is wholesaling illegal?
Contractor · Miami, FL · Member since 2015 · 113 posts · 11 votes
is wholesaling illegal?
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Rental Property Investor · Rockwall, TX · Member since 2015 · 891 posts · 701 votes
11yWell, since nobody else has responded to this nonsense, I suppose I will reiterate my previous points, for I fear that newer members to the website might read your dribble and think it has some merit.
1) You do not own a property by putting it under contract. A contract is an agreement between a seller to sell the property and a buyer to buy it at a certain price in a certain time frame. No more, no less. Until you execute the contract (ie: Close & Convey Title) you have a piece of paper and a promise. It doesn't matter if you single close, double close, or triple close. Your entire theory is flawed because under no circumstance do you "own" the property until the contract is executed - this is why people are getting into trouble.
2) You can not advertise a property that you do not own without being considered a broker. That's the definition of brokering without a license. Clearly, you are breaking the law. I don't care, but don't want you to lead others down that path. You even called the Ohio Board and they told you the same thing, you are in denial.
3) It is clear that you are not an attorney. I firmly agree on this point. You need to consult one as soon as possible so they can explain the finer points of wholesaling to you, especially in Ohio.
4) In no situation above have you acted as a principal, you need to own the property to be a principal. See point #1.
In closing, this website is devoted to helping people become better investors. It is so the new people can learn from the experiences that those of us who came before them have learned. You are welcome to ask any questions you want here and we will do our best to answer them with the best information we have, but please don't ask a question then tell us we're wrong when you don't get the answer you want. It is insulting and detrimental to the people who are here to learn.
-Christopher
166 Replies
- Investor · Henderson, NV · Member since 2015 · 42 posts · 13 votes11y
Originally posted by @Richard C.:
. And yet you persist in your belief that Google is as good as law school. I'm done with this thread, at.least one and probably both of you are.simply trolling at this point.
More personal attacks and false statements.... I guess I shouldn't be surprised at this point.
My legal opinion is irrelevant as I am not a lawyer. However, I cited a respected Ohio real estate attorney who discussed this matter with the Ohio Real Estate Commission. If you or anyone else (including any attorneys) dispute Jeff Watson's analysis then please come forward with your reasoning.
But taking cheap shots at people simply because they disagree is not helpful or productive.
- Foreclosure Specialist · Miami, FL · Member since 2015 · 34 posts · 5 votes11y
I am a licensed realestate agent, the idea of approaching a seller as a buyer instead of an agent is a little new to me and I am trying not to break any laws or be unethical in any way. My question is: If I am going to wholesale a property should I disclose to the seller that I am doing so if I am using an A-B B-C closing? My intentions at first will be to wholesale since I already have a nice sized list of investors who I know are looking for good deals and already buy from other wholesalers.
- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes11y
Once upon a time, I had a job that required me to read the pleadings filed by pro se plaintiffs.
There was one guy in particular who wrote beautifully, and had clearly done a tremendous amount of research. Reading what he wrote, you would think that it was obvious that the case should immediately be resolved in his favor. He cited (in perfect form, btw, he clearly owned a blue book) many cases, including US Supreme Court cases.
Strangely, the case was not immediately, or ever, resolved in his favor.
According to some here, the reason must be that powerful forces were arrayed against him, or some such nonsense.
In reality, his perfectly cited cases were off-point. Or from a different jurisdiction. Or when he cited a Supreme Court case, he cited the dissent, not the majority opinion (he did that several times.)
The reason he did this (apart from the fact that he was nutty as a walnut tree) is that he did his research not only with his preferred result in mind, but also absolutely convinced that he was right, and needed only to find the proof. And so he saw what he wanted to see, and managed to avoid the massive amounts of material that did not support his position.
This phenomenon is a form of cognitive bias, and it is extremely common. Especially among people who do not have an actual professional education in the area they are researching.
That is what happens with many newbie "wholesalers" who frantically search Google for "evidence" that what THEY HAVE ALREADY DECIDED TO DO is on the up-and-up.
- Rental Property Investor · Closter, NJ · Member since 2015 · 884 posts · 722 votes11y
And on that note, can we please end this thread. Let Felix do his own thing, and if/when he gets himself in legal trouble we will all have a good laugh.
