Backing out of a wholesale deal?

[Harlan Cox]

Hello BP community. I am new to wholesaling homes in the Maryland area so at the moment I am trying to make sure I have all the proper information in order to complete a deal successfully. If I put a house under contract only to find out that there is no one willing to purchase the home, how would I back out of the wholesale deal. Is there certain text that needs to be in my contract? Is there costs for backing out of a wholesale deal? I am not aware of the specific text that needs to be in my contract that will enable me to leave a deal at any time.

[Bill Gulley]

Originally posted by @Harlan Cox:

Originally posted by @Brent Coombs:

@Harlan Cox, you said "I am not aware of the specific text that needs to be in my contract that will enable me to leave a deal at any time". But can you see that unless there IS such text, there is NO leaving the deal at any time!?

It goes back to what @John Thedford wrote: ...Are you informing them (can I add: verbally AND on the Contract) that you intend to assign the contract and if you cannot that you will walk away?

And, do you understand the term: Brokering without a License?...

 I understand there needs to be text. What I dont understand is the brokering without a license thing. What do I need to do in order to wholesale properties without a license?

broker

ˈbrōkər/

verb

gerund or present participle: brokering

1. arrange or negotiate (a settlement, deal, or plan).

   "fighting continued despite attempts to broker a ceasefire"

   synonyms:

   arrange, organize, orchestrate, work out, settle, clinch, bring about;

 If you don't own it and you do something to arrange the sale of it, you're brokering it! Brokering requires a license, pretty simple. :)

[Harlan Cox]

Originally posted by @Bill Gulley:

Originally posted by @Harlan Cox:

Originally posted by @Brent Coombs:

@Harlan Cox, you said "I am not aware of the specific text that needs to be in my contract that will enable me to leave a deal at any time". But can you see that unless there IS such text, there is NO leaving the deal at any time!?

It goes back to what @John Thedford wrote: ...Are you informing them (can I add: verbally AND on the Contract) that you intend to assign the contract and if you cannot that you will walk away?

And, do you understand the term: Brokering without a License?...

 I understand there needs to be text. What I dont understand is the brokering without a license thing. What do I need to do in order to wholesale properties without a license?

broker

ˈbrōkər/

verb

gerund or present participle: brokering

1. arrange or negotiate (a settlement, deal, or plan).

   "fighting continued despite attempts to broker a ceasefire"

   synonyms:

   arrange, organize, orchestrate, work out, settle, clinch, bring about;

 If you don't own it and you do something to arrange the sale of it, you're brokering it! Brokering requires a license, pretty simple. :)

Billy please get out of my forum. Your advice is decent but you don't give it in a respectful way. If you want to be a "professional" as you say then you have to learn how to talk to people first. Go be dull somewhere else but now in my forum.

[Frank Jiang]

You're gunna need thicker skin than that to succeed out there.

[Harlan Cox]

Originally posted by @Frank Jiang:

You're gunna need thicker skin than that to succeed out there.

 You can leave too

[John Thedford]

@Frank Jiang. Agreed. I believe the reference to "billy" was not meant as a compliment! @Harlan Coxwhether you agreed with what Bill said or not this is not YOUR forum! We are all visitors here at BP with the goals of sharing, networking, helping others, information exchange, etc.

[Matthew Kreitzer]

Virginia attorney here. Do not accept advice from anyone on this forum regarding how licensing works in the State of Virginia. This is a highly specialized area of law that changes wildly depending on which state you are in. Not all states limit the ability for a person to practice what other states define as "brokerage" without a license.

That said, there are indeed some restrictions on brokerage of real estate in the state of Virginia, as well as some licensing requirements. However, you may or may not need to get a license. That depends on more information than is present. For information on brokerage laws IN THE STATE OF VIRGINIA, please consult (18 VAC 135-20-20. Necessity for license). 

On how to get out of a wholesaling deal; that depends entirely on the terms of the contract. A LICENSED ATTORNEY IN VIRGINIA must review the terms of the contract and advise you on your rights and obligations. Anyone who is not an attorney in this forum and is attempting to give you advice on how to proceed on this issue is operating under Unauthorized Practice of Law rules in this state, and may be on the line for a Class 1 Misdemeanor in Virginia, which is punishable by up to one year in jail and a significant fine.

For more information, you should consult a local attorney licensed here in Virginia for more information. They can tell you how to keep this legal. For everyone else, unless you are not an attorney in Virginia, I wouldn't recommend speaking on legal issues in this State.

Based on the fact you are also conducting business in Maryland, you should also consult a Maryland attorney on this matter, as there is a strong likelihood that Maryland has its own licensing requirements. As I am not a Maryland attorney, I will do the responsible thing and not speak as to what Maryland's laws are on real estate conveyance. Good luck to you.

