Wholesaling Possible as a Real Estate Agent?

Question

Much knowledge being dropped by the top tier investors and savy beginners on here.Much respect.

As a an upcoming real estate agent in Houston, Texas, does anyone know the ins and outs of wholesaling while being licensed as a real estate agent..

Can you purchase an option contract with a seller, then find an investor that's down to buy the property?

Can you engage in an assignment?

Bigger question: Any of these transactions legal while being sponsored by a broker on the side?

Bret Allen · Answer

@Erik Allahverdian

My comment was that it depends on how you come accross the deal.  For example, the licensing board doesn't look too kindly on agents that market themselves as agents, get in the door as agents, earn the trust of the client or potential client, and then convince the new client or potential client to sell you the property below market value.  If you are going to buy your clients property (or someone that thinks you might be their agent) then you probably need to take extra steps -- i.e.,  tell them what the property is worth and give them a chance to talk to an attorney or other agent before you close the deal. In some circumstances you may conflict yourself out of the deal, but most deals can move forward with proper disclosure.

If you (or your investment company) are working to find properties from people that are not your clients and you are not soliciting them as an agent then you may not need to disclose anything or you may need to simply disclose that you are an agent representing a related entity looking to buy your own investments.  There are many other combinations of possible factual situations.

This is a fact intensive analysis with a handful of set rules.  If you are worried about whether you should or shouldn't disclose then send me a PM and we can look at the facts and rules together.

Trey Watson · Answer

Erik I am a licensed agent/ wholesaler. Im not a legal expert but I've never had my license keep me from doing a deal. As long as you conduct yourself ethically (which you should do with or without a license), it wont be an issue. To put it into perspective, our wholesale company is a licensed brokerage.

Matt Huber · Answer

I agree with a lot of what @Ryan Harthan says but have MAJOR disagreement with other items.  Yes a realtor SHOULD know more, but frankly MOST realtors are part time hobbiests.  I'd say it is the usual Pareto principle, 20% of realtors conduct 80% of transactions and the other 80% of realtors conduct 20% of transactions.  Working with the correct 20% realtors is crucial.

As to value, yes, getting value is important but that is not difficult for a non-licensee: they can get it from comps from realtors they work with, from real estate subscription services and some states (not Texas) are disclosure states where it is public knowledge (or publicly available) as to the amount of each transaction.  I do agree most new wholesalers are terrible at values as they have not done their homework and/or simply do not mind lying to their audience with hopes of making more profit.

As to being absolutely annoyed by wholesalers making ridiculous offers I agree many wholesalers and especially their overseas virtual assistants are a pain in the keester and are time wasters.  I can pick out a Filipina accent and know it is a virtual assistant working for a wholesale within her first few words.

Being licensed allows a wholesaler more ways to conduct business with any property.  If they can't get it under contract to wholesale they can try to get a listing, or perhaps bring a seller to a known unlisted property that is for sale and still get a commission.  Being licensed certainly adds credibility and should bring a level of professionalism and knowledge, certainly as to values.

A major disadvantage of being licensed, in my opinion, is that realtors are held to a higher standard by both the judicial court and the court of public opinion.  As a realtor you are deemed to be an expert as you are a licensed professional so if and when you have a legal dispute with your seller in a wholesale situation you better have everything clearly in writing.  You are subject to censure, etc. from the Texas Real Estate Commission if you have a license so it is easy for a complaint to be made against you so now a governmental (or quasi) agency is using my own time and money to go after you.  I know one individual that has done over 500 lease option transactions in a manner many would think he would need a license.  He was investigated by the Texas Real Estate Commission for two years and then left alone as he represented himself.  I'll not mention his name but he is on BiggerPockets.

One fact unknown by most realtors, or at least I believe so, is that their errors and omissions insurance does not cover their own deals as an investor.  Typically it is an exception to their policy.  I heard this directly from a very, very successful HomeVestor franchisee/real estate broker/and former mortgage broker and mortgage banker.

