Wholesaling without a license in Texas

[John Cantu]

Hello! 

I'm new to REI and like many, think it's a good idea for me to get into whosaling. I recently ran across the debate of wholesaling being illegal without a listense because the wholesaler is essentially brokering a deal. I've read different things from different people and am a little confused as to if I need a license in the state of Texas or not. Can anyone shed some light?

[Derek M.]

@John Cantu  Hi John,  

Figured I'd jump in here real quick.  I do a lot of deal in the Houston market and there are certainly things to know (this is all pertaining to Texas specifically).  For instance, some wholesalers couldn't really tell you what equitable interest is, what their contract accomplishes, or how the legal spectrum works regarding the whole process.  One reason why some wholesalers get in trouble is because they are marketing a house for sale while not being licensed.  That's a big no-no.  They aren't selling a house, they are selling their equitable interest (they may say that or kinda know it in their head, but they can't articulate that in any of their marketing or conversations).  In fact (I don't have the code in front of me), look through the TREC rules and it specifically states you can sell your interest in a deal if you have equitable interest.  In Texas you actually have equitable title.  (Fun Fact: Equitable Title means you basically own the house once you sign the contract, however the deed transfers at the closing.)  So what does all this mean?  Well, ever heard of daisy chain wholesalers?  (Wholesalers who market other wholesaler deals) What are they marketing exactly, and under what authority are they doing it?  First, most are sending out email blasts, CL posts, FB posts, etc, saying House on such and such street selling for 100K, or asking 100K.  What is a reasonable person going to believe?  Either that that wholesaler is the owner of the house or a licensed agent.  If questioned, they don't even have a legal interest in the property.  What grounds do they have do defend themselves?  

To do it correctly involves a few things. First, run your business correctly... don't try to screw over a seller (I see that so many deals get thrown around that it devalues the human element of there really being a seller who is really depending on you to bring 100K cash to the closing table). You aren't providing a service, you are fulfilling a contractual obligation to close on a real estate transaction, unless there are issues that allow you to get out of the contract (inspection issues, etc). Second, have equitable title (be in contract directly with the seller, or somewhere in the chain). Does a JV count? I wouldn't think so, not in terms of equitable interest. Third, have a good contract (yes, it's smooth not to have earnest money, but does that open you up for all damages under law, as opposed to damages equaling your earnest money deposit?). Fourth, have some intent to buy the house or houses in general. Did you contract with the intent to assign? Well, then maybe you have some partners who work with you and buy your houses. Or maybe you can say, yes, last year my company bought 7 properties, however we also assign some that end up not meeting our business model. Sometimes we buy them and other times after we do our due diligence we decide to sell our interest to another investor, etc. Fifth, do you default on a lot of contracts? Are you arbitrarily locking up deals and moving 20% of them? Well, that means you're screwing 80%. Or are you running your business right and working your numbers so there are several exists.

I've done a lot of assignments and I also buy a lot of houses for short term flips and long term holdings.  I've thought a lot about this issue because, as you've stated, it's come up in our market a lot over the past year.  I'm not an attorney, and all of what I said is merely my opinion from my experiences, but the bottom line is to know the nuance pieces of the law.  You can't sell real estate without a license, period.  However, you can sell your contract.  But you can't market your contract like you're selling real estate, or you won't pass the sniff test.  I've developed specific processes and procedures over the past month to handle all this.

Oh, as a bonus, my favorite piece of info for agents who wholesale (I'm not an agent by the way) is that TREC also states they must show a CMA or get a BPO and provide it to the seller if they want to work the deal off market. Mr. Seller, once you repair your house it will be worth around 120K based off this printed off analysis that I'm really good at because I'm a trained Real Estate Agent, but actually, that information aside I'm willing to give you 32K cash for your house and can close in 3 weeks. How many agents do that??? lol, I bet very very very few.

Just my personal advice, but I hope that helps a bit.