I need information wholesaling is it legal?

Question

I would like some info please wholesaling is it legal?

Charlie MacPherson · Answer

@Larry Waters  In most states, marketing a property that you don't own is a license-required activity.  I've dug very deeply into this in Massachusetts and according to the State Board of Registration in Real Estate, you cannot engage in wholesaling (assigning contracts) unless you actually own the property - and that's more often referred to as "wholetailing".  (I recently moved to Maine and have not done the deep dive on wholesaling here yet).

As I understand it, almost every state has the same kind of laws.  These laws are put in place to protect the public from unscrupulous operators, which is what most wholesalers are.

I say this because the only way a wholesaler makes a profit is to steal equity from the seller.  If the wholesaler puts a house under contract at market value, who is he going to assign that contract to?  And at what markup?

Here's a real life example - About 6 months ago, I had a case where I came across a seller who was about to take an offer from a wholesaler who outright lied and bamboozled them into thinking that their house needed so much work that the most they'd ever get for it was his offer of $223,000.

I knew that market well and knew that the wholesaler was a lying sack of crap.  I showed the sellers my comps that said we should be able to sell at about $345,000. They listed their home with me and I sold it for $344,000.

I saved them from a $121,000 screwing.

No, wholesalers have to find people who are either unaware of their home's true value or are so desperate to get out of a jam that they have to take a bad deal.  In RARE cases, a seller may be willing to leave money on the table for their own reasons, but even then and even with full disclosure, assigning a contract is still a license-required activity.

So dig into the laws in your own state. That alone must be your one and only guide.  Not my opinion and certainly not the opinions of gurus who want to sell you on expensive seminars, nor those here on BP who think they have a way to work around the law.

My best advice is to get your real estate license.  In both Mass and Maine where I'm licensed, the exam is incredibly easy.  Do it the right way and you'll never have to worry about the state regulators or angry family members coming after you.

Good luck!

Will Barnard · Answer

Wholesaling is not illegal in any state but in every state, there are ways to wholesale illegally.

Brokering without a license is any one of the following: negotiating a price with seller for the benefit of another, marketing a property you do not own, receiving financial gain for bringing a buyer and seller together.

To do it legally, you either need to get a real estate license or have your buyer lined up in advance, use a new entity or trust to vest your offers in with the buyer being an owner of the entity (or beneficiary of the trust). This way you are a principle in the purchase transaction, you are not marketing the property to others as you already have your “money partner” and then you sell your interest in the entity or trust for your fee. That would be legal anywhere.

Or you can negotiate contract, close on it, once you are on title, market it for a higher price to the public and make your profit. That too is legal.

Larry Waters · Answer

@Mike Cumbie cool thanks I just found out it is illegal in Illinois, I think I m gonna check with a lawyer.

Mike Cumbie · Answer

If the definition of "Wholesaling" is buying (closing) a property cheap and selling it for a profit, then I do not know of anywhere that is illegal.

If the definition of "Wholesaling" is get a house under contract without the ability to purchase it yourself. Then market that property hoping to find a buyer that will purchase your contract.....That opens up a ton of grey areas.

For instance if you are buying 200 widgets for $1.00 each and selling those widgets for $20.00 each that is "Wholesaling" and the core of our markets (and a Rockstar move). Now if you are going to the manufacturer and claiming to buy 200 widgets, sign a contract and can't kick in the $200. But hoping to find buyers to buy your contract (for a profit to you). Well you are no longer "wholesaling". You are now acting as a distributor/broker which requires a license and oversight (in the Real Estate world). The biggest difference is that you now have 75% of someones net worth and as a society we have decided it is a licensed activity.... With oversight and rules.

So states vary and areas vary. My first recommendation is to define what you consider "Wholesaling" and start the conversation there.

Good Luck!

Larry Waters · Answer

@Barry Pekin as a newbie I find that unfortnately people are in such a hurry to sell their products that they dont tell you the ramifications  you may encounter. As one guru told me once long ago,people are trying to get something for nothing,well I think it may go both ways.

Larry Waters · Answer

@Charlie MacPhersont thank you

Larry Waters · Answer

@John Teachout copy that. It seems most of the so-called programs are ... cookie cutter methods. I am guessing direct mailing would be illegal,correct?

Barry Pekin · Answer

@Larry Waters,

Sit back and watch this thread explode.  This is a very heated topic here on BP.  I suggest you take some time and read other threads in here where people have asked the exact same question.

Yes, it depends on where and how, but it is legal everywhere.  What???  Someone's going to yell at me for that.  However, I'm pointing out that you have to do it right and to follow the local laws.  Illinois, for example, recently passed a law making it mostly illegal.  They'll let you do one per year, and you have to do it correctly.  However, if you get your license, then it's not a problem - again, if done correctly.

Start attending your local REI events as much as you can.  Learn what people are doing in your area.  Build up a network and talk to your local experts/attorneys.

John Teachout · Answer

In most areas, the way most do wholesaling it is not legal but rarely prosecuted. Marketing real estate without a license is what is illegal in most states and despite the semantics used by many wholesalers, most people that don't have a real estate license are violating that law.

Aaron Poling · Answer

This is a very broad question. It really depends on the location you are in, and the process in the way you do it. From what I understand it is typically legal in most areas as long as you do things the correct way.

I need information wholesaling is it legal?

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