As to the legality comments, I strongly disagree.  I have spent hundreds of thousands of dollars on attorneys in my capacity as an officer of corporations, many thousands personally and taken legal courses in my MBA.  I have many real estate attorney friends via my real estate club memberships and ask these attorneys these types of questions as they arise.  I am also on the educational committee for the Rich Club in Houston plus friends with nearly every board member, many of which are wholesalers and one of which is a licensed attorney with whom I am good friends.  It is more supposition in Florida and absolutely known in Texas that you can absolutely write your own contract and represent yourself to buy and sell property.  I would bet my right arm it is absolutely fine in Florida, but if I were to do business there I would verify.  Why?  You have the right to represent yourself.  You are legally allowed to make your own mistakes.  It may not be wise, but it is allowed.  I know one party that has represented himself in appellate court in Texas and won his case.  You can not, however, represent someone else's property or compose a contract for someone else.  The first is playing realtor, the second is playing attorney and in both cases you must be licensed per state law and the state would not be pleasant with you if representing someone else. When you have a contract to buy a property you are a principal in the deal and thus have the right to represent yourself and compose your own contract.  This is 100% absolutely crystal clear in Texas.

Most commonly used legal documents are boiler plate.  I got my hands on hundreds of boilerplate documents published by the Texas State Bar Association and sold to licensed attorneys.  I have never used the documents directly, but I do refer to them occasionally.   Most attorneys use boiler plate when they can as the documents have been "vetted", in other words, there have been lawsuits and ideally the suits went before appellate and supreme courts to set precedent, that way the attorney's know exactly what the courts have upheld, thus the strength of their documents.  I certainly have my "wholesale contracts", if the non-promulgated TREC contract, reviewed by an attorney as it is important to make sure they have the important legal clauses you need for your protection.  Actually the standard TREC document, with some minor alterations in special provisions, does that nicely, even for wholesale deals.

One indication, and it is only an indirect indication, as to why Florida is likely to allow you to represent yourself is it is one of the very few states (only Illinois and Florida last I heard) to codify title holding land trusts into law.  Most states are silent as to title holding land trusts but they are allowed as unless made illegal, something is legal.  Florida is also very individual friendly as to homestead exemptions for bankruptcy purposes.  It would be out of character to allow the individual to protect themselves via several laws much stronger than other states and do the opposite by not allowing one to represent oneself to buy/sell property or with legal agreements.

Matt Huber · Answer

There are tons of realtors that wholesale, I'd say over half of the 14+ (or is it ++++) HomeVestors franchisees in Houston are licensed agents or brokers. I can think of 7 separate franchisees that I know alone that are licensed, not to mention everyone at New Western Acquisitions (a wholesale firm where ALL agents are licensed).

Go get 'em @Luke Moses, just next time you invite me to watch a fight make sure there is more action than Mayweather vs. Pacquiao.

Trey Watson · Answer

@Fred Heller What is the problem with having to disclose your are an agent? We're one of the biggest licensed wholesale brokerages in Texas and Houston by volume and we disclose our brokerage/license status and that we are paying below market value multiple times to every seller for every transaction we do, it hasn't been a bad thing for us.

@Erik Allahverdian Im no lawyer so this is purely based on experience but as long as you are not lying to anyone (which you shouldnt be with or without a license) and you disclose that you are an agent and that you are potentially paying below market value to the seller in writing and they sign off, from my experience you will have no problems.

@Bill Gulley Wholesaling with a license is not only entirely possible and legitimate in Texas, it's often frowned upon not to have one. Missouri laws may be a little different..

Bret Allen · Answer

Disclosure Disclosure Disclosure.  That's it in a nutshell.  If you are upfront with the seller and everyone you deal with then you will probably be fine.  You should be ok telling the seller that you want to buy the property because you want to make 50K by fixing it and selling to someone else.  You even might need to tell the seller how much you think the property is worth, depending on how you came across the deal.  Put your disclosures in writing and then do your thing.

I am an attorney, a Realtor, and an investor.  It still works but you can't hide the ball.