- Real Estate Transaction Engineer · Jacksonville, FL · Member since 2014 · 271 posts · 74 votes11y
The way I see it, you can assign a contract. Whether you disclose is irrelevant, unless you are licensed. There is NOTHING illegal about that. Please cite your case, in any state. This may be misconstrued as not being ethical. Opinions?
Also, as long as you don't market said property in public (online, street corner, etc) you are not breaking any laws. However, you don't "own" the property. You own the promissory note saying you intend to purchase or assign that option to another interested party. If you have a colleague or a friend who knows you are dealing with a property that he is interested in, I see nothing wrong with that. However, I feel that you are being misleading and unethical if you have no intentions of every buying, or funding, the purchase. Using someone else's money to fund the purchase if fine, but not when they are buying that property from you. That is not intention to purchase. That is wholesaling.
I see that there may be too many limitations as a licensed realtor to do most of the wholesale activities. If someone wanted to strictly wholesale, that could be a conflict of interest. Most brokers won't allow or take the liability to have you as an agent, no matter how much business you bring their way. However, there are some on here who say they have a broker that allows them to perform in this manner. So, it's possible.
I suppose as the states get laws on the books and start enforcing those laws, most people will conduct business as usual. Commissions are not law making or law enforcement agencies. However, they do provide information on certain regulations and laws that inform the general public on whether activities they perform are legal or not. If you add some sort of agenda or bias in there, that is a conflict of interest. Of course the realtor agencies and commissions will state wholesaling as illegal, as they feel threatened when no agent or broker is ever allowed in any real estate transaction deal. Believe it or not, it is NOT illegal to not involve a realtor or broker in a real estate transaction.
1. Assigning a contract is not illegal.
2. Secretly marketing a property is not illegal, if you do not own said property. I guess it is illegal to "publicly" advertise or market. Somehow, that means you're brokering.
3. Wholesaling is not illegal. Wholesaling is assigning ownership to a party/parties that in turn sell for retail. Many types of businesses wholesale. Not just real estate.
If you have never done a deal or wholesaled a property, I would recommend you knowing the laws in your state and conduct yourself accordingly. If the laws are not specific, there is your out. If there are laws, I suppose like in CA, FL, OH, etc, it is being stated that you can be told to cease and desist, fined, or imprisoned. However, no one has ever cited a case yet, in any of the three threads covering this topic, showing this result. If so, please share details, so we can all learn.
- Investor · Henderson, NV · Member since 2015 · 42 posts · 13 votes11y
Originally posted by @Richard C.:
Once upon a time, I had a job that required me to read the pleadings filed by pro se plaintiffs.
There was one guy in particular who wrote beautifully, and had clearly done a tremendous amount of research. Reading what he wrote, you would think that it was obvious that the case should immediately be resolved in his favor. He cited (in perfect form, btw, he clearly owned a blue book) many cases, including US Supreme Court cases.
There is definitely a bias against pro se litigants except perhaps in smaller courts like small claims court. No matter how sound a legal theory may be, judges and lawyers tend not to take arguments seriously unless proposed by a lawyer.
Its one of the many reasons NOT to represent yourself in any serious legal matter.
- Investor · Henderson, NV · Member since 2015 · 42 posts · 13 votes11y
If you search this forum there are numerous examples from Ohio where wholesalers where fined. It all depends on which state you are in and how strict certain regulation are enforced.
- Real Estate Transaction Engineer · Jacksonville, FL · Member since 2014 · 271 posts · 74 votes11y
Originally posted by @Ken Graham:
Thanks, Ken. I will check it out. I used to live in Ohio, then Illinois, now Florida. Also, came from California after living there for most of my young and adult life. So, it does behoove me to do my own research on state laws and previous infractions by other wholesalers, if I ever have the opportunity to take advantage of a wholesale deal.
My goal right now is fix and flip. No muss, no fuss, done and out. Well, so to speak, lol.
