wholesaling / contract assignment in Pennsylvania... Is It Legal?

[Jeremy Tolley]

Hey guys, I am new to Bigger Pockets and I am so glad that I found it. I am new to the world of RE investing and in fact still in the educational part of it. Complete a first deal in the next 3-6 months is a personal goal I have set for myself. I had done massive amounts of research and read books upon books about real estate investing. One of the biggest questions I have because I am hearing so many different things from different people in my area is if wholesaling a property or assigning a contract is legal in PA. I have gotten several different answers about this and I am sure that this has been brought up on these forums but I can find anything that was updated recently. Some say that it can land you in a tough situation because when wholesaling or assigning a contract you are essentially acting as a RE agent without a license. hopefully someone can shed some light on this topic for me. I will actually have my RE license in about 6 weeks anyway. Also I am aware of Pennsylvania also have some taxation that must take place when assigning contract. A title company that I spoke with had mention something they called a double transfer tax. This is all new information to me. Can someone please break this down for me? any comments and suggestions are appreciated guys. Thank you!

[Chris K.]

@Jeremy Tolley

If you do a search on the BP forums, you should be able to find more detailed answers. The short version is that:

• Until an appellate court rules on it, we won't know for sure whether wholesaling is legal. I would probably say that the more salesperson-type activity you do (e.g. posting about the deal in craigslist and other similar places), the more likely that you will run into trouble with the State Real Estate Commission. 

• Assigning a sales contract for real estate is a taxable event. Thus, you would have to pay transfer tax for the assignment and the eventual purchase. Some people risk this in the hopes that they don't get caught. People can do whatever they want, but I have a hard time seeing how a wholesaler can get out of trouble if they get caught. 

• You'll find many posts about wholesalers not being able to find a "friendly" title agent. Now that I've interacted with many wholesalers, I think one of the reasons why they can't find a friendly title agent is that they don't want to pay double transfer taxes. No competent title agent will close without paying double transfer taxes. 

• To get around it, you can use the option method. That does incur some additional fees (e.g. fee to record the option document, fee to draft the document, etc.). But from what I can see, I do think it's a legitimate way to avoid paying transfer taxes twice. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.