[Mike Cumbie]

Hi @Harlan Cox

Welcome to the forums.

I think one of the difficulties you are having is based on the question you are asking. The question was "How do I back out of a wholesale deal"?

Not speaking for anyone else, but that question as asked sounds like "How can I offer money for something and lock it up so no one else can get it and then if I decide I don't want to go through with it still keep my money and walk away leaving them holding all the loss" to me.

Not sure if it was meant that way (I doubt it), but that's the way it comes off. That way of thinking scares a lot of people because it can easily ruin someone else. Picture someone going to your grandmother and offering to buy her house and putting 60 days where she can't sell it to anyone else but them. Then finding that after 60 days the person says, well I guess I was wrong, I can't find anyone that says it's worth that price (plus my fee), sorry. Now she has lost a lot of time (perhaps the best selling time of year, she doesn't have the money she needed to put grandpa in a hospital for surgery and the person just shrugged their shoulders and walked away).

So all that being said the education part is learning how to determine "value" of a property. In my opinion that is the single most valuable skill in this game. If you know the value of it all fixed up, a reasonable cost of how much it will cost to repair, a value of taxes, realtor fees, Hoa fees etc you can make real informed deals. Those deals are going to be so right you would ask your own family to buy them because you know they are solid. Not think they must be a good deal, but know with facts they are a solid deal with low risk. So if you can't wholesale them off you are going to fight and kick to buy it yourself because you know the money is there. If that is the case you don't have to ask how to "get out of it".

So I think that is where you are finding the resistance you are seeing, instead of asking "how to get out of it" ask "How can I determine the real value before putting it under contract".  Because if you are not prepared to take it yourself don't lock it up.

Just my 2 cents and good luck in your investing.

[Jacqueline Carrington]

I think you should do a LOT more research and learning first before getting started. As "easy" as people make wholesaling seem, there are a lot of factors that go into making sure you are honest, ethical and following your state's laws.

[Scott Nolan]

As another Virginia attorney, I have to respectfully disagree with the above definition of "Unauthorized Practice of Law." The state does not have the power to prevent you from offering advice, good or bad, all day long.  No matter how much we attorneys wish you wouldn't.  The law exists to protect the public from predatory behavior, not to prevent them from voicing their experience or opinion.

The Virginia Supreme Court defines the "practice of law" as:

So, don't advise people on the law for money, don't prepare legal documents and don't attempt to represent people in courts or tribunals in Virginia without a license and you're not breaking any laws.

Indeed, the very purpose of this community is to advise each other. Advise away.

[Matthew Kreitzer]

Originally posted by @Scott Nolan:

As another Virginia attorney, I have to respectfully disagree with the above definition of "Unauthorized Practice of Law." The state does not have the power to prevent you from offering advice, good or bad, all day long.  No matter how much we attorneys wish you wouldn't.  The law exists to protect the public from predatory behavior, not to prevent them from voicing their experience or opinion.

So, don't advise people on the law for money, don't prepare legal documents and don't attempt to represent people in courts or tribunals in Virginia without a license and you're not breaking any laws.

Indeed, the very purpose of this community is to advise each other. Advise away.

 Although I respectfully disagree, we both know this isn't the appropriate forum for a discussion on the application of the third prong of the test, or whether a local Judge would expand prong three to include situations in which, on reliance on advice that denotes an understanding of the law, a person acts on and is harmed by the advice of a lay person in another state who is not licensed in Virginia. (Which would be my reading of the Rules of Ethics and its criminal incorporation through the Code.) Especially since that list is by no means exhaustive.

I will simply reiterate one simple fact; Continue to give legal advice if you want, but at least know the consequences of such actions. Any person giving actionable advice runs a serious risk of, if not under my analysis the absolute potential of, a criminal action against you. Or at the very least, the potential of going before a local Judge on such charges which could result in serious loss of time and money by a person, even if the charge doesn't succeed. 

Although on a personal note, I would never give actionable advice like "post away all you like" on an online forum, since it opens the posting attorney up to potential liability for any actions taken in reliance there-on without appropriate disclaimers.

On that note:

None of the above should be taken as legal advice. Every situation should be analyzed by an attorney licensed to practice in your particular state. This advice is not intended to create an attorney client relationship.

[Ryan Dossey]

@Harlan Cox

With a thread title like that I hope you brought your flame suit.

[Hattie Dizmond]

You should always be transparent with the seller, explaining to them exactly what it is you intend to do and ensuring they understand. 

Also, if you are not positioned to close the deal yourself, in the event you cannot find a buyer, then you should NOT write a purchase contract on the property. Instead, lock it up via an option contract, which gives you the right to purchase the property, at an agreed upon price, for an agreed upon period of time. This aproach ensures you don't tie up the seller's property, but allows you to lock in the price and show equitable interest. 

