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is wholesaling real estate legal

Is Wholesaling Real Estate Legal? The Ultimate Guide For Investors

wholesale real estate Jan 08, 2025

If it’s done the proper way, wholesaling real estate can be a rewarding and lucrative endeavor. But to get your wholesaling business off the ground, you need to know what’s legal and what will land you in hot water.

Even if you stay on the right side of the law, you want to be as efficient as possible, saving you time, money, and, most of all, frustration. If you're wondering, "is wholesaling real estate legal," the answer is yes—wholesaling real estate is legal in all 50 states, but there are specific laws and regulations you must follow to ensure you’re in full compliance,

Here’s what you need to know if you’re considering the launch of a wholesaling business.

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What Is Wholesaling Real Estate?

If you’re new to real estate investing, you might be wondering: is wholesaling real estate legal, and how does it work? Wholesaling real estate is a popular strategy among new investors because it allows them to get started without needing large amounts of capital or taking on the financial risks of owning property. At its core, wholesaling involves finding motivated sellers, securing a property under contract, and then transferring the rights to that contract to an end buyer—for a fee.

The most common type of wholesaling, and the one preferred by beginners, is assigning contracts. Here’s how it works: A wholesaler finds a property, negotiates a purchase agreement with the seller (often below market value), and then assigns the rights to that contract to a buyer. The wholesaler doesn’t actually purchase the property; instead, they make money by charging the buyer an “assignment fee” for connecting them with a great deal. This strategy is attractive to new investors because it requires little to no upfront investment and eliminates the need for mortgages or property management.

Is wholesaling real estate legal? The answer is yes—when done correctly. Wholesaling is legal because the wholesaler is not acting as a real estate agent or broker; they are simply selling their rights to the purchase agreement. However, the legality of wholesaling real estate can come into question if state-specific laws aren’t followed. For example, some states have strict regulations about marketing properties you don’t own or assigning contracts without proper disclosures. This is why it’s essential to understand and comply with your local laws.

The confusion around wholesaling’s legality often arises when individuals operate without transparency or fail to follow regulations. For instance, trying to market a property as if you own it or not disclosing your intentions to assign the contract can lead to legal issues. The key to staying on the right side of the law is clear communication with both sellers and buyers and following any state licensing requirements.

In short, wholesaling real estate is legal, but success in this strategy comes from knowing the rules in your state and operating ethically. For new investors, assigning contracts is an excellent way to break into the business, build confidence, and generate income without the need to own property outright.

Read Also: How To Wholesale Real Estate Step By Step (ULTIMATE) Guide

If you're wondering, "is real estate wholesaling legal," the answer is yes, wholesaling real estate is legal. As long as you follow laws and processes put in place to protect all parties involved in a wholesaling transaction.

Keep in mind that wholesaling legalities can vary from state to state, so make sure you do your due diligence before starting.

In some states, this can be harder than it sounds because real estate laws aren’t always clearly written, creating a grey area for some wholesalers. Many states also have disclosure agreements that can land you in hot water if you’re not in compliance.

For example, as of January 1, 2020, California made changes to its 593 reporting and income withholding requirements. Every real estate transaction with a sales price over $100,000 must now be reported to the state’s Franchise Tax Board, whether or not the transaction is exempt from state income tax withholding.

When in doubt, either consult with an experienced real estate attorney to get accurate legal advice, or back off on a real estate deal until you have a clear and ethical answer to your questions.

Many inexperienced real estate wholesalers get in trouble when they blur the line between wholesaling and brokering real estate without a license. As long as you simply act as a principal buyer in a transaction and either sell your contracted real property to a new buyer or you buy and then sell a property outright, you should run into no problems.

If you intend to put together a wholesale deal and assign a contract, in the interests of full transparency, you should disclose this as part of the initial contract process. When you make your intentions clear up front that you’re only selling the rights of the contract, you run into little or no problems when you close out your portion of the deal.

Many people also assume that because relatively small amounts of upfront money can be involved in a wholesaling deal, this is a good profession for beginners. Sometimes that’s the case, but not always.

As the middleman, you have responsibilities to both the seller and the buyer. It’s not uncommon for real estate investors and sellers to push boundaries to maximize their profits.  And in some cases, that can include trying to squeeze out a wholesaler and work directly with each other. It happens.

That’s why it is a good idea to have an attorney’s fees clause in your agreements. If you run into problems that require legal advice or end up dealing with unethical partners, you can pursue legal action to enforce the purchase agreement and preserve the right to seek compensation for your attorney’s fees.

Also, when you enter into a contract with a seller, you should include language that fully releases you from liability and further obligations after you assign the contract to the end buyer.

