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 advised to seek competent legal help from a qualified attorney on such matters, this training is also detailed enough that you can forward this to your attorney too. If you are, or plan to be wholesaling, make sure you go through this training!

State-Specific Real Estate Licensing & Wholesaling Laws

Each state has its own real estate licensing laws and some even have specific laws related to wholesaling. Wholesaling is allowed in most states, but it can be deemed, "practicing real estate without a license" or is outright prohibited in a few other states.

How Wholesaling Can Be Legal

Let's explain how wholesaling can be legal (in most states). Recall that wholesaling is the act of selling real estate that you don't yet own to another buyer and then making a profit for putting the deal together.

#1. Fully Executed Bi-Lateral Agreement with Purchase Intent

First, you must have a fully executed bi-lateral purchase agreement with intent to purchase. "Fully Executed" means that the buyer and the seller both have the authority to sign that contract. "Bi-Lateral Agreement" means that both the buyer and the seller have signed the contract and they both have to perform in order for the deal to consummate. By contrast, when an option agreement is created, it is unilateral. Lastly, "Purchase Intent" means that you have the intent to purchase the property, not simply wholesale it. When you have all three, you establish equitable interest in the property.

#2. Ownership & Interest Exclusions

Real estate licensing laws have exclusions for title holders and those with an Interest in real property (such as via a Fully Executed Bi-Lateral Agreement with Purchase Intent). Otherwise, every homeowner would have to be a licensed agent in order to sell their own property. But what about having an "Interest" in a property? Why is that excluded too? There are situations where there is more than one heir in an estate and some heirs may not be officially be on the title but yet they still have an Interest and so therefore should have the right to sell the property they inherited.

#3. Constitutional Right to Free Alienation of Property

Americans have the constitutional right to the "Free Alienation of Property," meaning, they have the right to sell what they possess. So to require a real estate owner (or interest holder) to obtain a license before selling what they possess could conflict with a constitutional right.

These exclusions are primarily why wholesaling is allowed in most states. Texas is a great example of this, as their Pro-Wholesaling Law clearly shows how wholesaling is legal.

How Wholesaling Can Be Illegal

Now let's cover how it can be illegal to wholesale.

No Purchase Intent

A technique that has been touted by some gurus is "Reverse Wholesaling." This is when you find a buyer first and then search for a property to sell them afterwards. This is problem because it proves that you never had an intent to purchase. Your intent was clearly to wholesale. Creative Real Estate Investors should enter into a contract with a Seller with the intent and capacity to purchase the property but also leave their options open to wholesaling prior to closing if the circumstances warrant that change.

Illinois Anti-Wholesaling Law

The State of Illinois passed an anti-wholesaling law that requires anyone who buys or sells more than 1 property within a 12-month period to have a real estate license. Interestingly enough, that law impacts everyone, not just wholesalers, and is reminiscent of car brokering licenses in many states whereby you can only sell a few cars each year or else you have to be licensed. This law not only forces wholesalers to get licensed, but essentially it forces ANY real estate investor looking to buy more then one property per year to get a real estate license as well.

Oklahoma Anti-Wholesaling Law

The State of Oklahoma passed their own version of an Anti-Wholesaling law that was a direct hit on wholesalers because it states that you must be a licensed real estate agent to market a property for sale unless you are not the legal title holder. This was carefully crafted because it doesn't conflict with

South Carolina Anti-Wholesaling Law

The State of South Caroline passed arguably the most encompassing Anti-Wholesaling Law which not only requires anyone attempting to wholesale to obtain a real estate license but it also then prohibits licensed real estate agents from wholesaling!

Nebraska Anti-Wholesaling Law

Check out this law being passed in Nebraska as well to combat wholesaling real estate.

Iowa Anti-Wholesaling Law

The State of Iowa now has their own Anti-Wholesaling Law which is specific to residential properties (1-4 units) and requires wholesalers to be represented by a licensed real estate agent as well as provide disclosures to all parties in the transaction but it otherwise permits wholesaling to occur.

Pennsylvania Anti-Wholesaling Law

Pennsylvania has an Anti-Wholesaling Law too which requires wholesalers to become licensed agents as well as to provide specific disclosures to all parties.

The Future of Wholesaling

The force behind this movement of new wholesaling laws are the real estate agents that want to eliminate the competition and collect the commissions that investors are earning in the form of wholesaling fees. And they are a powerful lobbying group that real estate investors will struggle to beat. Therefore, expect more and more states to eventually add their own wholesaling laws. What does that mean for you? Learn how to be a full spectrum Creative Real Estate Investor with all the available tools in your toolbelt so that no matter what laws change, you are able to adapt!

Join the Apprentice Program!

If you want to become a full spectrum, world class, market-leading, money-making machine of a creative real estate investor, join the Apprentice Program with Freedom Mentor! Let an experienced real estate mentor guide you and help you enter into the incredible world of real estate.