- Contractor · Miami, FL · Member since 2015 · 113 posts · 11 votes11yOriginally posted by @Jose Martin:
I am a licensed realestate agent, the idea of approaching a seller as a buyer instead of an agent is a little new to me and I am trying not to break any laws or be unethical in any way. My question is: If I am going to wholesale a property should I disclose to the seller that I am doing so if I am using an A-B B-C closing? My intentions at first will be to wholesale since I already have a nice sized list of investors who I know are looking for good deals and already buy from other wholesalers.
yes buying for yourself is different then brokering. you sound different act different, etc. Not sure if you will listen to what i have to say since there is soooo much slander against me on this thread. you ask if you should disclose that you are doing an A-B B-C closing. it sounds like you are talking about a double close. not sure what disclosure you are talking about. just simply a disclosure saying that you will be double closing? i would say no, but checking with your broker, the title company, and your states real estate dept would be a good idea. the title company is the one that makes sure all the disclosures that need to be signed are signed. as soon as you have a purchase agreement or option to purchase signed, its up to you what you do with the property, how you sell it, etc. (weather you double close or assign is up to you) the person that sold you the property, can't decide for you. why do you even want to get into wholesaling when you are an agent? why not just broker the properties? you are the first agent that i ever meet that wanted to get into wholesaling.
- Contractor · Miami, FL · Member since 2015 · 113 posts · 11 votes11y
Originally posted by @Ken Graham:
If you search this forum there are numerous examples from Ohio where wholesalers where fined. It all depends on which state you are in and how strict certain regulation are enforced.
they got fined probably becuaes they were not wholesaling the right way. i get wholesalers asking to sign birddog agreements, non circumvent agreements, and some other types of contracts.
- Contractor · Miami, FL · Member since 2015 · 113 posts · 11 votes11y
@Brian Gibbons, i'm glad you put up that video. good video. i think Sheila was the lawyer that i talked to on the phone a long time ago when i called them. it was a while ago, don't remember 100%. i need to make another call to the dept of RE. they even say if i ahve questions i can call and talk to their legal dept or investigator dept. also i've meet Jeff before. He is a good guy. well needless to say, i have some issues with what the two attorneys said in taht video that work for the DRE. they mention taht someone has to have the intent to buy. well people enter into contracts that are contingent on them finding the financing. so at the time, they make the offer, they don't know 100% that they will close. also they mention this clearly in the beginning that it has to do with acting for another and for a fee. with the whole ownership issue. like i told them on the phone. well the city seems to think i'm an owner just by having a contract signed. they were ready to give me a permit. with the whole intent to buy i have issues with. my contracts are contingent on me assigning it. just becuase my contract says that, that doesn't explain how i'm acting for another. they also say, that i can't market the house and can't put a picture of a house. thats ridicoulous to me. what if i want to double close? then i'm not even selling the contract, i'm selling the house. i don't want to be a test case. its way easier to call them and show them what i'm doing and either they will tell me no stop doing it, or they will say i'm ok. i dought i would be in trouble, since i'm calling them instead of ducking and hiding. thirdly, they mention someone wholesaling only to circumvent license law. I'm wholesaing instead of brokering becuase i don't like brokering. its different. i have no control when i'm brokering, i have the control when i'm wholesaling/investing.
- Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes11y
I invite you to talk to vena Cox Jones in Cincinnati who runs the REIA
I want you and every other Ohio real estate investor to understand the law and understand what the regulators want to see
Licensed agents and brokers don't like wholesalers because of the stories that they hear re the time that's wasted; with credit being tired, average person can't get a mortgage is easily, and there aren't a lot of institutional buyers right now like Blackstone
Credit is very tight right now and many agents and brokers are not making a lot of money and they have more time on their hands to complain about wholesalers to OH regulators
I think in Ohio having so many great "rent to value ratios" compared to other parts of the country, what I mean by "rent to value" is say you have $100,000 house that rents for 1200, that's a great yield
Ohio is not alone, Florida and California are mandating licensing to hold people are talking to homesellers about selling their house, to at least receive a certain level of real estate education, training, at least knowing the local and state laws
Selling your house is not like selling a car.