Wholesalers get bad names in part for locking up properties with no ability to close and no regard for the seller's best interest. Remember, your job is to help solve their property problem. You can't do that by creating additional problems.  Be transparent and always protect both your buyers and sellers. 

Finally, if your analysis and pricing are solid, you should have no problem finding a buyer. 

[Jay Hinrichs]

@Matthew Kreitzer  Excellent advice... the biggest propagator of wholesaling is BP its self without regard to right wrong legal illegal... everyone has a take on it.  From someone like Bill's position and other RE brokers Myself included.

Its NOT the Guru's as Bill states yes some may do it.. but BP reinforces it with all these peoples different opinions from different states.

And it also goes to the underlying theme Of BP  in that you don't really need to pay for any advice you can get it all right here for free... We see that all the time as well.. Although mainly railing against anyone who is in the RE education business.

from my standpoint seems like someone should first .. check out what the definition of needing a RE license is in the state your working in then work backwards.

We are all pretty aware that tying up a property under contract then posting it with pictures etc on Craigs list and acting like your the seller  violates the state RE license laws in many jurisdictions.. And unfortunately for those who think the way to crack into the RE business is to be a wholesaler this is what they do.. get a website post of craigs list etc.

Anyway I liked your post...

@Harlan Cox  Just spend the 1k get your RE license then you do not have to worry about it and expert agents in your state will teach you how to do it.. getting advice from strangers on the internet is not really that great of idea.. you can bounce things around like beach ball but remember who your talking to some stranger.

[Aarin Esler]

Originally posted by @John Thedford:

Originally posted by @Harlan Cox:

Originally posted by @John Thedford:

Originally posted by @Jeff Rabinowitz:

At the moment there have been few prosecutions of those calling themselves wholesalers and acting disreputably.  The proliferation of "practioners" is getting the attention of the licensing boards of several States. Once an Attorney General or two joins the fray wholesalers may change their mind about the risk profile. At the moment, I would agree that is not likely that a "wholesaler" will be fined or prosecuted in most jurisdictions. However, the consequences if you are chosen as a test case are serious--potentially life changing. I also think that it will become more and more likely that individuals will come before boards in the near future. Remember, there is an army of licensed Realtors out there, many of whom think this is their turf and are more than happy to give the licensing departments a call when they see people practicing without a license. So, as Clint Eastwood once said, do you feel lucky?

 The consequences of being charged with brokering without a license in Florida are not necessarily from a criminal standpoint. That is possible. The state classifies this as a felony. Another consequence should they not prosecute is a cease and desist order and a civil fine. If someone has this occur, it may forever bar them from practicing real estate. If you love this business, love the opportunities, etc...stay within the law. We have two locals that the state has found complaints against them to be legally sufficient. Their names appear on the state website where you can look up complaints for unlicensed activity. No matter the end result, having this as a public record with ones name attached is very negative and may affect their ability to do business even in a lawful manner. I don't know either party, but under no circumstance would I deal with them.

 My question now is, how could one be prosecuted for wholesaling properties. Are there certain contingencies that need to be placed in my contract in order for me to avoid a "brokering without a license" charge or should I just have a REA review my contract to avoid any legal trouble.

It is my understanding that once a "wholesaler" starts advertising a property they do not own, that violates FL law re" brokering without a license. Under FL law that is a felony. You can go to the state website www.myfloridalicense.com, then go to unlicensed activity, and then search the unlicensed complaints. If you broker a contract, that is legal. If you advertise the house rather than the contract, that is brokering without a license. We have a REIA in the area where they teach members to illegally broker. They may not see it as that but the state does. They go so far as to encourage "wholesalers" to get signed agreements from the homeowners giving them permission to "show, market, advertise" etc the property. What do you think a listing agreement does? Gives the brokerage permission to show, market, etc the property. Just because someone gives a "wholesaler" permission to commit illegal acts doesn't make it defenseable! There are at least two local "wholesalers" where the state has determined there is probable cause due to complaints for unlicensed brokering. I could give you written permission to rob a bank but...that won't protect you:) As far as giving you advice or contingencies to protect you I can't offer anything. My best advice would be: talk to the DBPR to make sure your actions are lawful. They are the ones that investigate and recommend action against people they believe are violating license laws for any profession regulated by the state (real estate, hair stylists, contractors--there are dozens of them). My biggest concern for most "wholesalers" is the making of promises under false pretenses. If you want to BUY a house, sign a contract. If you don't intend to BUY it, signing a contract stating you do is dishonest at best. As far as HOW could someone be prosecuted: it is there in the state statutes. Contact DBPR for clarification. You can go on the BP marketplace and find several people that are probably brokering without a license. Eventually, they will be discovered or turned in and then they will have to deal with whatever the state decides to pursue. If the state finds that someone is brokering without a license, I would be concerned whether they could ever get a license to operate as an agent or maybe ANY professional license?

