Any States Against Wholesaling?

Question

J Scott · Answer

Since most wholesalers aren't represented by an agent/broker, this is an excellent point to consider.  That said, slightly deviating from the topic for the sake of knowledge, let me throw this out there...

In Wisconsin, there is a law that also says you're not allowed to sell more than 5 properties in a year without being licensed.  After speaking with several prominent attorneys and also talking directly to the real estate commission, everyone seems to agree that as long as you are represented by a licensed broker for your transactions, you can sell as many houses as you like without being licensed.

The law is horribly written in Wisconsin (leading a lot of people to believe you're not allowed to sell more than 5 properties even with a broker), but as all the attorneys we spoke with said, prohibiting people from selling as many properties as they'd like is a violation of basic rights, and likely wouldn't hold up in court if anyone tried to challenge.

I'm not challenging anything Rob said...just wanted to add more info in case anyone cared...

J Scott · Answer

As evidenced above, you're going to get lots of different responses and lots of different opinions.  Because the letter of the law isn't always what matters, us quoting the law isn't necessarily going to answer your question.  The fact that you have an attorney is great -- what he tells you should supersede anything we tell you, as he has some liability...we don't.

I will say this (though I'm certainly not a lawyer):

- Assigning contracts is legal in any state.  That's contract law, not real estate law.  As Bill pointed out, you need to be certain you're not violating license law (including Bill's great point about disclosing), but assuming you're not violating license law or ethics standards of any governing body you're part of, I don't see how assigning a contract can get you in trouble (though again, I'm not a lawyer, I'm just another idiot who likes to think he understands the law).

- Buying outright and then selling outright a property is legal in any state.  Again, as long as you're not violating license law, not breaking any rules of your brokerage and not violating any ethics standards, I can't imagine you can get in trouble for buying a property outright then turning around and selling the property outright.

Now, there's a whole lot of gray area between not wholesaling and doing the two things above -- this is where you likely want to be careful.  Marketing property that you don't own, simultaneous closings, double closings, acting like a broker doing a net listing, etc. -- these are all things where both the law and ethics are probably a little bit more fuzzy, and taking the advice of your attorney is most certainly warranted.

Lastly, did I mention I'm not an attorney?  I don't play one on TV.  And I didn't even stay at a Holiday Inn Express last night.

J Scott · Answer

If you do it incorrectly, it's illegal in every state (brokering without a license).  If  you do it correctly (contract assignment or purchasing/reselling) it's legal in every state.

Look through older threads and you'll find a lot more detailed information...

Bill Gulley · Answer

Not sure I followed Tim. ?

But, a very large Realtor in Mo had a popular "program" we list it and if we don't sell it, we'll buy it! Well, then the details, the purchase would be at a lower price usually and there were still commissions involved. Problems arose that the agents were not really doing all they could in providing professional services (not so true, but that was the claim) and thereby putting an owner in a position to sell to them at a lower price. That program was halted! Very similar to the wholesaling issues discussed here, not the same but very similar.

The issue arises when any professional offering services offers some other option and denies or sways a client from a better course of action, customarily done for similar clients, and greatly benefits from the option given. True in all professional services, law, accounting, RE, medical, stock brokers, engineers, etc. Then it becomes an issue of bait and switch type schemes or other underhanded tactics. If in that process you give bad information to sway a client or the public, issues of fraud could arise and a host of ethical practice violations. It is not what you do so much as the perception of what you could be doing. People, after realizing they lost money take on different attitudes.

Those deemed to act in professional positions in serving the public are held to a higher standard than an ordinary person. The perception of your actions count.

IMO, it would be much better to approach a seller with a purchase offer and disclose your agency and license as Bill M. was saying and never mention listing it, but inform them they could (with someone else) if they wanted to, especially if you are not an active Realtor specializing or doing considerable business listing properties and make that known. It would be more like saying I have a license but this is what I do, I don't usually list properties for the public.

Wholesaling with a license can be a touchy aspect, not impossible, but you really need to take additional measures, approach with a greater awareness and ensure fair dealing. If you can't master that and grasp the bigger picture I'd suggest you do something else, IMO. :)

Tim G. · Answer

not really states per se, more so people or mentalities is how I would put it.

Shaun Reilly · Answer

Okay I'm glad that was how you saw it too @J  Scott

since I was thinking that too.

Any agent that is dumb enough to try to wholesale and somehow get a commission on that same deal is going to get into trouble at some point.  If you are wholesaling work those leads fully independent of anything you are doing as an agent, other than disclosing that you are licensed.

Grey areas I can see are if you get a lot of prospects that won't work as wholesales but would be possible retail listings.  If so I guess you could:

1) Take the listing.  If you do that drop ANY thought of wholesaling it even if they get very motivated and would eventually take terms that would have made it a good deal.

2) Refer it out.  Seems much safer overall.  I'd probably still stay away from buying it even if they called you back and asked if your original deal was still available after the listing with the other agent expired.  This might be okay but seems like more nebulous and I wouldn't want to risk it.

3) Tell them they may want to list it, not offer to list it or refer them someone, and ask that they call you back if that doesn't work out.  Then I think you could work the leed later on like anyone else.

Rob K. · Answer

The closing statements need to be signed by the broker. If I sell one of my own properties, I don't charge myself any commission. I still need to sign the buyer and seller statements as the broker.

If you we're selling a property without a broker, the statements don't need to be signed, but that can only be done five times per year if you're unlicensed. If you are licensed, I'm pretty sure that you can only sell your primary residence without a broker.

Rob K. · Answer

Michigan's law is probably the same or similar. Here, you can buy as many houses you want without a license, sell as many as you want with a licensed broker, or sell up to five per year without a license.

J Scott · Answer

I can't imagine anyone would even consider suggesting that the OP should take a commission on the deal.  That would clearly pose potential legal issues.

I assume we're all in agreement that that's not the case...

Any States Against Wholesaling?

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