Is Wholesaling Real Estate Illegal?

Is wholesaling real estate illegal? Discover the ins and outs of the legality of real estate wholesaling as well as some recent anti-wholesaling laws impacting creative real estate investors in certain states. While this video does not provide legal advice and you are strongly encouraged to seek the counsel of an attorney on such matters, this training is so authoritative that you are encouraged to send to your attorney. If you were to get yourself into some hot water with your state's real estate commission, the wisdom shared below will help your attorney build a solid case for your defense. If you are, or plan to be wholesaling, this is a must watch video for you:

Real Estate Licensing Laws

Each state has its own set of laws that govern which actions can be taken by licensed real estate agents. This is where wholesalers run into trouble. How can a wholesaler who has a property under contract (not yet owning it), legally sell their property without breaking any real estate laws? Let's analyze their viable options.

#1. Fully Executed

A fully executed bi-lateral purchase agreement with intent to purchase MUST be established! Let me break this down for you. Fully executed meanings that the buyer and the seller both have the authority to sign. A bi-lateral purchase agreement means there is an agreement between the buyer and the seller. Lastly, with intent to purchase, it means that you have the intent to execute on this agreement, not simply trying wholesale under contract.

By doing this you will have established equitable interest in the property.

#2. Exclusions

These licensing laws exclude when you are the title holder/owner or if you have an interest in the property. But why the latter rule? They have to exclude those who have an interest in the property in the case that there is more than one heir so you are able to sell the property, transferring the deed after everyone else signs. This rule is often hated by real estate commissions because it is a legal loophole that allows you to wholesale!

#3. Constitutional Right

"Free Alienation of Property," is just a fancy way of saying that you have the right to sell what you possess. This ties back to the previous rule of exclusion that allows you the right to sell your property, even if others are interested.

This trio of rules is what allows you to wholesale real estate without violating any real estate licensing laws. Texas is a great example of this, as their Pro-Wholesaling Law provides a great example to understand how wholesaling can be legal.

Reverse Wholesaling

This is NOT legal. You cannot start with the buyer in wholesaling. This involves looking for a buyer, then finding a property they want. You must start with the seller and deal first, then find your buyer. The argument that is made will say that if you start with the buyer, you never had a true intent to purchase. If you want to be on the correct side of these laws, I suggest you start with the sellers and then go out and find a willing buyer. This will keep you out of trouble.

Illinois Anti-Wholesaling Law

The next caveat is the state of Illinois. The state passed a law that requires anyone who buys or sells more than one property within a 12-month period, must have their real estate license. This is an anti-wholesaling law encompassing everyone, not just one kind of investor. My advice to my aspiring real estate apprentices in Illinois is to get a real estate license! This will remove any barriers to wholesaling by simply getting a license.

Oklahoma Anti-Wholesaling Law

This Oklahoma anti-wholesaling law states that you do not have the right to list/market the property for sale unless you are the owner of the property. This is a pretty clever, stopping wholesaling right in its tracks! While this law has not yet passed, it is the real estate commission's way of signaling to brokers that they cannot list properties where they are not the legal title holder. You do have power, and can fight back against these pervasive laws that will slow down the real estate process, affecting YOU! Check out this law being passed in Nebraska as well to combat wholesaling real estate.

There are some other laws in regards to flipping houses that I have a free training for! Check it out here: Is Flipping Houses Illegal?

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