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

Buying & Selling Real Estate
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wholesaling / contract assignment in Pennsylvania... Is It Legal?

Jeremy Tolley
Real Estate Agent · York, PA · Member since 2018 · 11 posts · 10 votes

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!

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Chris K.
Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
8y

@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.

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  • Chris K.
    Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    @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.

    2Reply
  • Luis Vanderhorst
    Investor · Reading, PA · Member since 2018 · 4 posts · 1 vote
    7y
    Did you mean a lease option?

    • 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. 
    1Reply
  • Chris K.
    Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Luis Vanderhorst

    No. Lease option is a different tool than recording an option for wholesaling purposes. 

    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.

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  • Alex Acosta
    Real Estate Agent · Queens NY · Member since 2018 · 18 posts · 16 votes
    7y

    @Chris K.  hey Chris where can i find this option document that i can use in Pa ?

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  • Chris K.
    Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Alex Acosta

    There's no standard form in Pennsylvania. You will need to work with an attorney or find a pre-existing form. It's not the easiest form to standardize since one could use option agreements for 100 different purposes. 

    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.

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  • Alex Acosta
    Real Estate Agent · Queens NY · Member since 2018 · 18 posts · 16 votes
    7y

    @Chris K. thanks , appreciate the insight . Sounds like a process to get this option form i will do more research im sure its somewhere. So pretty much with this approach the department of revenue wont intefere and tax me? What if i get the end buyer to agree and pay all fees would they still come after me ? 

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  • Chris K.
    Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Alex Acosta

    Depend on the exact structure of the deal. The net deal using the Options method will still trigger at least one transfer tax. Assignment method can do funky things depending on what happens. Liability wise, the Department of Revenue generally doesn't care where the money comes from --- they just want to collect what they can collect. So really, the goal is to get the realty transfer tax amount correct regardless of what method you use.  

    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.

    0Reply
  • Alex Acosta
    Real Estate Agent · Queens NY · Member since 2018 · 18 posts · 16 votes
    7y

    @Chris K. Gotcha,  thanks Chris .

    0Reply
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