Having a transparent, clear, concise, and well-written purchase contract will not only legally protect you, but it will also cut short the argument or even the perception that you are entering into any kind of illegal transaction. This is especially important if you're wondering, "is wholesale real estate legal?" A solid contract ensures that your transaction complies with all legal requirements, removing any doubts about legality.

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Wholesaling Real Estate Legally In 3 Methods

If you want to wholesale properties, there are several ways to structure a wholesale deal.  The most common are:

  1. Assignment of Contract
  2. Double Closing
  3. Buying and Selling

1. Assignment of a Contract

After you get a house under contract, which may or may not include an earnest money deposit, you assign your rights in the contract to a new buyer.

Under an assignment of contract, you are a principal in the transaction, which means you don’t need a real estate license to wholesale a real property this way. However, the new investor takes on the rights and responsibilities of the contract and will close the deal instead of you.

Also, in your role as a middleman for this type of real estate deal, you’re not responsible for paying any closing costs. 

For your efforts, you can charge an assignment fee, which is similar to a real estate commission that a licensed agent would earn as part of the deal. Typically, you’ll be paid when the deal closes. 

There are also instances when you can collect your fee when the contract is assigned. It all depends on how you’re able to structure the deal.

The other good thing about this method is that assigning a contract can be as simple as drafting a one-page agreement to transfer your rights. To protect yourself, make sure you have a lawyer specializing in real estate contracts draft the document. If not structured properly, you could run into assignment prohibitions that will kill the deal for you.

There are a couple of conditions involving real estate law that might impact your decision to use this method.

First, certain types of properties do not always allow assignment contracts, including HUD Homes and REO Homes (aka "bank owned" or "foreclosed properties").

The other thing you must be aware of is that one of the requirements of an assignment contract is full disclosure, which reveals precisely how much you’re making when the contract is assigned. If any of the parties think your assignment fee is too high, you could be asked to renegotiate the amount, especially since it’s perceived that you are not taking on any of the risks in the deal.

An "Entity Assignment" is a variation on the assignment of a contract. Instead of writing up the initial contract with you as the buyer, you write up an agreement with a trust or an LLC as the purchaser (the entity). 

This allows you to assign the contract to another investor because the contractual rights are under the trust or LLC, and not an individual. You sell or assign the entity to the new investor for a fee.  In many cases, the entity is created solely for this one transaction. 

In some cases, sellers may be reluctant to sign a purchase agreement that includes an assignment clause to an individual. Using an entity assignment of a contract is a way to ease those concerns so that you can get the deal done. 

The downside is that there could be added costs to set up the entity, both in terms of legal fees or registration costs that you would have to pay to the state.

2. The Double Closing

This process involves executing two transactions. First, you buy the property from the seller. Then, you will sell the property to your buyer. Most of the time, these two transactions will take place the same day or within a couple of days of each other.

The good thing about a double closing is that the amount of profit you make does not need to be revealed. You don’t need to disclose your financial position, and you can more freely negotiate a deal with a much higher price and upside.  

In fact, you don’t need to reveal at all that you plan to sell the house to a new buyer immediately. This can be an attractive benefit for many wholesalers.

Many people believe a double close is the “cleanest” type of deal because you actually buy a property and then sell a property instead of assigning rights, which some individuals may balk at.  You also retain more control because you own the property at some point. It gives you leeway to ask whatever price you want or to market the property however you want, as long as those activities take place after a wholesaler actually owns the property.

As you might guess, the flip side is that with two separate transactions, you’ll also need to deal with two different sets of closing costs. But if you are savvy enough to structure your deals right in a double close, you should be able to absorb added costs without any problems.

The other downside is that this process requires more upfront working capital because you have to qualify to buy the property initially and bring your financing to the seller for approval.

3. Buying & Selling

With a double close, the end buyer may want to rehab and make certain improvements to the property before ultimately selling to another buyer. A wholesaler will not make improvements because they will not own the property long enough, sometimes less than a day or not more than a couple of days, at most. Each investment in the property should produce an immediate bottom-line return or be included to facilitate the overall deal.

As an alternative, some end buyers will simply buy and flip the real estate investment property “as is” to another buyer. It will be up to the end buyer to make improvements as they see fit, if at all.

This will have an impact on the deal since a buyer must be able to calculate what their costs are going to be with combined purchase and repair costs if they go that route. 

As a wholesaler, you need to have this discussion with your buyer upfront to have a clear understanding of their intentions and motivation.

Read Also: Virtual Wholesaling - How To Flip Houses From Home (2023) 

Is Co-Wholesaling Real Estate Legal?

Is Co-Wholesaling Real Estate Legal?