I encourage you if you're staying in Ohio get your license and buy as a principal with transactional funding and do whatever you want to do when you get on title
Good luck to you
- Investor · Henderson, NV · Member since 2015 · 42 posts · 13 votes11y
Originally posted by @Felix Goldstein:
@Brian Gibbons, i'm glad you put up that video. good video. i think Sheila was the lawyer that i talked to on the phone a long time ago when i called them. it was a while ago, don't remember 100%. .....
they also say, that i can't market the house and can't put a picture of a house. thats ridicoulous to me. what if i want to double close? then i'm not even selling the contract, i'm selling the house.
I am VERY curious about this. I would ask them to cite the legal authority or statute that allows them to prevent wholesalers from advertising a property that is under a sales contract or an option contract. I think their position on this issue is very questionable.
Also can you give a link to Barry's video?
- Contractor · Miami, FL · Member since 2015 · 113 posts · 11 votes11y
@John Hamilton, some of your statements seem contradictory to me. you say "Wholesaling is not illegal. Wholesaling is assigning ownership to a party/parties that in turn sell for retail. Many types of businesses wholesale. Not just real estate." however, before you said "However, you don't "own" the property. You own the promissory note saying you intend to purchase or assign that option to another interested party." please explain. also you say it is only illegal to wholesale if its done publicly. i would disagree with taht, brokering is brokering it doesn't matter if you are doing it publicly or privately.
- Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes11y
Ken
you can advertise you have a contract for sale
what you cant advertise the house for sale or post pictures which makes it hard for wholesalers to market the property,
you can always send to your buyers list pictures but you can't advertise on craigslist or other public domains
- Investor · Henderson, NV · Member since 2015 · 42 posts · 13 votes11y
Originally posted by @Brian Gibbons:
Ken
you can advertise you have a contract for sale
what you cant advertise the house for sale or post pictures which makes it hard for wholesalers to market the property,
you can always send to your buyers list pictures but you can't advertise on craigslist or other public domains
Brian, I completely understand this is the legal position taken by various real estate commissions. However I don't think its legally valid.
Generally the government can NOT restrict advertising on non-misleading and non-illegal activity. There are very few exceptions such as for products that are harmful to children (cigarettes, alcohol etc.). This is under the First Amendment which trumps any state regulations.
Furthermore, just because someone advertises something "For Sale" that is NOT the same as claiming they own title to it. For example Amazon.com advertises millions of items for sale that they do not own. 40% of Amazon's business is with merchandise owned or shipped by 3rd party "Wholesalers". This practice is widespread in retail, especially online, and many major retailers including Walmart and Sears use it. Some disclose it and some do not.
I am not sure why real estate advertising would be treated differently, especially if the advertiser has the exclusive ability to sell the property in question. Its certainly not misleading to the ultimate buyer when things are fully disclosed.
Also it appears to me that sometimes real estate commissions try to regulate things they don't like even though they don't have the statutory authority to do so. Unfortunately, its common for regulators to do this and they get away with it until someone challenges them.
(Disclaimer: I am not a lawyer and not giving legal advice.)
- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes11y
Oh Jesus Christ.
Actual lawyers have told you you are wrong. Go look up the "Central Hudson Test."
- Foreclosure Specialist · Miami, FL · Member since 2015 · 34 posts · 5 votes11y
@felixgoldstein
Thanks for the feed back Felix. The reason I would rather wholesale a property instead of list and sell it on the open market is because for the lower end properties the commission is really low and sometimes not worth it. Ex. $70,000 sale price we get paid 3% which is only $2100 in commission, minus brokerage fee's, $4200 if we double side the deal. If I could pick that same property up for $60k and resell it for $70k to and buy and hold investor or a rehab and resell investor I would make a lot more money and it would take a lot less work. All I have to do is find the deal.
About the disclosure, I meant should I disclose to the seller that I am going to resell the property. What should my angle be?
- Investor · Henderson, NV · Member since 2015 · 42 posts · 13 votes11y
Originally posted by @Richard C.:
Oh Jesus Christ.
Actual lawyers have told you you are wrong. Go look up the "Central Hudson Test."
Which lawyers have said I am wrong?
Central Hudson was a 1980 decision.
