Wholesaling (Against the Law?)

[James Sinclair]

I have not wholesaled a house and finding one that would make a acceptable deal, for a buyer, is very difficult in our area.  I have done two fix and flips and they are a lot of work and a fair amount of risk as well. Selling a deal and making a profit, with little risk, could be a better option that doing the work.  

So is wholesaling against the law?  Does anyone really know?  Do we just have a bunch of realtors out there, that resent anyone doing anything that could possiably put money in their pocket, trying to scare off wholesalers?  Do you know of anyone selling their assignable contract being prosecuted for braking some law?  It appears that most of the negative comments about wholesaling seem to be efforts to protect realtors turf and little to do with protecting the public.  Is the real truth out there because there are a lot of people promoting wholesaling.

[Ned Carey]

Well I firmly believe that in most states as the law stands now, it is perfectly legal to wholesale by assigning a contract. However laws change and the trend is against wholesaling. 

Despite that, is it possible to "wholesale in a way that is not legal?" - Absolutely yes. However it is in most cases absolutely possible to comply with the law while assigning a contract. 

• Most state's laws say that putting together a buyer and seller for consideration "For Another" is brokering without a license. You are not doing it on behalf of another when you wholesale properly. You are bargaining against the seller for your own interest on the buy side, you are bargaining against the buyer for your own interest on the sell side. Many claiming wholesaling is illegal totally ignore the "for another"part of the law. 
• Many well respected  members here say to be honest with a seller and that you are going find another buyer buy the property. This is essentially saying you are helping them find a buyer or helping sell the property. This I think crosses the "for another" line and now becomes a questionable practice.
• Real estate brokerage laws were designed to protect consumers of brokerage services from unskilled practitioners. Since you are bargaining on your own behalf you ARE NOT breaking the INTENT of brokerage laws.
• Therefore when wholesaling properly, you are complying with both the letter of the law and the intent of the law.
• The Realtor supported Multiple list system in MD allows you to list a property you have under contract. A clear indication that it is legal to assign a contract.
• Now are there bureaucrats which are trying to stop the process - yes. , In OH for example, threatening letters have been sent out to investors. Yet a very successful investor, with boots on the ground in OH was unable to get the bureaucrats to put in writing the exact law and basis for any fines. This investor and the investor's lawyer believe the reluctance to put in writing the exact violation means, they know they do not have a legal basis for their actions. Now this is only one investor/lawyers opinion, buy it shows even  in the most contentious state there is reason to believe it is legal.

None of the above is intended as legal advice for any readers specific situation.