This is the third part of our three part series on “Is Wholesaling Legal.” (Have you seen part 1 and part 2?) In the video below Jeff Watson, General Counsel for the National Association of Real Estate Investors Association, discusses wholesaling with two regulators from the Ohio Department of Commerce – Division of Real Estate. In part 3 of this series – is wholesaling legal – the discussion focuses on marketing wholesale properties. We often hear the question “How do I market a wholesale property in DC, Maryland or Virginia?” This video explains what you can and can’t do regarding marketing a home that one has under contract.
Jeff begins by asking if he can market a property that he does not legally own. Kimberly Wells says that “no, you cannot market something that you don’t own. I can’t enter into a contract to purchase and then turn around and market to sell that property. You can only market the legal interest in the contract – not the actual home.” Jeff clarifies by asking “If I only have a contract and I want to market that contract, I can’t be showing pictures of that house?” Kimberly’s answer is a resounding “No!”
Jeff then asks, “Is it permissible for a person to market and assign a contract which that persons holds as a principal to buy real estate?”
Sheila Vitale responds,”Under contract law, contracts are assignable, unless they say otherwise. If you enter into a purchase contract with the intention to close on that contract (you can’t enter into the contract as a way to circumvent license law) then you can market your interest to another party if, in the future, you decide not to close on that contract and you know someone who would want to close on the property. You can’t just tie up a property.”
Jeff confirms that you if you put something under contract you must have the intent to purchase it. This is obviously a gray area as I am not sure how you would prove what your original intent was. Sometimes the contract is so blatant to the point that its not the intent of the buyer to ever buy the property. This is a big no-no. Jeff believes that if the contract says those things that it really isn’t a contract to begin with. If I were on the side of the real estate commission trying to prove whether a buyer originally had intention to buy the property, I may look at if the buyer had the necessary funds to purchase the property. If you as a wholesaler decides to operate within the real estate laws and wholesale contracts through an assignment, you should be able to show that you have the funds necessary to purchase the property. This likely could be a commitment letter from a lender or a bank statement showing the funds. I am not an attorney and not giving legal advice – this is just my opinion on this matter.
Jeff clarifies that it is perfectly legal to market and assign a contract on a property that you intended to close on – if your intention was to buy and you changed your mind and now want to sell your interest in the contract. He then asks the question: “what are the unacceptable ways of marketing that contract?” Their answer is: “if you identify solely the property and not the contract. Acting as if you own the property in the marketing is not acceptable and goes against the real estate regulations. Your ad should specifically state that you are marketing your interest in the contract and not marketing the property.”
Did you miss part 2 of this article/video series? Read and see it HERE.
Please note that this article does not serve as legal advice. To safely practice wholesaling, consult the Federal and State laws specific to your area before executing any deals.
If you want to avoid the potential legal pitfalls of wholesaling, Express Homebuyers has a Joint Venture Program that may likely net you more profit than a typical wholesale fee would. To find out more about The Express Homebuyers Joint Venture Program click here.