Is Wholesaling Real Estate Legal In South Dakota? A 2024 Guide For Investors

Have you ever wondered if you can legally dip your toes into real estate wholesaling in South Dakota? You're not alone. Still, the burning question on many minds is: Is wholesaling real estate legal in South Dakota? Trust me; it's crucial to have an answer if you're eyeing opportunities at Mount Rushmore State. In this blog, we're cracking open the legal playbook for you, serving up a fresh 2024 guide about navigating the ins and outs of real estate wholesaling in South Dakota. So, let's dive in and get you the answers you need, starting with the following:

• What Is Real Estate Wholesaling?
• What Do You Need To Know About Wholesaling Houses In South Dakota?
• Is Wholesaling Real Estate Legal In South Dakota?
• What Are The Wholesaling Laws In South Dakota?
• Do You Need A License To Wholesale Real Estate In South Dakota?
• Final Thoughts

*Before we begin our guide on whether wholesaling real estate is legal in South Dakota, we invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)!

Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, step-by-step guide for beginners to start wholesaling real estate!

What Is Real Estate Wholesaling?

Wholesaling is a wise real estate investment strategy that allows you to get your feet wet in the South Dakota real estate market without significant capital or time investment. However, similar to any new business endeavor, a real estate wholesaler must understand the benefits and the areas of concern related to wholesaling real estate in South Dakota, which are discussed below.

A real estate wholesaler’s work resembles a flipper's but reduces some of the more glaring risks of rehabbing real property. There is no need for construction, permits, or time for something to go wrong.

A real estate wholesaler enters into a real estate contract – which can be for owner-occupied, investment, or rental property – but typically at a price below market value. The attractive price is usually the result of the seller needing to move quickly or another financial challenge that requires raising cash quickly. Therefore, many wholesale deals in South Dakota are found online on auction or foreclosure websites or real estate websites like Zillow or Redfin.

The executed, binding purchase agreement legally redefines the subject property's ownership under the provisions created by the Principle of Equitable Conversion, which refers to how a property’s financial interests are determined.

The business of real estate wholesaling is an investment strategy that follows these general steps:

• A real estate wholesaler executes a purchase contract of sale with a seller
• A real estate wholesaler assigns the rights and obligations granted by the real estate contract to a different buyer – usually from a curated buyers list, by executing an assignment of contract.
• The difference between the first and second purchase prices is the gross profit or assignment fee.

Wholesaling offers a real estate investor an investment technique that has become a popular real estate investment strategy because –

• It requires little in terms of capital, except for a standard earnest money deposit.
• It optimizes a return on an investment in a rapidly appreciating real estate market.
• It allows new investors to learn the business from a practical perspective. This includes the creation of a referral network of lenders, other wholesalers, and cash buyers, among others.

Next, let’s review what real estate wholesalers need to know about wholesaling in South Dakota.

What Do You Need To Know About Wholesaling Houses In South Dakota?

To effectively engage in wholesaling houses in South Dakota, it’s essential to understand a few key aspects that are crucial for success in this investment strategy. First and foremost, familiarizing yourself with local real estate laws is imperative to ensure all your transactions are legal and compliant. Additionally, knowing the current market dynamics, including property values, demand, and economic conditions, will help you identify the most lucrative deals.

Understanding different exit strategies such as contract assignments, double closings, and wholetailing is also vital to adapt to various selling scenarios. For those wondering, "Is wholesaling real estate legal in South Dakota?"—yes, it is legal. This legal framework provides a great opportunity for investors to explore wholesaling as a viable option, allowing them to capitalize on the real estate market with less capital upfront compared to traditional property purchasing.

