Are wholesalers unlicensed brokers?
Houston, TX · Member since 2014 · 100 posts · 20 votes
Are wholesalers unlicensed brokers?
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Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
11yWith apologies to both Jay & James, both of whom I respect tremendously, I disagree in theory.
The unscrupulous wholesalers who are trying to wholesale MLS listed properties...yes, they are essentially acting as an unlicensed broker. They are NOT true wholesalers.
A real wholesaler is finding properties not listed on any MLS. They are negotiating sales prices. They are placing a sales contract on the property to lock in the negotiated price and then - in most cases - selling their right/option to buy the property at that price to someone else. They are not receiving a commission for the sale of the property. That would make them a broker. They are selling their contact. It's the same thing you do when you exchange stock options without purchasing the stock.
None of the things I described above constitutes what a broker or realtor does.
Wholesalers get a really bad wrap, because there are a lot of them who don't know what they are doing and/or don't do what they are doing ethically. I will say again, you can't wholesale an MLS listed property. By definition, that property is already listed for retail sale. If a wholesaler offers me a property that turns up with an active MLS listing, when I type the address in, it will be the last deal from them I ever bother looking at.
56 Replies
- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes11y
Originally posted by @Bill Gulley:
Instead of debating the legality of wholesaling with non-qualified legal scholars on the internet, call your state real estate regulator. Explain what you want to do, tell them it is a business venture, not just a one time thing. Most of you won't make that call because you fear the answer won't be what you want to hear, that should tell you something. :)
Exactly. I suggested this once, and you should have seen the reaction from even some of the respectable and active posters. "That's not funny, don't tell him to do that!!!"
Well, why not? In my day job I operate in a regulated industry, we seek advisory opinions all the time. The only difference is that we have a good faith basis for believing our interpretation of the regulation may be correct, and will abide by the commission's ruling if we are wrong.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes11y
No, Brent, I really don't believe so, I can show the RE transactions I have been involved in, there is no pattern of wholesaling as a business venture or promoting wholesale functions, I doubt if the MO Dept of RE would say anything about one contract in a year or 2 years, they would say something if I had 3,4 or 5+ wholesale deals in a year, that is actively engaged in the practice. My license is expired, I'm retired as well, there are other issues they might well look at. My experience, education, was the deal at the disadvantage of others, was anyone harmed anyone suffer a loss, did I advertise the contract or the property, was I involved in settlement or did I act in having the transaction closed, did I show the property by myself?????? All Nos. I made some phone calls to people I knew.
The seller also knew I may not buy from the very begging. They showed the property. What I was doing did not follow the wholesaling gig advocated by those doing it as a business.
Regulators can be very helpful, if you let them, they will not show their teeth as much if they think you're trying to do the right thing, if they think you are trying to out fox them, watch out! :)
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
it absolutely goes to intent and business practice's and a body of work.
If someone is doing unlicesend activity the regulators are going to look for how many, how often, advertising to the public,, etc etc...
they call it a Scheme
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes11y
@Bill Gulley, thanks for those helpful replies. Hopefully your responses will get wide readership, especially among those trying to start out in the biz. Cheers...
- Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes11y
The issue, as I see is that those who are starting are looking for a way to make money by controlling an opportunity without ever owning it.
That in itself is not a problem. There are many ways to control the benefits of real estate by controlling the asset, the equity or possession contractually.
What is problematic is that there are all different levels of experience, skills and performance ability for what is largely an unregulated practice in most states.
One of my close friends is a well-known wholesaler. He has refined his system because of many years of experience and experimentation. He doesn't need the money however he gets to stay active in his primary market and keep his thumb on the pulse of local economy. However, I'm certain he made plenty of mistakes along the way.
To a seller (principal) they usually don't really know if the end buyer will be the person they have contracted with as buyer and only presume (and pray) they will perform as promised.