Yes, but again, there are laws and procedures you must follow. All real estate deals must be executed correctly and within a legal framework.

Co-wholesaling is a joint venture between two parties who both agree to play a role in getting a property under contract, and either assigning the contract or buying and selling the property to an investor who may also be one of the partners. 

Co-wholesaling can be a single partnership deal or ongoing for a series of transactions.

Among other things, make sure that joint venture agreements also include a non-compete or non-circumvention clause to protect all parties.

People may enter into a co-wholesaling agreement to pool their resources, experience, access to funding, and other assets to strengthen their positions and improve their chances of being successful wholesalers. Each partner can focus on their strengths, and it’s easier to do more deals because you’re generally able to access more opportunities through your combined efforts.

Taking more of a volume approach to completing transactions means there’s less pressure to put every dollar in your pocket for every transaction. This alone makes it easier to complete more deals, bumping up your overall wholesaling income.

In some cases, a more experienced partner will partner with somebody new to wholesaling, providing an opportunity to mentor and grow professionally while also enjoying the benefits of combined resources.

In some cases, both parties earn a fee when the contract is assigned or the property is bought and sold. In most cases, the fee is split 50/50. But as it is with all things in life, the fee split can be in any that is negotiated between the partners.

Is Reverse Wholesaling Legal?

Reverse wholesaling is the same process as wholesaling, except the steps are flip-flopped. 

So, the short answer is “yes,” reverse wholesaling is legal, as long as you follow the laws governing these kinds of transactions. There is no difference in the amount of research and due diligence you should perform. The more knowledge you have, the smoother your transactions will be.

Is Reverse Wholesaling Legal?

With reverse wholesaling, instead of finding a real property and putting it under contract first, you find the buyer first and then work to match that buyer with an appropriate property.  Buyers often know what kinds of properties they want to buy, so you can better target your search to meet their needs instead of wasting time and bringing them a property they won’t be interested in. 

One of the most significant benefits of reverse wholesaling is that you can develop deeper relationships with the people who will help you complete your real estate deals, perhaps over and over again.

You can start to build a buyer’s list at any time.

With these relationships solidly in place, you won’t need to vet buyers and pre-qualify them repeatedly. In some ways, the most challenging part of your selling transaction will already be done before you even enter into it. 

Also, if you have a highly motivated seller who wants a fast turn on a deal, which is often the case, you have a much better chance of locking in the selling contract if you can demonstrate tangible ways to assign the contract. 

That makes it easier to move quickly, close more deals, and, of course, make more money.

If you’re serious about wholesaling, you can undertake wholesaling and reverse wholesaling activities simultaneously.  You will need to work both sides of the deal at some point anyway.  Making good use of your time now, whether it’s finding sellers or buyers, will pay off later.

By effectively using technology, you can cast your net of potential buyers far and wide. You are less limited by geographical restrictions because more and more investors are comfortable with virtual transactions than ever before. 

Networking will allow you to connect with potential buyers who are individual families looking for fixer-uppers, rental property investors, house flippers, and developers who are as interested in the value of the land as they are in the building that sits on it.

Read Also: Cash Buyers - How To Find Real Estate Buyers & Build Your List

How Is Wholesaling Real Estate Legal?

There is a right way and a wrong way to wholesale real estate. This may be obvious, but the right way is legal. The wrong way is illegal.

In addition to general applications, local and state laws will vary. Ignorance of wholesaling laws and regulations is no excuse.

Here are a couple of examples. 

In Florida, assigning contracts in real estate deals is legal. The caveat is that as long as there is no language in the contract that prohibits it in a particular deal, an assignment does not violate any public policies or violate a state or federal statute.

In New York, you can’t broker any real estate transactions without a license (pretty much true in all states). Without a license, you can’t market or advertise a property for sale. That’s a clear violation of New York State law. You can only market the rights to assign a contract as a wholesaler. 

It’s crucial that you understand the difference.

Real estate laws do change, so you need to stay abreast of those changes since they may or may not impact you as a wholesaler.

The most important thing you must not do is attempt to broker real estate without a license.  This is why you must be clear when you enter into a contract with a seller that you will be assigning the rights of that contract to another entity and not actually selling the property in question. Assigning a contract is legal. Selling a property without a real estate or broker’s license is not.

The workaround here is that you can always get your real estate license. Becoming a Realtor will require some time and cost on your part, but it may be worth it over the long term. 

As an adjunct to this, you’re not allowed to publicly market the property if you don’t own it or you are a licensed Realtor. But you can privately transfer your rights in the selling contract to another party for a fee. 

When you do market the property to private investors, you will need to disclose that you are not the owner and, instead, that you only hold a valid contract on the property. 

