Are there any unlicensed realtors/brokers in Ohio doing wholesale deals?I talked to a lawyer the other day about wholesaling, and I showed him a purchase and assignment contract, and he gave me the hammer.
Here is our discussion:
4735.01 Real estate broker definitions
As used in this chapter:
- a)“Real Estate broker” includes any person, partnership, association, limited liability company, limited liability partnership, or corporation, foreign or domestic, who for another, whether pursuant to power of attorney or otherwise, and who for a fee, commission, or other valuable considerations, or with the intention, or in the expectation, or upon the promise of receiving or collecting a fee, commission, or other valuable considerations does any of the following:
- 1)Sells, exchanges, purchases, rents, or leases, or negotiates the sale, exchange, purchase, rental, or leasing of any real estate;
- 2)offers, attempts, or agrees to negotiate the sale, exchange, purchase, rental, or leasing of any real estate;
- 3)lists, or offers, attempts, or agrees to list, of auctions, or offers, attempts, or agrees to auction, any real estate;
- 4)Buys or offers to buy, sells or offers to sell, or otherwise deals in options on real estate;
- 5)Operates, manages, or rents, or offers or attempts to operate, manage, or rent, other than as custodian, caretakers, or janitor, any building or portion of buildings to the public as tenants;
- 6)Advertises or holds self out as engaged in the business of selling, exchanging, purchasing, renting, or leasing real estate;
- 7)Directs or assists in the procuring of prospects or the negotiation of any transaction, other than mortgage financing, which does or is calculated to result in the sale, exchange, leasing, or renting of any real estate;
- 8)Is engaged in the business of charging an advance fee or contracting for collection of a fee in connection with any contract whereby the broker undertakes primarily to promote the sale, exchange, purchase, rental, or leasing of real estate through its listing in a publication issued primarily for such purpose, or for referral of information concerning such real estate to brokers, or both, except that this division does not apply to a publisher of listings or compilations of sales of real estate by their owners;
- 9)Collects rental information for purposes of referring prospective tenants to rental units or locations of such units and charges the prospective tenants a fee.
Therefore, I believe that if you engage in the actions we discussed, it may make you and/or your business an unlicensed real estate broker. There are actual criminal penalties that may be ascribed for being an unlicensed real estate broker in Ohio.The criminal penalty for such activity is a 1st degree misdemeanor and a $1,000 fine for each day during the violation.Just so you know the maximum jail sentence for a 1st degree misdemeanor is 180 days in jail.
The above is not inclusive of any civil penalties, if they ever arose. However, in my opinion, the risk of the potential grey area you may fall into by just trying to assign the contract rather than the real estate do not make it worth the risk. I suggest that you review the above-referenced statue and the Ohio Real Estate Commission’s website for further information. You may want to check out the Ohio Attorney General’s website as well.
As far as the blank purchase and sale, and assignment documents that you offered to me to review, I believe that they fall well short of containing the required state and federal disclosures and could potentially expose you to unwanted and unnecessary liability. Unless you really know what you are doing, obtaining blank forms form the internet is a very bad idea… especially those from another state.
Your lawyer is 100% correct.
what is an unlicensed Realtor? Is that the same as an unlicensed driver? Or an unlicensed lawyer?
Are there a lot of whoelsalers going to jail in Ohio for assigning contracts?
To be honest I haven't heard about any wholesalers going to jail in Ohio. But then again, I also don't know anyone personally who has done any wholesale deals in Ohio. I see signs of wholesaling on Craig's List in Ohio, and I can do a Google search and find Ohio wholesalers websites...
I guess I always heard that wholesaling is a good way to really get into real estate, and you can do it without a license, but after doing some research and talking to a lawyer, it sounds like it isn't a good idea in Ohio. My. Lawyer even said you can leave yourself open to a class action lawsuit too.
I would be interested to hear from an unlicensed realtor/broker from Ohio who is currently doing wholesale deals. Do the wholesalers have a licenses now?
I am interested in this topic as well. I want to start wholesaling in Cincinnati but I do not have my license. I am going to my first REIA meeting tonight so I will see if I can pick anyone's brain there about the topic.
@Cody Brownfield let us know how it goes.
In Ohio, it is my understanding that the current law does not allow for the assignment of real estate contracts or using your buyers funds to fund to the closing of the original A-B contract. In my experience, you are able to use transactional funding to fund the original A-B contract and then the same day or the next day, you may close on the B-C contract. At closing, your transactional funder will wired the amount loaned + their fee and you will be cut a check for the balance, thus complete your wholesale deal.