Unlike my friend Mike, most wholesalers that I see have little ability to perform and close the acquisition. They has no fiduciary duty, only contractual responsibility. There's little risk to the wholesaler while the seller may have lost months hs of valuable market time and holding costs.
I'm not in favor of outlawing go wholesaling activity in CA however I'm ok with heavy penalties for those that abuse others while trying to flip contracts.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @James DeRoest:
Originally posted by @Hattie Dizmond:
A real wholesaler is finding properties not listed on any MLS. They are negotiating sales prices. They are placing a sales contract on the property to lock in the negotiated price and then - in most cases - selling their right/option to buy the property at that price to someone else. They are not receiving a commission for the sale of the property.
There you are - the word "negotiating".
Once you negotiate anything (or at least in the many states mentioned in previous threads), you are brokering a deal.
All the state statutues I'm reading, although they are defining "commission" they are also defining any sort of reward in the function of a sale of a property as being covered under brokering.
Check your state code. Negotiating for the purchase of real property does not require a license and does not constitute brokering. It's the middleman part and the bringing together of the seller and the buyer that's considered brokering and where wholesalers can go wrong.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Rick H.:
I'm not in favor of outlawing go wholesaling activity in CA however I'm ok with heavy penalties for those that abuse others while trying to flip contracts.
Pretty sure you and I are on the same page about not outlawing something as basic as negotiating to buy or control property and then selling or assigning our contractual rights. But the tying up of property with tiny EMDs, without regard for the seller and their situation (pending tax sale, foreclosure, immediate financial need, etc) seems to have become more common place. Not sure how law makers or regulators could penalize supposed wholesale buyers more than they penalize any other buyer that fails to perform. The penalty for failure to perform is in the contract and is usually limited to earnest money. A seller requiring a sizable EM deposit into escrow would eliminate about 90% of the shenanigans out there.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes11y
The reality is people with no money see wholesaling as a way to make a quick buck.
Heck even getting licensed you have to go through a school and pass a test and then take a state test to pass. Then you have to find a broker and pay dues. So it does cost money and skin in the game to get going.
Do not count on your local real estate commission giving you a legal opinion on anything. They avoid it like the plague! lol
If it is not defined 100% their answer from everything I have seen is NO. The commissions will error on the side of caution every time to CYA themselves.
Let's play out a hypothetical situation. Wholesaler goes out and does a bunch of deals. Doesn't know if it is legal and confused. Makes 60k in fees before the commission deems them to be in violation. They slap them with a 500 dollar or 1,000 fine and say do not do it again. Was it worth it to the wholesaler?? Many would say YES. Just like illegal oil, chemical dumping in the oceans. Until laws were passed where the penalty exceeded the potential savings or money made then people and companies kept doing it.
Some people making money say it is much easier to ask for forgiveness then ask for permission to do something.
- Wholesaler · Port Richey, FL · Member since 2013 · 76 posts · 40 votes11y
If a contract is not 'equitable interest,' then an 'option' isn't either but lease option or lease purchase your house to a buyer and try to 'evict' them without a formal foreclosure in Florida, and watch how fast that story changes and suddenly the tenant has 'equitable interest.'
- Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes11y
Originally posted by @Joel Owens:
The reality is people with no money see wholesaling as a way to make a quick buck.
Heck even getting licensed you have to go through a school and pass a test and then take a state test to pass. Then you have to find a broker and pay dues. So it does cost money and skin in the game to get going.
Do not count on your local real estate commission giving you a legal opinion on anything. They avoid it like the plague! lol
If it is not defined 100% their answer from everything I have seen is NO. The commissions will error on the side of caution every time to CYA themselves.
Let's play out a hypothetical situation. Wholesaler goes out and does a bunch of deals. Doesn't know if it is legal and confused. Makes 60k in fees before the commission deems them to be in violation. They slap them with a 500 dollar or 1,000 fine and say do not do it again. Was it worth it to the wholesaler?? Many would say YES. Just like illegal oil, chemical dumping in the oceans. Until laws were passed where the penalty exceeded the potential savings or money made then people and companies kept doing it.
