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

Wholesaling real estate in Washington can be a lucrative career path for many. However, potential wholesalers often find themselves at a crossroads, held back by uncertainties about the legality of such ventures in the state. This hesitation is understandable—navigating the complexities of real estate law isn't straightforward, especially when considering an investment as substantial as property.

To alleviate these concerns and provide clarity, this article thoroughly examines the question: "Is wholesaling real estate legal in Washington?" By the end of this exploration, readers will be equipped with the knowledge needed to make informed decisions about their real estate investment strategies in the state. Along the way, we'll teach you everything there is to know about the legalities of wholesaling properties in Washington, including:

• What Do You Need To Know About Wholesaling Properties In Washington?
• Is Wholesaling Real Estate Legal In Washington State?
• What Are The Wholesaling Laws In Washington State?
• Do You Need A License To Wholesale In Washington?
• Final Thoughts

*Before we begin our guide on whether wholesaling real estate in Washington is legal, 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!

Real estate wholesaling has recently become a popular investment technique. However, for one reason or another, far too many people are asking the same question: Is wholesaling real estate in Washington legal? Those on the outside looking in may be unfamiliar with this exit strategy's machinations, which are nothing new and legal if the real estate wholesaler stays within the legal limits set forth by the state of Washington. That said, there are many reasons to consider wholesaling, not the least of which include:

• Wholesale properties offer investors an entrance ramp into real estate with little capital requirements. Most wholesale transactions, however, require buyers to deposit earnest money with a neutral party as an act of good faith until the transaction is complete.
• Wholesaling houses a profitable investment technique, primarily implemented during a rapidly appreciating market, with a couple of viable exit strategies, including the double close.
• Real estate wholesaling is a smart way for new wholesalers to obtain practical experience. While learning the trade, less experienced real estate wholesalers can also build a good buyers list of cash buyers, other types of end buyers, and a network of lenders and lending professionals.

Despite its benefits, doubters still ask one question: "Is wholesaling real estate legal in Washington?" More often than not, those who question whether wholesaling properties in Washington is legal reference the state's real estate license laws, where a license is required to market and sell a property. However, wholesalers aren't marketing, buying, or selling properties (unless they perform a double close); they deal in contracts.

In reality, real estate wholesalers combine two principles: acquiring low and selling high, and the theory of equitable interest, which refers to the fundamental rights awarded when the contract of sale is executed.

The purchase agreement wholesalers in Washington use legally redefine the subject property’s ownership based on the Principle of Equitable Conversion (or Equitable Title/Interest), which refers to the division of the property’s interests. Simply put, wholesalers aren't buying the house they are interested in; they are merely acquiring the right to buy it. Once they own the right to buy the house, they sell their right to an end buyer and assign the contract. In doing so, the homeowner sells the home, the end buyer (usually another investor) gets their property, and the wholesaler collects a fee for connecting the two.

The wholesaling business, which resembles its related real estate strategy of fix-and-flip, is typically done when an investor enters into a contract of sale for a property (rental property or owner-occupied property) likely to be priced below its market value. A reduced price is typically caused by financially challenged sellers or those who are otherwise motivated.

What Do You Need To Know About Wholesaling Properties In Washington?

Wholesaling properties in Washington requires understanding state-specific real estate laws, including contract assignments and double closings. To start wholesaling, one must build a network with real estate agents, investors, and potential buyers. Effective marketing strategies to find distressed properties are also crucial. Importantly, Washington state does not require a real estate license for wholesaling, but wholesalers must ensure their deals are structured legally to avoid practicing brokerage without a license. Staying informed about Washington's legal nuances and market conditions can benefit anyone looking to enter the wholesaling business.

