Is it illegal to wholesale?

[Luigi Bianchi]

I was just reading a response of someone else in another forum and they said that Wholesaling is illegal in some states because you are practicing real estate brokering without a license? So you need a license for it? and why did I not know this???

[Charlie MacPherson]

That's been a hot topic and let me say that as a FORMER Realtor, I have no dog in this hunt.  I've moved on to much greener pastures.

In the two states where I was licensed (Mass and Maine), you absolutely need a real estate license to do anything that causes the ownership of a property to transfer if you do not already own it and you're getting some sort of benefit from it.  Normally that's money, but could be anything of value like another property, a pickup truck, etc. 

This even includes marketing (talking about, advertising, promoting) a property that you have under contract and you'll find that most states have very similar regulations.

I've done my homework on this.  I have talked to both MA and ME State Boards of Registration in Real Estate directly and also confirmed this with attorneys who are familiar with those laws.

There are some very limited exception like being an employee of the seller (as in commercial real estate), some kinds of trustees and the executor of an estate.

One of the most common retorts I hear is "I'm not marketing a property.  I'm only marketing my position in the contract." 

However, if you dig in and actually read the state laws line by line, you'll find that excuse won't work.  It's covered under the definition of activities that require a license.  For reference, the Massachusetts regulations are here: https://malegislature.gov/Laws... 

States are starting to crack down.   Oklahoma enacted the Predatory Real Estate Wholesaler Act in 2021. https://oklahoma.gov/orec/reso...

Here's a good article from an Arkansas attorney.  He explains this very thoroughly - and points out that unlicensed real estate brokering is a Class D felony in that state. https://www.davisfirmpllc.com/...  He emphasizes that the legal way to wholesale is by actually buying the property first - commonly called a "double close".  Once you own a property, there are few restrictions on selling it yourself.  One state (WA?  OR?) has a limit on the number of transactions per year you can do without a license, but I don't know of others.

The reason states are cracking down is that wholesaling is at it's core nearly always unethical.  The wholesaler makes his fee from people that are either in such a bad situation that they'll sell their home for a dirt cheap price so they can get out of whatever jam they're in - or they're badly misinformed about the value of their home. 

License laws are put in place to protect consumers (not generally knowledgeable in real estate matters) against being taken advantage of by people who can are.  If a real estate agent violates these laws, he can be subject to large fines, have his license suspended or even revoked permanently.  Wholesalers have no such regulators monitoring their actions and so consumers are left unprotected.

Here's an example.  I personally saved a young (and admittedly gullible) couple from taking a wholesaler's offer.  He bamboozled them (outright lied) into thinking that their house was undesirable and seriously low balled them.  I actually sold their house for $122,000 more than the garbage offer he made.

In every single case, a seller would come out ahead (and often in the tens of thousands ahead) by putting his property on the open market with a strong Realtor - even if the property is badly distressed.  There is literally nothing that a wholesaler can do that a competent Realtor cannot, including finding a buyer who is "all cash, quick close".

There is an entire industry built up around teaching people to wholesale illegally.  Books, videos, workshops and seminars that are run by gurus who make outsized claims like "I will teach you to be rich".

Of course, if they actually had the secret sauce to untold riches, they'd be doing what they teach instead of hawking seminars - and if they really made all the money they'll ever need and only wanted to share their secrets out of the kindness of their hearts, why isn't the seminar free?

Not only is the first seminar not free (cheap, but not free), it's has very little of the content you went for and is always a pitch for a more expensive seminar. 

The follow up seminar is - you guessed it - a pitch for a far more expensive training program.  Some of these are well into 5 figures.  These guys are famous for coaching people to open multiple credit cards and then maxing them out to pay for the $50,000 coaching.  They're snakes.

My advice is to read the state laws so you'll know what they actually say - and ignore the hucksters who want to drag you into the orbit of their get-rich-easy guru programs. 

Instead, maybe get a real estate license and work in the field.  In the two states where I was licensed, the tests were astonishingly easy.  The barriers to entry are ridiculously low - which explains the large number of knuckleheads with a real estate license.

Best of luck!