Some people making money say it is much easier to ask for forgiveness then ask for permission to do something.
From what I know for certain, OH, FL and CA require you to have a license to market for sale any property you do not have legal title to, including assigning lease option agreements.
- Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes11y
Originally posted by @Account Closed:
The different types of contracts have been mentioned here, and thru out posts and replies on BP. I haven't seen any that address the Executory Contract which is applicable in REI, IMO.
See
- Wholesaler · Port Richey, FL · Member since 2013 · 76 posts · 40 votes11y
Originally posted by @Brian Gibbons:
Originally posted by @Joel Owens:
The reality is people with no money see wholesaling as a way to make a quick buck.
Heck even getting licensed you have to go through a school and pass a test and then take a state test to pass. Then you have to find a broker and pay dues. So it does cost money and skin in the game to get going.
Do not count on your local real estate commission giving you a legal opinion on anything. They avoid it like the plague! lol
If it is not defined 100% their answer from everything I have seen is NO. The commissions will error on the side of caution every time to CYA themselves.
Let's play out a hypothetical situation. Wholesaler goes out and does a bunch of deals. Doesn't know if it is legal and confused. Makes 60k in fees before the commission deems them to be in violation. They slap them with a 500 dollar or 1,000 fine and say do not do it again. Was it worth it to the wholesaler?? Many would say YES. Just like illegal oil, chemical dumping in the oceans. Until laws were passed where the penalty exceeded the potential savings or money made then people and companies kept doing it.
Some people making money say it is much easier to ask for forgiveness then ask for permission to do something.
From what I know for certain, OH, FL and CA require you to have a license to market for sale any property you do not have legal title to, including assigning lease option agreements.
Market a 'property, maybe... but market a 'contract,' you can do all day long. No law against that. And in reality, marketing the 'contract' (as a 'contract' and not a 'property') is going to eliminate a lot of tire kickers. People who don't understand what it means to buy a 'contract' aren't going to bother to call you, and people who do know what it means are your customer base.
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes11y
An awful lot of hullabaloo about something that seems self evident and not nearly as complicated as this discussion is making it.
Wholesaling is legal in some states and illegal in others. If you're not sure which category you fall into, there are attorneys who specialize in such things...just ask one.
- Entrepreneur · Miami, FL · Member since 2013 · 133 posts · 83 votes11y
@Joel Owens I agree. There are many ways to skin a cat. The wholesaler will pay the nominal fine (probably get a "cease-and-desist"). Then he will partner with other individuals for them to ink contracts. Soon all partners will get the cease-and-desist (maybe) but they will have enough $ to close their own deals and appear on title. By now the business probably snowballed to well above 6 figures $... Way to work the forgiveness angle... Whats next for them? Turn Guru?
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Originally posted by @Brian Gibbons:
From what I know for certain, OH, FL and CA require you to have a license to market for sale any property you do not have legal title to, including assigning lease option agreements.
@Michael Quarles says otherwise. He says his local CA MLS had to check their legal dept. and they had no choice but to let him list the properties when he was selling only interests in contracts. I'm curious about those listings though. If you are not the owner, and selling interest in a contract, not a property.....do you get to put up pictures?
- Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes11y
Maybe instead of a picture of a house and trees and the walkway you could put up a scanned signed document :)
- Flipper/Rehabber · Bakersfield, CA · Member since 2008 · 3k+ posts · 3k+ votes11y
k Marie Poe.
I don't sell interest in contracts. Yuck that's assigning. Which in Cali is illegal after eight per year unless you're a dre licensee. I actually sell the property after I buy. I just start marketing it at purchase. Which we all should do.
- Investor · Sacramento County, CA · Member since 2013 · 104 posts · 20 votes11y
Is you answer plain and simple or do I read between the lines? Are you doing a double close so you are actually buying the property but hold time is minut? Or are you buying said property regardless of how long your hold time is?
