Wholesaling with RE License

[Corey Smithfield]

Does wholesaling properties with your RE license have any legal implications?

[Charlie MacPherson]

@Corey Smithfield Let's clarify definitions first.  Wholesaling in the "traditional" sense means that you put a property under contract when you don't have both the money and intent to buy it, then mark up the contract and sell your position in the contract to another party.

Here are the problems that can spring up:

I know that you're licensed, but for those who are unlicensed, this is illegal in almost all states (and maybe all).  Marketing a property that you don't already own (as in your name is on the deed) is a license-required activity.

For real estate agents, wholesaling is virtually indistinguishable from taking a net listing, which is illegal in most states and strongly discouraged in others.  That's because of the tremendous potential for the seller to be abused by a presumably more astute real estate agent.

Next, wholesaling means that you have to get the property at such a steep discount that you can mark it up and still make it a good deal for the eventual buyer.  That means that you're stripping equity from the seller.

Finally, when you enter into a contract without both the ability and intent to fulfill your part of it, you have committed "fraud in the inducement".

Your broker will most likely tell you that it's not permitted. It's also highly unlikely that your MLS will allow you to list a property for resale when you don't already own it.

All it's going to take for the poop to hit the fan is for a family member or friend to discover that you screwed Grandma out of $20,000 of her equity. A complaint to the Attorney General and/or the real estate commission is going to be VERY ugly. And, BTW, it's unlikely that your E&O will cover the damages and legal defense costs.