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Real Estate Trade Organizations in Washington

Aspiring investors asking, "Is wholesaling real estate legal in Washington?" would be wise to consult the state's most influential real estate organizations. If for nothing else, these organizations govern the state's real estate laws, which impact wholesale properties in Washington. Below, you'll find the larger professional organizations in the state dedicated to the real estate profession, not the least of which are members of the National Association of Realtors (NAR):

• The Washington Realtors (WR): The statewide professional association for Realtors, with more than 22,000 members, offers a variety of benefits to its members. WR offers symposiums and education, discounts, insurance, training events, and legal support initiatives to the entire Washington state real estate market.
• The Seattle King County Realtors (SKCR): Established in 1908 as the Seattle Realty Board, the Seattle King County REALTORS represents the real estate community and professionals in and around the Puget Sound vicinity. SKCR offers support and resources to ensure the market and its players are held to the highest ethical standards.
• The Tri-City Association of Realtors (TCAC): Founded in 1946, the TCAC is recognized as the largest trade organization in the Tri-City area. More than 1,000 professionals and 70 real estate firms make up TCAC’s membership. TCAC is an effective vocal advocate in the southeastern portion of Washington State.
• The Tacoma Pierce County Association of Realtors (TPCAR): The TPCAR offers the resources and support of real estate professionals in and around the Pierce County area. With more than 30 industry partners, the Tacoma Pierce County Association offers professionals the support needed to succeed in this market.
• The Clark County Association of Realtors (CCAR): The CCAR advocates for real estate professionals and property owners in the southwest of Washington state. With over 2,000 members, the Association provides education and professional development tools online and on campus.

The Washington State Department of Licensing (DOL) is the state agency responsible for administering and enforcing real estate laws and licenses. The Real Estate Commission within the DOL primarily administers these laws: RCW (Revised Code of Washington (Washington State Laws) 18.85, RCW (Real Estate Brokerage Relationship) 18.86, RCW 18.235 (Uniform Regulation of Business & Professions Act), and WAC 308.124A.

According to the Washington Department of Licensing, anyone who acts on behalf of a real estate firm to perform real estate brokerage services under the supervision of a managing broker needs a license.

The Department of Licensing issues two licenses for each real estate agent in the state, both at the real estate broker level, who have the legal authority to manage real estate transactions in the state. After meeting the licensing requirements, a broker in Washington can be a managing broker or a designated broker.

While the state offers some semblance of license reciprocity, it requires the submission of paperwork and passing various portions of the state exam to become licensed. The WAC (Washington Administrative Code) Title 308, Chapter 124A- (Real Estate – Licensing and. Examination) notes the process and requirements that a person applying for a broker or managing broker examination is only required to complete the Washington law portion of the examination. They shall also submit evidence of licensure in another jurisdiction by a license verification form completed by the licensure authority in such jurisdiction.

Is Washington State A Real Estate Attorney State?

Washington state is not an attorney-close state but rather an escrow state. An escrow state means that during real estate transactions, a neutral third party, known as an escrow company, holds and regulates the payment of funds and relevant documents; this ensures that all conditions of the transaction are met before property and money are exchanged, providing protection and transparency for both buyer and seller. While an attorney isn't required to close in Washington, however, legal representation is always encouraged.

Read Also: How To Wholesale Real Estate Step By Step (The Simple Process)

Is Wholesaling Real Estate Legal In Washington State?

Wholesaling real estate is legal in Washington State. To ensure compliance with state laws, wholesalers mustn't engage in activities requiring a real estate license, such as assisting clients in buying, selling, or marketing properties. Instead, wholesalers focus on acquiring the rights to purchase a property rather than the property itself. This process, known as the assignment of contract strategy, involves the wholesaler transferring their right to purchase a home to an end buyer, a concept underpinned by the doctrine of equitable conversion.

In this framework, wholesalers are not buying, selling, or marketing a property directly; they merely sell their 'right to purchase,' as defined by the contract, to another buyer. This action must be carefully navigated to remain within the legal boundaries set by Washington’s real estate licensing laws. These laws are subject to change, sometimes annually or more frequently, making it essential for wholesalers to stay informed about current regulations to avoid crossing legal thresholds.

What Are The Wholesaling Laws In Washington State?

The real estate laws that govern the actions of real estate licensees in Washington are found in RCW (Revised Code of Washington (Washington State Laws) 18.85, RCW (Real Estate Brokerage Relationship) 18.86, RCW 18.235 (Uniform Regulation of Business and Professions Act) and WAC 308.124A.

The most important aspect to consider is that Washington wholesalers must not perform any actions requiring a state license. According to RCW18.85.011, the definition of a broker is a natural person acting on behalf of a real estate firm to perform real estate brokerage services under the supervision of a designated broker or managing broker.

Further, this same law identifies actions that define a broker’s services, such as listing, selling, purchasing, exchanging, optioning, leasing, renting or real estate, negotiating or offering to negotiate, advertising or holding oneself out to the public, and performing property management services.

