered into a contract for deed and sold the property to another buyer.
Wholesalers sell the property before they own it and make money off the deal, just like the "client" above. The broker enabled the transaction and loses his livelihood with a suspended license. And that's why the OP gets the comments he does. If you intend to sell the contract, you better let the owner know that you aren't buying squat. Licensed or not. Personally, I don't 'wholesale' (which for many in that business is really brokering), I only am making comments from what I observe as a disinterested third party.
Sidebar: BTW, licensed brokers in NC generally don't go to jail or get criminal convictions. The NCREC sits in between the legal system and the broker. Brokers can embezzle funds, commit felonies and misdemeanors and get away with it. See NCREC D13-0168 for a case in point. No jail time for licensed brokers. But, yes, the business and their licenses were shut down.
The reason I or anyone else cannot show the case law is because there is not one.
Originally posted by @Joe Gore:
... I wish someone would post a case where a wholesaler was fine or went to jail for wholesaling.
Here you go, Joe:
That link is from this other BP thread, but you're just too new to the forums Joe to know it was there:
The late Ryan Webber gets the credit for originally finding that link BTW.
@Chris Martin - now that you have the starting point, I think you are good enough to unearth some more on this one, just so you can show Joe how to do the research.
Thanks for the post and I hope Chris can show me how to do the research. I am new here I need all the help I can get.
as state it is bases on your state and state laws. wholesaling is illegal here in ohio! now with that being said i don't know anyone who has ever been punished for doing it. also earlier this month the ohio division of real estate published it is illegal because of XY and Z and they are going to start punishing people for it. again i haven't seen any punishments but it was published in ohios months real estate news letter from the division.
Im not the guy to comb through the details of the case but it seems the biggest problem was that the guy was in cahoots with appraisers to defraud banks. Dont poke the bear!
The article writer or his source(s) may or may not have gotten a little loose with the allegations since it appeared the investor had equitable interest in the properties.
I was thinking if they made it illegal for whatever reason (upset the average american is profiting?) a wholesaler could partner with his/her best buyer and be their aquisition person. The pay could be negotiated in a way to not hurt profits and if the wholesaler was getting squeezed he could just find a different buyer to work with.
Here in ohio they don't care what you call yourself if you are helping someone buy/sell a house and you make a profit its illegal unless your are licensed. again it is different based on every state and like i said earlier i have yet to see any get in trouble for doing so.
Take the time to read this thread on wholesaling. I've discussed the practice with the state of Ohio lead investigator. Wholesaling IS legal. However, do it right.
@Darrin Carey on page 6 of the states " division of real estate" they said
"Beware of seminars that provide instructions on wholesaling and option purchase contracts. Language included in these schemes include: “tying up the real property,” putting the house in contract until a buyer is found, and placing the home in contract for the purpose of re-selling the property. Despite what is being taught at these seminars, a real estate license is required to engage in these activities."
i understand you talk to someone last year but this was released this year and is up to date. So again it is illegal to practice wholesaling in the state of ohio. if you wish to read everything here is the link, http://www.com.ohio.gov/Documents/real_newsletterS... then go to page 6 paragraph 2.
The distinction is people trying to wholesale out of the gate and they do not have knowledge of anything.
So instead of seeking legal counsel local to them to make sure everything is set up correctly before proceeding they fly by the seat of their pants. In real estate when new agents get licensed there is a head broker watching over them and the new agents cans till screw up.
Imagine a new wholesaler that had just read a book or watched some video out there talking to buyers and sellers. That's where the danger is of practicing real estate activity that would fall in the realm of having to be licensed. The inexperienced wholesaler doesn't know where that line is to not cross over.
Yes wholesalers on BP have posted before with official correspondence from a real estate commission or other authority asking them to cease and desist activity that falls under license laws. So it is out there.
The whole point is if you set things up right and make the disclosures then you should come out okay.
No legal advice.
@Jeremy Davis I am also in OH. I am new and have yet to complete any deal. I am not disputing your statement that wholesaling is illegal in OH. I wonder, though, if you could direct me to the relevant ORC site. I have been unable to find it, and I think I am probably looking in the wrong place. Thanks for your help!
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!