Wholesaling (Against the Law?)

Wholesaling
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Wholesaling (Against the Law?)

James Sinclair
Austin, TX · Member since 2013 · 123 posts · 27 votes

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.

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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
10y

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.

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  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y

    If you are marketing the house whether or not you're under contract without a license is against the law as you are brokering without a license. You can't advertise or sell something you don't own.

    So the traditional way to wholesale(find a discounted property,get it under contract and market it to a cash buyer)is starting to get the attention of state regulators especially in California,Ohio and Florida and fines and jail time are being issued to those who are marketing/selling properties they don't own without a license.

    So unless you can find a way to market your contact without marketing the property itself which isn't against the law you'll need to either get your RE license or find another REI strategy.

    2Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y

    That should be contract not contact. A kingdom for an edit button!

    3Reply
  • Todd Plambeck
    Agent/Investor · Murphy, TX · Member since 2013 · 542 posts · 304 votes
    10y
    Originally posted by @James Hiddle:

    If you are marketing the house whether or not you're under contract without a license is against the law as you are brokering without a license. You can't advertise or sell something you don't own.

    So the traditional way to wholesale(find a discounted property,get it under contract and market it to a cash buyer)is starting to get the attention of state regulators especially in California,Ohio and Florida and fines and jail time are being issued to those who are marketing/selling properties they don't own without a license.

    So unless you can find a way to market your contact without marketing the property itself which isn't against the law you'll need to either get your RE license or find another REI strategy.

     And how many states are you licensed to practice law in?  That sounded a lot like legal advise...

    1Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y
    Originally posted by @Todd Plambeck:
    Originally posted by @James Hiddle:

    If you are marketing the house whether or not you're under contract without a license is against the law as you are brokering without a license. You can't advertise or sell something you don't own.

    So the traditional way to wholesale(find a discounted property,get it under contract and market it to a cash buyer)is starting to get the attention of state regulators especially in California,Ohio and Florida and fines and jail time are being issued to those who are marketing/selling properties they don't own without a license.

    So unless you can find a way to market your contact without marketing the property itself which isn't against the law you'll need to either get your RE license or find another REI strategy.

     And how many states are you licensed to practice law in?  That sounded a lot like legal advise...

     Oh so by your definition if I say it's against the law to rob a bank I'm practicing law and giving out legal advice. Get real!

    No it's not legal advice but if you don't believe me I suggest you either contact a RE lawyer or your states RE commission and see for yourself.

    Oh by the way if that was true then a lot of us here at BP are in trouble because there are some here that been over the last few months saying the exact same thing.

    1Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    It depends on your state, their laws, and your actions. If you put a property under contract in Florida and then advertise the house without owning it, yes, you could face fines of $5000 per chapters 475 and 455. You asked..and that is my final answer.

    0Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    BTW---this topic has been beat to death more times than a dead horse. @Bill Gulleyand @Brian Gibbons.

    1Reply
  • Dev HornPro Member
    Flipper/Rehabber · Arlington, TX · Member since 2013 · 1k+ posts · 2k+ votes
    10y

    This question will result in you being told a bunch of crap by people that have no idea what they are talking about, especially if they don't live here in Texas.

    There is no problem - legal or regulatory - with wholesaling in Texas.

    2Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y
    Originally posted by @John Thedford:

    It depends on your state, their laws, and your actions. If you put a property under contract in Florida and then advertise the house without owning it, yes, you could face fines of $5000 per chapters 475 and 455. You asked..and that is my final answer.

     Careful John that sounds like legal advice!

    1Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y
    Originally posted by @James Hiddle:
    Originally posted by @John Thedford:

    It depends on your state, their laws, and your actions. If you put a property under contract in Florida and then advertise the house without owning it, yes, you could face fines of $5000 per chapters 475 and 455. You asked..and that is my final answer.

     Careful John that sounds like legal advice!

     Amazing how some people don't like answers to their questions:) Maybe they should not ask:)

    0Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y
    Originally posted by @Dev Horn:

    This question will result in you being told a bunch of crap by people that have no idea what they are talking about, especially if they don't live here in Texas.

    There is no problem - legal or regulatory - with wholesaling in Texas.

    So in Texas you can contract a property and market/sell it complete with pics,address,ect to anyone that wants to buy it without a RE license?

    If so prove it or can you?

    0Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y
    Originally posted by @John Thedford:
    Originally posted by @James Hiddle:
    Originally posted by @John Thedford:

    It depends on your state, their laws, and your actions. If you put a property under contract in Florida and then advertise the house without owning it, yes, you could face fines of $5000 per chapters 475 and 455. You asked..and that is my final answer.

     Careful John that sounds like legal advice!

     Amazing how some people don't like answers to their questions:) Maybe they should not ask:)

    Welcome to the new America where if you speak the truth,people cover their ears and go yadda yadda yadda!!!

    0Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    10y
    Originally posted by @Dev Horn:

    This question will result in you being told a bunch of crap by people that have no idea what they are talking about, especially if they don't live here in Texas.

    There is no problem - legal or regulatory - with wholesaling in Texas.

     Since I coach nationally I need to be abreast of what states are more difficult than others as far assigning paperwork

    Dev Horn, Correct me if I'm wrong but in Texas you can assign a lease or purchase agreement or option agreement no problem without a license

    But it's always helpful to be licensed says you can use a listing as a possible tool when talking to the seller and also get referrals from other licensed agents about problem properties, especially with low equity pretty houses

    Real Estate is local with local customs

    0Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y

    I don't think the issue is assigning the contract but marketing the property without being licensed is the issue.