Real Estate Professional Organizations In South Dakota

The largest real estate professional trade organizations in South Dakota are noted below. Each of these South Dakota real estate professional associations is a member of the National Association of Realtors (NAR):

• The South Dakota Realtors (SDR): Chartered in 1944, the SDR operates as a nonprofit representing nearly 2,000 licensees and real estate professionals in South Dakota. The South Dakota REALTORS offers various benefits to its members via education, networking opportunities, and educational options, to name a few.
• The Central South Dakota Board of Realtors (CSDBOR): The CSDBOR is the voice for real estate in fifteen counties covering the state's central portion. It offers its members and the public a variety of tools, resources, and education options to support property ownership.
• The Black Hills Association of Realtors (BHAR): The BHAR is the primary real estate professional organization in the mid-central and western portions of South Dakota. It provides homeowners and professional licensees with the support and legislative advocacy they require.
• The Realtor Association of the Sioux Empire, Inc. (RASE) was initially established as the Sioux Falls Board of REALTORS in 1920. Currently, RASE is the largest professional organization in eastern South Dakota, serving more than 1,000 real estate and related and affiliated members. Its geographic territory includes these counties – Lincoln, Lake, Turner, McCook, and Minnehaha).
• The Mount Rushmore Area Association of Realtors (MRAAR): The MRAAR was established to further the interests of property owners and real estate professionals working and living in western South Dakota. Its mission is to exert beneficial influences throughout its geographic territory.

The South Dakota Real Estate Commission (SDREC)

The agency responsible for managing and enforcing license law is the South Dakota Real Estate Commission – housed with the South Dakota Department of Labor and Regulation (DLR). Real estate agents, brokers, real estate brokerage operations and brokering, plus other related professionals must comply with these South Dakota Statutes:

• South Dakota Codified Law Chapter 36-21A – Real Estate Licensing.
• Administrative Rules of South Dakota (ARSD) Article 20:69 Real Estate Brokers & Salespersons

SD 36-21A-13 authorizes and creates the South Dakota Real Estate Commission, which consists of five members appointed by the Governor.

According to South Dakota Codified Law (Chapter 36-21A-1), the relevant definitions related to South Dakota real estate license state law are below:

Real estate is defined as any interest or estate in real property or the property's improvements or fixtures whether corporeal, incorporeal, freehold or nonfreehold, ,and whether the real property is situated in this state or elsewhere, and includes leaseholds, condominiums, air rights and mineral rights.

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Salesperson or Licensee

According to 36-21A-12:

"a real estate salesperson is any person who for compensation or consideration is associated with a responsible broker, to sell or offer to sell, or to buy, or negotiate the purchase, sale lease, rental or exchange of real property, or of the property's improvements, or any business opportunity or business, or its goodwill, inventory, or fixtures, or any interest therein, or to sell or offer to sell, or to buy or offer to buy, or to negotiate the purchase, sale, lease, rental, or exchange of a mobile or manufactured home which has been registered under the provisions of chapters 32-3 to 32-5, inclusive. A salesperson may perform a broker price opinion or comparative market analysis for purposes of purchase, sale, lease, rental, or exchange of real property."

Designated Broker

A designated broker is any "broker licensee designated by a responsible broker to act for the company in the conduct of real estate brokerage."

Responsible Broker

Responsible broker is defined as "any person holding a broker's license issued pursuant to this chapter who is responsible for the real estate activities conducted by those licensees acting in association with or under the auspices of the responsible broker."

Broker Associate

Broker associate is "any broker acting in association with or under the auspices of a responsible broker."

Read Also: The Pros & Cons Of Wholesaling Real Estate: An Investor's Guide

Is Wholesaling Real Estate Legal In South Dakota?

Yes. Wholesaling real estate in South Dakota is considered legal if wholesalers and investors carefully avoid behaviors and actions that do not violate the legal lanes created by South Dakota lawmakers. In particular, unlicensed wholesalers can't take any actions that require a license. As a result, wholesalers must make sure they are only acquiring the rights to buy the house and selling those rights for a fee; they can't help homeowners buy, sell, or market real properties because that would require a license.

But note that real estate wholesaling in South Dakota (and elsewhere) may create a debate regarding its legality, with opponents asserting that it ultimately creates a transaction that requires a South Dakota real estate license.

However, these assertions hold little legal weight because real estate wholesalers are not selling/marketing real property but rather their legal rights (as granted through the Doctrine of Equitable Conversion) as a contracted purchaser delineated in a legally enforceable contract.

