In our previous blog, we explained how wholesaling has become a major real estate investment strategy and thousands of investors are engaging in it. But all that notoriety has brought the practice to the attention of state real estate governing boards. This blog will discuss some of the licensing and other rules regarding wholesaling.

The first thing you need to understand, is that wholesaling is when you get paid to find a seller of a property and then find a buyer to purchase it. That sounds a lot like what real estate agents do: connect buyers and sellers for a commission. Because it looks like you’re acting as an agent, real estate licensing agencies all over the country are taking a close look at the practice.

So, the first thing you need to confirm is how your state handles wholesaling. A few states have banned the practice altogether. In those states you cannot wholesale a deal unless you are a licensing agent. Other states allow non-licensed individual to wholesale but have some regulations. And other states have said nothing at all. Further, all these rules can and probably will change over time.

Utah falls in the middle. You do NOT need a real estate agent’s license, but there are rules that you need to obey. Most importantly you need to disclosure to the seller that you may not be the actual buyer and that you may assign the contract for a fee. There are other important disclosures like the seller understands that the home is being sold at a discount and they could make more money by listing the home on the open market. The reason for the disclosure is to help ensure that the sellers are not being defrauded.

Fraud is also a big deal. Many wholesalers are really good at negotiating a low purchase price. But there is a line you can cross if you misrepresent the actual value of the property. The Division really gets hot under the collar when they see that that may be the case. Be very careful in your negotiations! Remember, you will be held to a higher standard as a real estate investor because you have greater experience and knowledge of property values.

The third area wholesalers need pay attention to is their wholesaling business. When you treat wholesaling like a real estate brokerage, you may run into trouble. Sending an acquisition manager to negotiate terms and even sign a contract on your behalf DOES require a license! This has always been true and has nothing to do with wholesaling. Someone is negotiating a real estate purchase contract with a seller on the wholesaler’s (or the wholesaler’s LLC) behalf. That’s what agents do: negotiate on behalf of their buyer-clients.

You can negotiate with a seller directly on your own behalf without a license. But only an agent can negotiate terms for you! And because the act of wholesaling does not require a license, the Division is taking a hard look at wholesalers who look like real estate brokerages. So, if you are using acquisition people to do this, they need to be licensed.

If you are an agent, you can also wholesale. All the above rules still apply to you, as well as some additional ones. You need to use the state-approved real estate purchase contract and disclose that you are an agent. You are held to ALL other licensing rules! If you want to wholesale, you should also discuss this with your broker and get their approval to do deals outside of the brokerage.

Once you understand the licensing rules and have the disclosures down, you’ll be great. Make sure to check out my next blog on wholesaling next week!

Note: this blog article is not meant to be legal advice. Please consult your own, local legal counsel.

Jeffrey S. Breglio, Esq.
Breglio Law Office and REI Mastery U
www.reimasteryu.com
jeff@bregliolaw.com
(801) 560-2180