    1Reply
  • Jill DeWitPro Member
    Investor · Scottsdale AZ · Member since 2015 · 1k+ posts · 423 votes
    10y

    @James Sinclair

    Are you planning to wholesale for someone else or just buy really really low, pay cash so you own it outright, and then turn around and resell for profit? In a nutshell that is primarily my business model and works great! 

    I often sell to other investors who THEN market and sell to the end user. (I am happy with a little profit on a lot of properties.) This is all "legal", you are not representing anyone, and not that hard. 

    AND I love Texas because your part of the country is full of fantastic "unwanted" rural land deals! 

    Hope that helps!

    Jill

    0Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y
    Originally posted by @Jill DeWit:

    @James Sinclair

    Are you planning to wholesale for someone else or just buy really really low, pay cash so you own it outright, and then turn around and resell for profit? In a nutshell that is primarily my business model and works great! 

    I often sell to other investors who THEN market and sell to the end user. (I am happy with a little profit on a lot of properties.) This is all "legal", you are not representing anyone, and not that hard. 

    AND I love Texas because your part of the country is full of fantastic "unwanted" rural land deals! 

    Hope that helps!

    Jill

    So in Arizona you can market a property without a license? As I stated to Dev can you prove it if so?

    0Reply
  • Jill DeWitPro Member
    Investor · Scottsdale AZ · Member since 2015 · 1k+ posts · 423 votes
    10y

    I am talking about For Sale By Owner. That is basically what we do.

    Hope that makes sense. Thanks! Jill

    0Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y
    Originally posted by @Jill DeWit:

    I am talking about For Sale By Owner. That is basically what we do.

    Hope that makes sense. Thanks! Jill

     So you take title then?

    0Reply
  • Jill DeWitPro Member
    Investor · Scottsdale AZ · Member since 2015 · 1k+ posts · 423 votes
    10y

    @James Hiddle

    Is there another way? :) Yes. I pay cash. I take title. I have it legally recorded with the appropriate county. 

    Great questions! Thanks for your interest! 

    -Jill

    1Reply
  • James Sinclair
    OP
    Austin, TX · Member since 2013 · 123 posts · 27 votes
    10y
    Originally posted by @Jill DeWit:

    @James Sinclair

    Are you planning to wholesale for someone else or just buy really really low, pay cash so you own it outright, and then turn around and resell for profit? In a nutshell that is primarily my business model and works great! 

    I often sell to other investors who THEN market and sell to the end user. (I am happy with a little profit on a lot of properties.) This is all "legal", you are not representing anyone, and not that hard. 

    AND I love Texas because your part of the country is full of fantastic "unwanted" rural land deals! 

    Hope that helps!

    Jill

    0Reply
  • James Sinclair
    OP
    Austin, TX · Member since 2013 · 123 posts · 27 votes
    10y

    Jill right now I am just doing "fix and flips" and am flexable on what I will do next.  I like to understand what is in the water before I jump in.  Wholesaleing a deal may be something I need to know about but I don't have a plan for it yet.  It seems to be a subject where there a lot of opinions but few proveable facts.

    0Reply
  • James Sinclair
    OP
    Austin, TX · Member since 2013 · 123 posts · 27 votes
    10y

    jill I don't know why reply did not show up but the answer to your question is just getting information.  I like to understand what is in the water before jumping in.

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    10y
    Originally posted by @James Hiddle:
    Originally posted by @Dev Horn:

    This question will result in you being told a bunch of crap by people that have no idea what they are talking about, especially if they don't live here in Texas.

    There is no problem - legal or regulatory - with wholesaling in Texas.

    So in Texas you can contract a property and market/sell it complete with pics,address,ect to anyone that wants to buy it without a RE license?

    If so prove it or can you?

    I can't speak for Texas, but according to a past attorney that I worked with for a long time, in Georgia, you can.  A valid contract for real property conveys equitable interest in said property, and with equitable interest, it is legal to advertise the property for sale.

    Again, that's just Georgia, and that's just based on what I was told by an attorney.  I'm not one, so I can't provide any personal opinion...

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    1Reply
  • Brandon Ingegneri
    Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    10y

    I have caught grief on this site about wholesaling from people.  In all honesty, Ive done a bunch with a bunch of attorneys, and I openly list them as assignments on my tax returns.  That should be enough of an answer I am hoping.  As far as marketing something that you don't own... You aren't if your doing it properly.  Be honest and upfront.  You are selling something that you do own... the contract.  That is yours, and you can sell it.  If I am wrong, there are about 4 dozen RI and MA attorneys that may be getting a call from the Bar Association after this post.

    0Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y
    Originally posted by @Jill DeWit:

    @James Hiddle

    Is there another way? :) Yes. I pay cash. I take title. I have it legally recorded with the appropriate county. 

    Great questions! Thanks for your interest! 

    -Jill

    Yes the other way is getting the property under contract,finding a buyer,marketing the property to said buyer and flipping the contract to that buyer without a license or taking title which is what is being disputed around here.

    0Reply
  • James Hiddle
    Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    10y
    Originally posted by @Brandon Ingegneri:

    I have caught grief on this site about wholesaling from people.  In all honesty, Ive done a bunch with a bunch of attorneys, and I openly list them as assignments on my tax returns.  That should be enough of an answer I am hoping.  As far as marketing something that you don't own... You aren't if your doing it properly.  Be honest and upfront.  You are selling something that you do own... the contract.  That is yours, and you can sell it.  If I am wrong, there are about 4 dozen RI and MA attorneys that may be getting a call from the Bar Association after this post.

    It's not what the attorneys say but what the RE Commission says. They're the ones that regulated RE laws at the state level so they're the ones you should be asking not the attorneys.

    @Bill Gulleycan probably explain it better then me though.

    0Reply
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