However, it is equally essential to understand those individuals who are exempt from Washington state licensing laws (RCW – 18.85.151).

The entrepreneurial spirit is alive for those who wish to wholesale real estate in Washington state. Successful real estate wholesalers understand the benefits of taking the time required to comprehend how to navigate a real estate wholesale deal without violating Washington state law. If uncertain, seek the advice of a real estate attorney licensed in the state.

Do You Need A License To Wholesale In Washington?

In Washington State, you do not need a real estate license to engage in wholesaling, provided your activities strictly adhere to certain guidelines. Specifically, while real estate wholesalers can operate in the state, they must carefully ensure that their actions do not resemble those typically requiring a real estate license; this means wholesalers should not present themselves as licensed real estate professionals or marketing real properties directly. Instead, their role is centered on marketing their contractual rights to purchase a property, which they have obtained through an executed contract. By focusing on the rights rather than the property itself, wholesalers stay within the legal framework and avoid the licensure requirements of Washington real estate law.

Read Also: How To Become A Real Estate Agent In Washington

Real estate wholesalers working in Washington should take note of the guidance offered by the Department of Licensing in Washington more than a decade ago (2010).

As the Department of Licensing has offered guidance (as opposed to a formal rule), their instructions are not to be taken lightly, as the consequences for violating them are very real. The guidance issued was explicitly directed to those individuals/firms/businesses engaged in wholesaling real estate contracts in the state (Reference RCW 18.85, 18.86.030 & 18.235).

While an owner has the legal right to sell/market their property, the Department of Licensing (DOL) may take issue if another individual somehow obtains an interest in this property (legally from the owner through an executed contract) with the intent of finding an alternate buyer before closing the sale with the original owner. The Department of Licensing could take action as the person would be constructing a real estate deal for others.

Technically, this individual would fit the ‘definition’ of ‘an owner, and thus exempt from licensing requirements,’ but the DOL would consider this a misuse of the legal exemption. The following offers some guidance as to where the DOL may take issue with a wholesaler’s actions:

• If the investor is managing multiple properties in this regard.
• If the investor never intends to close the original deal but is maneuvering to market one’s rights.
• Receives an assignment fee.
• If the investor insists on the right to terminate the transaction at no cost, among others.

Essentially, these issues would create an illusory contract for the seller (a considerable and untenable disadvantage in legal terms) and are, thus, not permitted.

To ensure compliance with local real estate laws, real estate wholesalers should seek legal advice and disclose, in writing, all facts (material or otherwise) and the wholesaler’s true intentions. This ensures all parties have full disclosure to make well-informed, educated decisions regarding the transaction.

To be clear, investors are not required to have a license to wholesale real estate in Washington. However, those with a license may exercise a few benefits. While investors must disclose their licensure, their credentials may help them find off-market properties in Washington, avoid legal complications, or even increase the size of their network.

The Double Close

The easiest and most direct way to avoid legal consequences is to do a double closing, which ensures you, as the buyer, had every intention of concluding the original transaction. The double-close strategy allows you to sell the newly purchased property as the owner. It also helps to be transparent, issue a disclaimer (if applicable), and act ethically. But note that with this more cautious exit route, there are double closing costs—which most would say is money well spent considering the protection it offers.

Potential Violations In Washington State

As stated in RCW 18.85.411, any person acting as a real estate broker, managing broker, or real estate firm without a license or violating any of the provisions of this chapter is guilty of a gross misdemeanor.

The acts that constitute unprofessional conduct are stated in RCW 18.235.130.

Consequently, RCW 18.85.361 identifies the potential disciplinary action for violations.

Final Thoughts

The question "Is wholesaling real estate legal in Washington?" can be answered with a definitive yes, provided that the wholesaler adheres to the state's specific legal guidelines. Wholesalers in Washington are permitted to operate without a real estate license as long as their activities are limited to marketing their contractual rights to purchase a property rather than the property itself. This distinction is crucial in ensuring they do not inadvertently engage in activities that would otherwise require a license. As the legal landscape may shift, wholesalers need to remain vigilant and informed about the current laws to maintain compliance and operate successfully within the legal boundaries of Washington State. To remain up to date on the latest laws, there are a number of Washington real estate schools online investors may attend.

*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