The transactional funder fee is anywhere between 2 - 3%. Not as painful as hardmoney.
I hope this information helps.
Cody do you need a real estate license in Ohio to wholesale?
While I do not profess to be a lawyer, when I read that section of the act I see a very important phrase "who for another". A broker or real estate agent is someone acting on behalf of another person or entity to help them in the process of buying or selling a house. There is only one price and one transaction. The agent then receives a commission or fee for their services of bringing the two parties together.
In my mind, a wholesaler is buying a property for themselves and then selling it at a higher price, making their money on the spread that they create in the two transactions.
I see them as two separate and distinct business deals.
Seller engages an agent to sell his house for 100K
The agent finds a buyer and brings them to the seller.
Buyer purchases the property from the seller for 100K
Seller pays the agent 6K for his services.
Wholesaler approaches a seller about the purchase of his property.
Seller agrees to sell it for 100K.
Wholesaler finds a buyer willing to pay 110K.
Wholesaler purchases the property for 100K and sells it to the buyer for 110K.
Profit from the deal 10K.
At no time in the exercise is the wholesaler representing anyone but themselves. That's probably why the A-B/B-C transaction is good to go.
Your Lawyer is correct. Don't you have a trusting friend that could partner with you and has their license? They could turn you on to more properties that are potentially more profitable and with a partner you could potentially turn more houses. Better safe than sorry, follow your gut and don't get greedy.
There was a real estate attorney speaking at the REIA meeting tonight. I didn't get a chance to ask her about wholesaling but I did pick up her business card so I will reach out to her tomorrow and see what she says.
I believe what @StephenFryer is saying, about that you are not representing anyone but yourself and that is the reason it is not illegal. I am also not an attorney but Realtor s follow a certain code of ethics that they have to abide by, since they are representing either a seller or a buyer in a very large investment. You as a wholesaler are a buyer "with out a Realtor" in the A-B and a seller B-C "with out a Realtor". People sell their own properties all the time and run them through a closing attorney with out having a Realtor to handle the EMD and the contract. You might also check out the closing part of your transactions. I have read some forums on BP that talk about how to handle a double closings in states where it is prohibited. Searching the topic here on BP may help you find ways around it. Also your local REIA and the attorney that spoke will surly help guide you.
@Stephen Fryer I believe you are correct. My understanding, at least in Texas, is that the act of putting earnest money (or an option fee) down on the property with an executed contract gives me a beneficial interest in the property, which allows me to do any of the things associated with wholesaling the property. Also, there is a difference between a commission or fee received for a service and a price paid for the sale of my beneficial interest in the property. We often refer to the profit as a "wholesale fee". However, the profit is actually proceeds from the sell of my beneficial interest in the property. That beneficial interest being the purchase or option contract I hold on the property. I'm selling the contract. I'm not being paid for a service I've rendered, as an agent or broker would be.
@Tom Noir The reference to "valuable consideration" goes back to the concept of performing a service for someone else. This clause speaks to the Broker receiving the valuable consideration in exchange for a service. It's an earned payment for a service.
Wholesaling, as long as you have a controllable, beneficial interest in the property is all about the sell of that beneficial interest. You may, in the grand scheme of things, be doing a service for both the seller and investor buyer. However, the reality, from a legal standpoint, is that you are simply selling your controllable, beneficial interest.
If, as a wholesaler, you are executing your wholesale transaction via an assignment of the contract you hold on the property, then you are selling your position as the accepted purchaser of that property. If you have an Option Contract on a property, and you assign that contract, then you are selling the right to purchase that property at a specific price. It's a sales transaction. There is no service being rendered.
Further, if you choose to exit a wholesale transaction with a double closing (aka...simultaneous close, double escrow, etc.), then there really isn't anything to talk about. In a double close, you technically buy the property - albeit you may only actually hold title for 10-min - then sell it to the investor buyer. You are free to do anything you want with a property you own.
I would recommend you talk to a real estate attorney experienced in working with investors.
@Tom Noir , @Hattie Dizmond.
Wow! What she said. don't think that I could ad anything more to that.