Re: marketing, I'm assuming by the context between you and K. Marie Poe - that you are marketing as soon as your purchase contract is signed?
I'm just trying to gain clarification.
- Flipper/Rehabber · Bakersfield, CA · Member since 2008 · 3k+ posts · 3k+ votes11y
I rarely do a double close. They are too stressful for the closing company.. And I dont need to.
I am marketing the property once I contract it and closing that contract then reselling it. Typically within a few days.
- Contractor · Cleveland, OH · Member since 2014 · 317 posts · 181 votes11y
@Jay Hinrichs @James DeRoest & @Hattie Dizmond... I am an attorney in Ohio, (Licensed in TX but living & investing in Ohio) and I recently was interviewed on The Red Pill Investor w/ @Karl Krentzel discussing this topic. Basically, the answer is going to be different depending upon the state you are wholesaling in, but you want to be licensed if you are doing an extensive amount of wholesaling in a state that is cracking down on the unlicensed practice of real estate (Like Ohio & Florida). I am including links below to the interview, and furthermore, I will say that while I don't wholesale, I flip properties, I understand that what the state is likely doing is cracking down on unlicensed practice of real estate because the amount of complaints the board of real estate is getting on MISREPRESENTATION, FRAUD, UNLAWFUL COMMERCIAL PRACTICES, Selling/Buying/Assigning a contract to real estate without license, receiving commission without being licensed, etc. In Ohio, these statutes have been broadened to include a heck of a lot, so pretty much anyone receiving 'commission' for the sale of real estate SHOULD be licensed... but it doesnt get caught every time. You can be fined with civil penalties as low as $500-1000 but they are calculated per act and per day, so the courts can be pretty broad even with first time offenders. Also, if you're interested, I released the interview on my podcast as well, which teaches house flipping. Constructive feedback is welcome on ALL FRONTS! Hopefully I shed a decent amount of light on Ohio wholesaling!
- Contractor · Cleveland, OH · Member since 2014 · 317 posts · 181 votes11y
(Episode 403)^^^
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
NO argument from me I have been a RE broker since 1975.. I believe most states if you actually read the statute of what activities necessitate having a license most all of wholesaling would require a license in most state.. contract flipping what have you.
Our state is on the war path against private lenders ... in Oregon you need an NMLS license or a broker to do your HML on any 1 to 4 unit regardless if its owner occ or not. there is no such thing as a commercial purpose unregulated loan like many states.
So you have all the licensed HML turning in the bigger private guys who under cut their rates... they will watch at court house.. they will pull deeds of trust to see who the benies are then make complaints and the state will follow up and will issue cease and desists.
- Contractor · Cleveland, OH · Member since 2014 · 317 posts · 181 votes11y
Jesus @Jay Hinrichs that's just incredible. Like I said in the interview, it's a state specific law, and states like Ohio can prosecute this activity in any manner they want to in relation to the way the statutes are written. It's so crazy networking with investors from other states and finding out there are either similar problems or totally different issues depending on the politics in that particular state. Doesn't seem like they want to make it easy for you up in Oregon & Washington.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Actually Washington follows suit with much of the rest of the country if the loan is for commercial purposes no NMLS is required.. I am NMLS licensed mortgage banker in Oregon so its the reason I am up to date .. I have had a run in with our division of finance and corporate securities they are good folks unless they think you step over the line then they will enforce their interputation ... and since it would cost 100's of thousands to prove a point you just agree the are correct and move on.
- Lynn, MA · Member since 2015 · 5 posts · 0 votes11y
Section 8. Real estate, including any interest therein, may be transferred by a person to himself jointly with another person in the same manner in which it might be transferred by him to another person, and a conveyance of real estate by a person to himself and his spouse as tenants by the entirety shall create a tenancy by the entirety.
looked up massachusetts general laws and found this.Its M.G.L.Part 2 Title ! Chapter 184 Section 8
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