The topic of wholesale activity came up in a discussion among Illinois real estate attorneys. One attorney shared an email exchange he had with an attorney at IDFPR. I'm sharing here to help keep the community informed and protected.
********Email from counsel to IDFPR**********
S is selling their property for $95,000.00 and B signs a contract to purchase S' property, with the right to assign the contract. B then assigns the contract to A. At closing, B receives a $3,000.00 assignment fee from A. B is not a licensed real estate broker. The contract is not contingent upon B finding an assignee. If B doesn't find an assignee, B must still close the contract.
********Response from IDFPR****************
You recently contacted the IDFPR regarding an inquiry about wholesaling real estate and whether the practice was prohibited under Illinois law. The practice you described in your inquiry is prohibited. Please see the pertinent sections in the Illinois Real Estate License Act of 2000. Any person or entity engaging in a form of the activities described may be engaging in activities that require a license.
This correspondence reflects the interpretation of the Department on the particular matter you described and is not intended as an official opinion of the State of Illinois. Only the Attorney General of the State of Illinois is empowered to render formal opinions concerning the laws of this State. Thank you.
@Bob Floss II Good info, so essentially wholesales need to be licensed to assign contracts, or it becomes an issue because he received compensation.
The last paragraph says it all. It is an "interpretation". You'll notice he didn't say the practice was "illegal," he said it was prohibited. The law has never been tested, that's key here. Until it's tested, I personally don't see an issue with it. In my opinion, and I'm not an attorney, but anyone has the right to assign any legal contract, as long as the contract allows for it. Real estate should be no different. I think the bigger issue here, is the real estate companies and the governing body. They don't want wholesalers getting paid, because thy're not licensed. I truly believe that that's the bottom line here. IF it's truly illegal, then why, after all of these years, hasn't someone taken this to court? I think the answer is simple. The board of realtors know they will lose. They don't want to spend their money and resources on challenging something they know they will lose. Just my opinion.
@Scott Steffek You are blurring together several different issues. The Board of Realtors would not lose because they would not be involved. This is prosecuted by the Illinois Department of Financial and Professional Regulation that licenses real estate professionals. When they gather enough evidence to charge someone with unlicensed practice of real estate, I've found the defendant rarely wins. You may not be aware because they don't typically publish opinions and it's in the defendants best interests to settle.
You are correct that anyone can assign a contract, if the contract allows it. There is not a contract issue at play. The issue of illegality falls upon the activity the Wholesaler to find a buyer and sell the property. Advertising real estate for sale may be construed as unlicensed activity.
At the end of the day, the bigger issue is not attacking wholesalers, the bigger issue is protecting the public.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.