Ryan Harthan · Answer

I don't understand how wholesalers do their job WITHOUT a license... How are you valuing a property?  How many other real estate agents time are you wasting submitting offers?  If anything I think it gives you the credibility and knowledge on the selling side to prove your numbers are legitimate and that your buyer is getting a deal they can actually make money on.  Though I'm not currently licensed in Texas I have been for years and have been a land lord my entire life.  From what I've been told, again not an attorney, you're legally required to disclose you're a licensed agent on all transactions that you have an equitable interest in.  If you're selling your personal residence you need to disclose your license status.  Most MLS's have a box you can check if the seller is a licensed agent or not.

Having a license actually protects you in my opinion.  There isn't a ton of legislation on wholesaling in Texas but one wouldn't have to stretch the imagination to say that marketing properties you don't actually own could be performing the duties of a real estate agent.  Writing up your own contracts can, in some cases, be considered acting as an attorney.  In Florida either of those two acts is actually a felony.  No one ever gets in trouble from disclosure.  It's when you don't disclose that questions of ethics come into play.

As for robbing someone, the market value of a house is what someone is willing to pay for it given the terms of their offer.  If the seller needs cash in a week because he's getting foreclosed on and the foundation of the house is split in half the market value of that house is going to be what someone is willing to pay for it.  In college we called that Efficient Market Hypothesis.  Now that I'm thinking of it, I have a degree in real estate from the University of Texas.... I certainly don't need it to do what I'm doing but it does add quite a bit of credibility to what I say and has certainly helped me through some more complicated transactions.

Bill Gulley · Answer

LOL, there are no savvy beginners.

Look up "net listing" to avoid the issue take title, there are several ways even without much money.

You can buy an option and sell  it, however TX has specific laws concerning options.

Assigning a purchase contract as an agent once is probably fine o a personal basis, if you're in the business of assigning then you're brokering. You need the intent and the ability to buy, otherwise your contract really isn't valid.

You'll also need to look up predatory dealing laws  in your area, city's even have their own ordinances in TX.

I suggest you not get into wholesaling as an agent, that's why you have a license, and attempting to go after big profits is another legal  issue.

Just list them and sell them, your broker may allow you to charge a higher commission for tougher property deals, see your broker. :)

Luke Moses · Answer

I agree with Trey Watson.  I am a licensed Realtor and wholesaler.  I conduct myself professionally and ALWAYS make it clear both verbally and in writing that I am not representing anyone in "this" transaction.  If you are a principal the transaction you are in the clear.  There are tons of Realtors/Wholesalers in the Houston area.

Check with your broker about how they feel about you conducting business outside their brokerage. Not a legal issue just a policy issue, in my opinion.

Bill Gulley · Answer

@Trey Watson

I didn't say you cannot, I'm saying that even with disclosures that I intend to rob you. it will still be robbery, it can be an issue of devising a method that puts an agent in a net listing situation, that being the agent pays X dollars and the agent arranges a sale and keeps all proceeds above his purchase price.

Disclosing that you're an agent or licensee is required, it puts the public on notice of your expertise in contracting.

I can also see that disclosing a higher value than an offer can be easily circumvented by verbal chatter, you can sell now Mr. Owner and avoid carrying costs trying to see if you can actually get that price, there is no guarantee as to what you may get.

As  @Bret Allen mentioned, there are other factors at play, salesmanship, and verbal communications can fall under the statue of frauds with your written contract. Did one party take gross advantage and how was the matter communicated might be a question.

I like Bret's comment, you can't hide the ball! If I were getting significantly more than a commission on a wholesale deal with a private seller, I'd justify my offer with detailed costs of materials, contractor's fees, holding expenses, etc. and justify a reasonable profit as an agent, that's just CYA.

The more you can show your transaction was accomplished through fair dealing the better off you are and agents are held to a higher standard. That's why I suggested simply stating a flat dollar amount as a commission, it can be higher than 3 or 6 % and justified by the property condition, marketability and other factors, I don't think any state caps a real estate commission.

Missouri and Texas are pretty much the same except Texas has additional requirements of using the state approved contract, option contract and installment sales.   :)