Is it possible that the lawyer you were dealing with got caught up in the detail of the activities in the subsections?
why not just get your RE license and not even worry about this? It will cost you $500 and some time, and you'll probably learn a thing or two in the process. Plus you can list those deals from motivated sellers who don't need to sell at a discount but are still willing to sell at reasonable market value - if you're generating leads anyway, why not maximize what you can do with them. iIt's no brainer to me.
having said that, lawyers are "worst case scenario" people. Your job as the entrepreneur is to decide whether to listen to them or not :D
Sorry for the delay but I did email Amy Higgins, Real Estate attorney in Cincinnati, about the legality of wholesaling on Ohio. Her response is below:
"Depends on whom you ask. The Ohio Department of Commerce seems to think so and has issued charges against wholesalers. But others argue they are in the business of selling contracts, not real estate, so it’s ok. To me, it just doesn’t smell right so I try to avoid working with wholesalers. It’s not worth it.
The key is in Ohio Revised Code Chapter 4735 (http://codes.ohio.gov/orc/4735), which requires a license to be a broker and then defines broker as –
(A)"Real estate broker" includes any person, partnership, association, limited liability company, limited liability partnership, or corporation, foreign or domestic, who for another, whether pursuant to a power of attorney or otherwise, and who for a fee, commission, or other valuable consideration, or with the intention, or in the expectation, or upon the promise of receiving or collecting a fee, commission, or other valuable consideration does any of the following:
(1)Sells, exchanges, purchases, rents, or leases, or negotiates the sale, exchange, purchase, rental, or leasing of any real estate;
(2)Offers, attempts, or agrees to negotiate the sale, exchange, purchase, rental, or leasing of any real estate;
(3)Lists, or offers, attempts, or agrees to list, or auctions, or offers, attempts, or agrees to auction, any real estate;
(4)Buys or offers to buy, sells or offers to sell, or otherwise deals in options on real estate;
(5)Operates, manages, or rents, or offers or attempts to operate, manage, or rent, other than as custodian, caretaker, or janitor, any building or portions of buildings to the public as tenants;
(6)Advertises or holds self out as engaged in the business of selling, exchanging, purchasing, renting, or leasing real estate;
(7)Directs or assists in the procuring of prospects or the negotiation of any transaction, other than mortgage financing, which does or is calculated to result in the sale, exchange, leasing, or renting of any real estate;
(8)Is engaged in the business of charging an advance fee or contracting for collection of a fee in connection with any contract whereby the broker undertakes primarily to promote the sale, exchange, purchase, rental, or leasing of real estate through its listing in a publication issued primarily for such purpose, or for referral of information concerning such real estate to brokers, or both, except that this division does not apply to a publisher of listings or compilations of sales of real estate by their owners;
(9)Collects rental information for purposes of referring prospective tenants to rental units or locations of such units and charges the prospective tenants a fee.
[N]o person, shall act as a real estate broker or real estate salesperson, or advertise or assume to act as such, without first being licensed as provided in this chapter.
TO ME – that bans wholesaling without a broker’s license. You have the advertise, market and list the house, even if you are only assigning the contract. You are dealing with unsophisticated buyers and sellers, who don’t know the difference between selling the contract and selling the house. These statutes are in place to protect those unsophisticated folks. So again, I think they apply and ban wholesaling without a license.
A lot of REIA folks disagree with me, however. Still, I wouldn't want to have to spend tens of thousands of dollars in legal fees, and associated headaches, defending myself against a Dept of Commerce charge (or other legal action) on something so iffy.
Good rule of thumb: If you feel like you are “getting around” something, or “pulling one over on the law,” you probably are not doing something legal."
Here's another attorney with a different conclusion, and case law to support it. http://www.legalwiz.com/license-to-wholesale-prope...
The question you have to ask, is "Who are you doing it for?"
Every realtor is going to say you need a license. Every wholesaler will say you don't.
The law in Ohio is a grey area, it is open to interpretation. If assigning is truly illegal then why do dozens of title companies in Columbus alone still do them for unlicensed individuals? Wouldn't they be at more risk and have more to lose then little old Mr or Mrs Wholesaler? How about a double close, you are actually BUYING the property, not facilitating a sale, regardless of what you do with it after you make the purchase. Agents and Brokers don't buy their listings then resell them.
Basically, if you don't feel comfortable wholesaling without a license, then get your license. Sitting in a class for 3 weeks is going to stink, but a small price to pay for peace of mind.
Forget it. i'll just get my license....
@Taryn Bell me too getting my license to be safe than sorry
This topic seems very controversial in the Buckeye site. Does anybody here in the BP community actually wholesale in Ohio without their real estate license? I've been getting set up to start wholesaling in Ohio but came across this thread and I have put the breaks on. Also, what about just partnering with a realtor? Any thoughts on it?
I am anxious to learn more about wholesale real estate. My understanding is that we are not allowed to sell real estate in Ohio without a license; yet I see a lot of people doing that here on bigger pockets.
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