Seattle, WA · Member since 2016 · 7 posts · 1 vote
Dear Washington state wholesalers ,
I was just reading through the RCW on excise tax and found this little nugget below (RCW 458-61A-104 para (1)(b)). Can anyone help me understand paragraph 1(b)? It seems like if I sign a contract with a seller for a price, say $100,000, and then assign the contract for $10,000 to another buyer, excise tax would be due for $110,000. Is that what this is saying? If so, what other ways to execute an assignment could avoid this tax?
Thanks!
Spencer
458-61A-104 Assignments.
(1) Purchasers.
(a) The real estate excise tax does not apply to an assignment of a purchaser's interest in an earnest money agreement if neither the earnest money agreement nor its assignment results in a change of title to or ownership of the real property.
(b) The real estate excise tax does apply to transfers when the purchaser of real property under a real estate contract assigns the purchaser's interest in the contract for consideration. The tax is based on all consideration paid or contracted to be paid to the grantor for the assignment, including any unpaid principal balance due on the assigned real estate contract.
*DOES NOT CONSTITUTE LEGAL ADVICE, CONSULT WITH AN ATTORNEY OR CPA REGARDING LEGAL AND TAX MATTERS!*
From what I can interpret on this, is that you do not owe taxes when you assign the contract. So remember, the seller is paying the excise tax. If you double close, you get to pay the excise tax on $110K. Washington is weird with assignments, because it can also be considered brokering, so if you don't have a broker's license there is a risk of being fined.
Again, I could be totally wrong in this matter, but opinions seem to sway that assignments are risky in WA.
*DOES NOT CONSTITUTE LEGAL ADVICE, CONSULT WITH AN ATTORNEY OR CPA REGARDING LEGAL AND TAX MATTERS!*
From what I can interpret on this, is that you do not owe taxes when you assign the contract. So remember, the seller is paying the excise tax. If you double close, you get to pay the excise tax on $110K. Washington is weird with assignments, because it can also be considered brokering, so if you don't have a broker's license there is a risk of being fined.
Again, I could be totally wrong in this matter, but opinions seem to sway that assignments are risky in WA.
I am not an attorney. My expertise is in funding double closings. In my opinion, if it's ambiguous whether you pay excise tax for assignments, another way to skin this cat would be to double close, but negotiate with either A seller or C buyer so that they can pay for the excise tax. In this way, you kill two birds with one stone: You won't be accused of brokering since you actually closed on the first transaction, and someone will be paying for the excise tax(es).
I am not an attorney. My expertise is in funding double closings. In my opinion, if it's ambiguous whether you pay excise tax for assignments, another way to skin this cat would be to double close, but negotiate with either A seller or C buyer so that they can pay for the excise tax. In this way, you kill two birds with one stone: You won't be accused of brokering since you actually closed on the first transaction, and someone will be paying for the excise tax(es).
Just my 2 cents,
Duane.
In Washington state, you can no longer double close. We used to do it all the time before 2008. After the creation of DFI, they started going after every escrow officer that did double closes (and some went to jail)... Now no escrow/title company will do it here.
@Ryland Taniguchi by double close your referring to using buyer C's funds SOLEY to fund the purchase and leaving B ( middleman fee's) paid off of the hud.. with the middle man bringing in NONE of their own funds.
What about assigning or selling Real estate without a license .. Like Ohio and FLA are starting to crack down whats the stance of state of Washington with this practice.. I am sure wholesaling and assigning is alive and well there as well regardless of the law
@Ryland Taniguchi Thanks for all of your input, you are always a major contributor in many discussions here on BP. I have an issue that's related to this topic that you could probably shed some light on. I have been a broker here in Seattle for about 3 years now and just started wholesaling, specifically targeting deals that have a higher and better use but are currently not being used as such. To cover my bases, I reached out to my managing broker and shared my plans with him.
He had some pretty serious concerns and said that I would have to restructure these deals to be listings instead of off-market sales and collect a commission on the sale at closing instead of an assignment fee or spread. He mentioned that these assignments fees, even for off-market deals, especially if not disclosed to the seller are considered a "net listing fee" which is apparently illegal in WA. If this is true than apparently assigning contracts is not an option for me, even as a licensed realtor. He mentioned that we are held to a higher standard than the average investor and are essentially sworn to a code of morals and ethics that are above the average unlicensed person, which is true, we are.
He also mentioned that investigators are seriously beginning to crack down on wholesalers and starting to charge them. My managing broker had 3 FBI agents come into his office and slap a 2 inch thick file on his desk and shared with him the actions of two of his agents, and I believe they were both charged. He did mention that they were possibly doing more illegal things, but it was certainly related to wholesaling and tied together.
This of course has me pretty concerned and I certainly want to stay on the right side of the law and not open myself up any liability. The interesting thing is that most people here on BP are of the opinion that having a license makes wholesaling legal for them and negates any liability of potentially "brokering deals". It seems though, that it actually might be worse to be licensed.
If you have any creative advice on how to structure these wholesale deals going forward to avoid any legal issues, I would love your input. I am really trying to jump-start my wholesale business as I believe it is the best way to build up the capital needed to get into other related activities such as flipping and development. I'm just pretty concerned that I won't be able to continue doing business as a wholesaler, knowing that a double close isn't an option anymore and clearly I can't assign a contract without opening myself up to possible criminal charges.
I could charge a % commission for these deals, just like a normal listing but then that really takes away the value add that my direct mail marketing is based off of: "no realtor commissions, or hassles". I'm convinced there has to be a better, more creative way to assign these contracts that I'm just not thinking of. Through my research, I have came across the idea of using "nominee agreements / contracts", and even putting the property into a trust. Certainly open to any idea's or suggestions you might have. Thanks so much in advance!
I'm also curious on what is the best way to structure wholesale deals in WA state.
My understanding was that you get a contract signed between yourself (A) and the motivated seller (B), and you use transactional funding to buy the property for a very short time (to sell the property right away), and then you sell it to end buyer (C).
Hello! I see this post is a few years old, did you ever get started with wholesaling in Washington? I’m trying to get started myself so I’d love to hear any advice you may have!