You can also buy and sell the property as two independent transactions. This has its own set of challenges, as we discussed above.  But when you buy a property outright, it’s yours to do with as you please, even if you turn around and immediately sell it to another party.

Do not be pennywise and pound foolish when it comes to seeking legal advice, either. Ensure you have a good working relationship with an experienced real estate attorney and preferably one who understands how to structure an airtight wholesaling contract.

This speaks to the overall concept of complete transparency. You should attempt to be fully transparent so that all parties have a clear and thorough understanding of the relationships and intent going forward. 

Make sure your disclosures are complete, proper, and timely. There should be no surprises.  Be responsive to any inquiries to help build confidence and move the deal forward. 

In addition to maintaining appropriate legal standards, you must also be ethical at all times.

It's important to understand that while wholesaling is generally legal, there may be specific states where wholesaling real estate is illegal or heavily regulated. Always ensure that you're aware of the local laws to avoid any potential legal issues.

Your reputation is at stake in every real estate deal. Guard it zealously.

Do You Need A License To Wholesale Real Estate Legally?

Do You Need A License To Wholesale Real Estate Legally?

In most cases, the answer is no.

But you do need to understand what local laws are in place, since there may be limitations on the number of wholesaling deals you can do per year in some jurisdictions.

This is not to say that having a real estate license won’t benefit you because it will.  You will not be bound by contract assignment limitations or how you market a property when you are licensed.

However, if you are a licensed agent, in most states, you’ll need to disclose that fact upfront when entering into a contract with a seller or a buyer. Again, this speaks to full transparency, which should be a wholesaler’s goal on every transaction. 

Also, as a real estate agent, you’ll earn a commission on the sale of the home instead of collecting an assignment fee. That could impact the amount of money that you receive. 

The bottom line is that a real estate wholesaler sells the contractual rights to a property, but a real estate agent sells the actual property.

What Are The States Where Real Estate Wholesaling Is Legal?

 

If you’re asking, "is wholesaling real estate legal," the answer is yes—it is legal in all 50 states. However, some states have unique laws and regulations that wholesalers must follow to operate legally and avoid potential issues. These laws typically address licensing requirements, disclosure practices, and advertising methods. Understanding and adhering to these state-specific rules is crucial for staying compliant and running a successful wholesaling business.

Here’s a look at some states with unique wholesaling regulations and how to navigate them:

  • Illinois: In Illinois, you can wholesale real estate legally, but if you conduct more than one deal per year, you’re required to have a real estate license. This regulation ensures that wholesalers operate transparently and within the bounds of the industry. To wholesale legally in Illinois, consider obtaining a license or partnering with a licensed agent.
  • Oklahoma: Oklahoma allows wholesaling but requires wholesalers to disclose their intent to assign the contract to all parties involved. Clear communication is essential to ensure compliance with state law.
  • Ohio: In Ohio, wholesalers must clearly state their role as a contract assignor and cannot advertise a property unless they disclose their equitable interest in the deal. Proper documentation and transparency are key to operating legally in Ohio.
  • Texas: In Texas, wholesalers must disclose their equitable interest in a property when marketing it. The state emphasizes transparency to prevent misleading advertising practices.
  • South Carolina: Recently, South Carolina enacted House Bill 4754, which introduced specific guidelines for wholesaling. Under this law, publicly marketing a property under contract without owning it is prohibited. However, assigning a contract remains legal if done privately and with proper disclosures. To wholesale real estate legally in South Carolina, avoid public advertising and ensure clear communication with all parties involved. Obtaining a real estate license may also provide additional flexibility and credibility.

These state-specific rules underscore the importance of understanding local laws. While wholesaling real estate is legal, confusion can arise when wholesalers fail to comply with regulations or neglect proper disclosures. Always ensure that you’re operating transparently and ethically, and consider consulting with legal or real estate professionals to avoid potential pitfalls.

By staying informed about the laws in your state, you can confidently pursue wholesaling opportunities while maintaining compliance. Whether you're working in Illinois, South Carolina, or any other state, understanding and following the rules will help you build a successful and sustainable business.

 

FAQ: Is Wholesaling Real Estate Legal?

Is wholesaling real estate legal in all states?

Yes, wholesaling real estate is legal in all states, but it’s important to note that each state has its own specific laws and regulations governing the practice. While the act of wholesaling itself is permissible, certain practices associated with it, like failing to disclose your intentions or not following state licensing laws, can lead to legal issues. Therefore, always research your local laws to ensure compliance and avoid potential pitfalls.

How do I legally assign a contract to another buyer?