 OP:  You are looking at 3rd degree felony in the state of Florida if you are found guilty of advertising property without a real estate license.  That will get you up to 5 years prison time, 5 years of Probation, and/or $5000 fine (not including personal expenses, lawyer, etc.)  

I believe collecting a commission without a license bumps you up to a 2nd degree felony. 

There are obvious ways to avoid this but all it takes is written complaint from a competitor, a sour buyer, or a real estate agent/broker to cause havoc.  

[Jay Hinrichs]

@Aarin Esler  and or the state trolling BP market place or here for that matter.

I put an add on market place looking for a NMLS broker to broker some NV mortgages for me. I got a letter from the state within 5 days.. wanting to know why I would consider this without a NMLS license in their state.. I had to them file a formal reply... and tell them I was looking for a broker and I had never brokered a loan myself in their state.. they just wrote me back today case closed but If I ever broker a loan in NV without a license they will no doubt come down on me harshly.

Its just a matter of time when the states RE divisions start to take the same stance with those that use websites and craigs list to act as RE agents without proper licensing.

wholesalers in my mind is they truly want to do that they need to buy their inventory just like  a USed car dealer.. Or arrange a money partner that will floor inventory for them. for a split of profits.. close on the deal then resell it.. I think this model of flipping houses without a license and that you never close on has done exactly what we see here on BP it brings out all these folks that have ZERO experience and they are let loose on the poor public with who knows what kind of consequences.

And Frankly If I was  a licensed RE broker in FLA and the laws are as you state if an unlicensed wholesaler sent me a solicititaion with description of the house I would just forward that to the state along with a complaint.

[Roy N.]

Originally posted by @Harlan Cox:

 If you wish to be free from any concerns over brokering without a licence, purchase the property (finance it, close it) first.  Then turn around and resell it.

[Janell B.]

Originally posted by @Harlan Cox:

Hello BP community. I am new to wholesaling homes in the Maryland area so at the moment I am trying to make sure I have all the proper information in order to complete a deal successfully. If I put a house under contract only to find out that there is no one willing to purchase the home, how would I back out of the wholesale deal. Is there certain text that needs to be in my contract? Is there costs for backing out of a wholesale deal? I am not aware of the specific text that needs to be in my contract that will enable me to leave a deal at any time.

Hi Harlan. I agree with Matthew Kreitzer. It's best for you to consult the licensing authority in Virginia or a VA attorney in regards to how you should handle your situation or if a license is indeed required for you. I'm not going to jump to conclusions and say you're breaking the law if you're attempting to broker a deal. Licensing laws vary from state to state so you can't really pay attention to people giving you advice about FL real estate laws when you're in VA unless I missed a reference to FL in your post.

Good luck and I hope you find out the info you need.

[Larry K.]

@Harlan Cox

Did you escrow an emd? I would think if you gave the owner the deposit you can get out of the deal. That was the deal right? Or at least it should have been.

[Daren H.]

I am not a wholesaler lover or hater and I don't know Mr. Cox from a can of beans but I agree with him. Bill was disrespectful in giving advice. Then you have co-signers saying you should have thicker skin. How about you stop being an *******? I don't care if you invented dirt, wood, and built the first house ever. If you have to deliver your REI advice in a disrespectful manner, that is not advice in my opinion, that is the equivalent of bullying.

[Brent Coombs]

@Daren H., I was already able to tell that @Bill Gulley was not trying to be personal in his insults - they were intended to be generic advice - it's just that @Harlan Cox was an easy target (think: the Donald school of tactfulness). Note that Bill HAS now apologized by updating his post. Now please let's move on...

Harlan, did you get your answer re: Brokering without a License, in your State?

[Breynan Hammons]

@Harlan Cox I'll say this good for you getting out there and trying! Most people sit on the sidelines talking about being an RE investor without taking action. With that being said I would try to find someone more experienced in your area that you could work with or lean on for advice (like a mentor).  I can not speak on the legal aspects of doing wholesale deals in FL, but you may try building a buyers list of rehabber and buy and hold investors first. Find out exactly what type of properties they are looking for: Area, price point, condition, margin of profit needed etc...that way the next time you get into a situation where you think you have a deal you can put in under contract with a buyer already in mind. 

Keep trying, don't give up, and remember failure is just one step closer to success! 

[James S.]

This post went way left really quickly....  Take in the good advice and overlook the bad. This post is a reflection of the business, there are those who want to help and those who will offer "negative" criticism. 

Do business with integrity, seek advice from professionals, and do everything the legal way. Your doing the right thing by reaching out.  

Hang in there! Keep reaching out! and Be Encouraged! :)