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7 Ways to Keep Your Wholesaling Legal & Ethical
Not long ago I had the pleasure of interviewing Jeff Watson – one of the top legal names and advocates in the real estate investing biz.
He always has some great insight to share about his interactions and activism with lawmakers. He’s one of the best at explaining how real estate investors can navigate the laws, policies and procedures in order to protect themselves and their money.
So a couple of days ago he did it again, this time sharing how investors can legally and ethically engage in wholesaling transactions.
These guidelines are designed to protect all of us from scrutiny, investigation and possibly worse. He explains, “Since early summer, there has been a great deal of noise being made in a number of forums and spheres of influence regarding the legality of wholesaling.” In typical Watson form, he took the opportunity to clear the air.
Let me explain that while Jeff’s recommendation come from an Ohio-specific perspective (where Jeff and his law practice are based), they’re things that all investors should be aware of and if appropriate, discuss with your own real estate attorney in your own state.
Watson met face-to-face with the top enforcement investigator and the top in-house counsel for the Ohio Division of Real Estate. What came out of those meetings are his top recommendations for wholesalers.
1. Always act as a principal. That means you are the buyer, seller or the person with a written, executed assignment of the purchase and sales agreement.
2. If you own the house, you can market the house. If you don’t own the house, you cannot advertise or market the house. In Ohio it’s clear – real estate can only be advertised for sale with the knowledge and consent of the owner of the real estate by either the owner or a licensed agent. Check the specifics in your state. If you have a contract to buy a house, you can market that contract or assign or sell that contract. Understand that there is a difference between marketing and selling a contract versus marketing and selling a house.
3. Trying to get paid for referring someone else to buy a house from a wholesaler is illegal.
4. Advertising that you have a house for sale that you do not actually own is illegal.
5. Making an offer on a house that is contingent upon your finding someone to buy it from you is illegal.
6. Contracts to buy real estate that are short and simple are preferred. Contracts to buy or sell real estate that contain a number of loopholes, contingencies, options, or other escape hatches are heavily frowned upon.
7. A fundamental component of being a successful real estate wholesaler is understanding the laws governing the conduct of real estate agents and the laws that govern your conduct as an unlicensed individual.
Do your homework. Take an afternoon to sit down and read your state’s laws. After you read your state’s laws, engage an attorney licensed in the states in which you are doing business and have them review your transactional paperwork. Are you compliant? Just because you think it is easy to understand or good language doesn’t mean it…
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