From this perspective, wholesaling real estate is considered legal. But - and this is a necessary clarification - real estate wholesalers must remain aware of South Dakota regulations and real estate laws. Knowledge of current real estate and license law helps ensure that one’s wholesaling actions and choices remain within South Dakota’s legal limits – before making a move that cannot be undone.

A real estate wholesale deal requires the investor/wholesaler to execute a real estate contract with the seller/property owner of the wholesale properties. The real estate contract of sale is the legal document that awards the real estate wholesaler (along with delineated obligations) the legal right to sell/market and then assigns the real property as defined by the terms delineated in the real estate contract or purchase agreement.

A real estate purchase agreement is a bilateral contract. In this legal agreement, both parties to the contract have detailed requirements (i.e., contract provisions) if the contract is to be fulfilled (by a closing) according to the terms. It is noted that most real estate contracts are assignable by default unless the purchase agreement or local law explicitly states otherwise.

Remember, wholesalers of real estate have the legal right – as the purchaser in an executed contract of sale - to sell or market their legal right/option to purchase real property as described by the executed contract - to other interested potential buyers.

However, this does not create a violation of license law if the wholesaler has avoided selling/marketing the property and instead marketed/sold the equitable interest awarded when the buyer and seller entirely executed the contract.

Read Also: How To Wholesale Real Estate In South Dakota: Step-By-Step

What Are The Wholesaling Laws In South Dakota?

South Dakota Codified Law is quite clear as to when a real estate license is required to operate in the state legally. As stated in 37-21A-28, unless exempted under this chapter, no person may offer, attempt, or agree to perform or perform any act enumerated within this chapter without an active license issued by the commission. No person may collect compensation as a licensee under this chapter without first complying with the provisions of this chapter.

Further, South Dakota license law requires a potential licensee to be qualified by exam. 26-21A-41 mentions that no person may be licensed until qualified by examination except as otherwise provided by this chapter.

According to SD 36-21A-6, a real estate broker, and therefore a salesperson is anyone who does for another or for compensation or consideration or with with the intention or expectation of receiving compensation or consideration, directly or indirectly, lists, sells, exchanges, buys, rents, manages, offers or attempts to negotiate a sale, option, exchange, purchase, lease or rental of an interest in real property, or a mobile, or manufactured home that has been registered under the provisions of this chapters 32-3 to 32-5B, inclusive, unless licensed under chapter 32-7a to sell used mobile or manufactured homes, or advertises or holds himself out as engaged in such activities.

Penalties For Violation Of South Dakota Law

Those found guilty of violating South Dakota license law, as mentioned in 36-21A-87, are guilty of a Class 1 misdemeanor.

Do You Need A License To Wholesale Real Estate In South Dakota?

No, if you are a real estate wholesaler working in South Dakota, you do not need a state-issued real estate license if actions and choices do not violate the defined behaviors that require a license - in SD 36-21A-6.

Remember - the key to legally wholesaling real estate is to market and sell their legal asset; the real estate wholesaler’s equitable interest is granted when the buyer and the seller execute the real estate contract of sale.

Real estate wholesalers should ensure the contract of sale is clearly written to stay within the legal limits set forth by South Dakota legislators, including required disclosures and disclaimers.

South Dakota Is Not An Attorney-Close State

South Dakota does not require an attorney to close a real estate transaction. However, it is prudent to obtain legal advice from a real estate attorney should the wholesaler face complex decisions that likely have undeniable legal consequences.

Final Thoughts

Is wholesaling real estate legal in South Dakota? Yes, it is perfectly legal to engage in wholesaling real estate in South Dakota, provided that individuals adhere strictly to the legal guidelines. Unlicensed wholesalers must ensure they do not perform actions that require a real estate license, such as directly assisting in buying, selling, or marketing real properties. Instead, their role is confined to acquiring the rights to purchase a home and then transferring these rights to an end buyer for a fee.

Now that you understand the legal landscape for wholesaling in South Dakota, you are well-prepared to take advantage of the opportunities this market offers. To further enhance your knowledge and skills, consider enrolling in Real Estate Skills' free training. This training will equip you with the tools needed to navigate the wholesaling process successfully and capitalize on the current market conditions in South Dakota.

*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