Why don't YOU look up more recent rulings like Rubin v. Coors Brewing, 44 Liquormart, Inc. v. Rhode Island and Thompson v. Western States Medical Center.
- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes11y
Ok, attorney-at-google. Let us know how this all works out for you.
- Investor · Henderson, NV · Member since 2015 · 42 posts · 13 votes11y
Originally posted by @Richard C.:
Ok, attorney-at-google. Let us know how this all works out for you.
Please indulge me with your legal prowess.
Under Central Hudson, how can the government prohibit all real estate investors from advertising properties for sale when they have an equitable interest in the property? Even if the government has a substantial interest in doing so (which is debatable) how is a complete ban narrowly tailored?
You probably won't respond and will instead make a personal attack. But if you have a legitimate rebuttal I would love to hear it.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Ken Graham:
Originally posted by @Brian Gibbons:
Ken
you can advertise you have a contract for sale
what you cant advertise the house for sale or post pictures which makes it hard for wholesalers to market the property,
you can always send to your buyers list pictures but you can't advertise on craigslist or other public domains
Brian, I completely understand this is the legal position taken by various real estate commissions. However I don't think its legally valid.
Generally the government can NOT restrict advertising on non-misleading and non-illegal activity. There are very few exceptions such as for products that are harmful to children (cigarettes, alcohol etc.). This is under the First Amendment which trumps any state regulations.
Furthermore, just because someone advertises something "For Sale" that is NOT the same as claiming they own title to it. For example Amazon.com advertises millions of items for sale that they do not own. 40% of Amazon's business is with merchandise owned or shipped by 3rd party "Wholesalers". This practice is widespread in retail, especially online, and many major retailers including Walmart and Sears use it. Some disclose it and some do not.
I am not sure why real estate advertising would be treated differently, especially if the advertiser has the exclusive ability to sell the property in question. Its certainly not misleading to the ultimate buyer when things are fully disclosed.
Also it appears to me that sometimes real estate commissions try to regulate things they don't like even though they don't have the statutory authority to do so. Unfortunately, its common for regulators to do this and they get away with it until someone challenges them.
(Disclaimer: I am not a lawyer and not giving legal advice.)
Ken if your logic held true then why do we have a real estate industry at all.. why is there a department of Real Estate in EACH of our great states. .and why do we license people.
If it was as you described it would be just like China were anyone can do anything they wish regarding RE...
- Contractor · Miami, FL · Member since 2015 · 113 posts · 11 votes11y
Originally posted by @Jose Martin:
@felixgoldstein
Thanks for the feed back Felix. The reason I would rather wholesale a property instead of list and sell it on the open market is because for the lower end properties the commission is really low and sometimes not worth it. Ex. $70,000 sale price we get paid 3% which is only $2100 in commission, minus brokerage fee's, $4200 if we double side the deal. If I could pick that same property up for $60k and resell it for $70k to and buy and hold investor or a rehab and resell investor I would make a lot more money and it would take a lot less work. All I have to do is find the deal.
About the disclosure, I meant should I disclose to the seller that I am going to resell the property. What should my angle be?
Jose, that seems like a terrible idea to start wholesaling. unless u want to start investing. a wholesalers mentality and realtors mentality are diffenrent. many brokers invest also. why dont u just charge a minimum. i have had brokers tell me that their minimum for selling a property is 4k. that would take care of your issue. the cheap houses is excatly why brokers have that minimum. i disagree with u that its less work to wholesale the property instead of listing it.
my record low for purchasing a house is$1,900(no that is not a typeo). my assignment fee would of been alot more then the house is worth. that one was complete junk and didnt sell though. but yeah when u get prices like that, the commission might be more then the purchase price of house.
- Contractor · Miami, FL · Member since 2015 · 113 posts · 11 votes11y
@Jose Martin, opps forgot to xomment on the whole disclosure thing. i would say yes. u want everyone to know what will happen. it sounds like u mean just telling them what u will do
- Investor · Irvine, CA · Member since 2015 · 124 posts · 35 votes11y
Richard C,
I'd love to PM you, not related to this thread. But member search for Richard C brings no joy. If you'd PM me that'd be great.
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