To legally assign a contract to another buyer, you must first ensure that the original contract allows for assignment, as some may contain clauses prohibiting it. Next, draft an assignment agreement that details the terms, including the original purchase price, the assignment fee, and the buyer's information. Both parties must sign the agreement to finalize the assignment. Finally, notify the seller about the assignment to maintain transparency and avoid any potential misunderstandings.

What legal documents are needed for wholesaling real estate?

Key legal documents for wholesaling real estate include the purchase agreement, which outlines the terms of the transaction, and an assignment contract, which transfers your rights to another buyer. Additionally, a disclosure form may be required to inform sellers of your intentions as a wholesaler. Depending on your state, you might also need an earnest money deposit receipt and possibly a closing statement. It's essential to ensure all documents comply with local laws.

Can wholesaling be considered illegal in certain circumstances?

Yes, wholesaling can be considered illegal in certain circumstances, particularly if a wholesaler engages in deceptive practices or violates state laws. For example, if a wholesaler fails to disclose their status as a middleman or misrepresents the terms of a deal, they may face legal repercussions. Additionally, in states with strict licensing requirements, operating without a real estate license can render wholesaling illegal, making it crucial for wholesalers to understand and comply with local regulations.

What are the risks of wholesaling real estate?

The risks of wholesaling real estate include potential legal issues, financial loss, and damage to your reputation. Legal risks arise from failing to comply with state laws or not properly disclosing your role in a transaction. Financially, if a deal falls through, you could lose your earnest money deposit. Additionally, if your reputation suffers due to unethical practices or misunderstandings, it can hinder future business opportunities. Thorough research and ethical practices are essential to mitigate these risks.

Why are some states regulating or restricting wholesaling real estate?

Some states are regulating or restricting wholesaling real estate to protect consumers from unethical practices and ensure fair transactions. Concerns over deceptive tactics, such as misrepresentation or lack of transparency, have prompted lawmakers to impose stricter regulations. By requiring wholesalers to obtain licenses or comply with specific disclosure requirements, states aim to ensure that real estate transactions are conducted ethically and legally, safeguarding both buyers and sellers from potential exploitation or misunderstandings.

Final Thoughts On Wholesaling Legally As A Real Estate Investor

A real estate wholesaling business is a legal and legitimate way to facilitate a real estate transaction and earn a nice fee in the process. So, if you're one of the people asking, "is wholesaling real estate legal," the answer is yes, as long as you follow the proper laws and guidelines governing these transactions.

Solving problems for sellers and presenting opportunities for buyers can be a rewarding experience when you creatively work to bring quality solutions to the table that benefit all parties.

Ready to Take the Next Step in Real Estate Investing? Join our FREE live webinar and discover the proven strategies to build lasting wealth through real estate.

Whether you're just getting started or ready to scale, we'll show you how to take action today. Don't miss this opportunity to learn the insider tips and tools that have helped thousands of investors succeed! Seats are limited—Reserve Your Spot Now!

*Disclosure: Real Estate Skills is not a law firm and the information contained here does not constitute legal advice. You should consult with an attorney before making any legal conclusions. The information presented here is educational in nature. All investments involve risks and the past performance of an investment, industry, sector, and/or market does not guarantee future returns or results. Investors are responsible for any investment decision they make. Such decisions should be based on an evaluation of their financial situation, investment objectives, risk tolerance, and liquidity needs.

Written by Alex Martinez, Founder & CEO at RealEstateSkills.com

Author: Alex Martinez

Founder & CEO at Real Estate Skills

Alex Martinez, the founder of Real Estate Skills, is known for his strong, practical expertise in real estate, starting from a beginner with no family connections in the industry to completing over 50 real estate deals, including wholesale and flips, within his first year.

He has dedicated his career to providing cutting-edge education and resources for real estate professionals. He emphasizes the importance of self-taught knowledge through mentors, books, and hands-on experience.

His journey from earning a modest income to becoming a successful real estate entrepreneur and educator showcases his expertise and dedication to the field.

Read Alex's Full Bio >>

Edited by Ryan Zomorodi, Founder & CEO at RealEstateSkills.com

Editor: Ryan Zomorodi

Co-Founder & Chief Operating Officer

Ryan Zomorodi, co-founder and COO of Real Estate Skills, leverages his experience from a diverse background in real estate investment, construction management, and entrepreneurship to provide comprehensive education in the real estate sector.

His expertise is rooted in hands-on experience, extensive industry knowledge, and a commitment to empowering others through education.

Ryan's journey reflects a blend of practical experience and entrepreneurial success, contributing to his role in developing a platform that educates and supports aspiring real estate professionals.

Read Ryan's Full Bio >>

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