I’ve discussed wholesaling via assignments in person with the director of the Ohio Division of Real Estate and their attorney twice. I’ve also had multiple discussions with their lead investigator (now former), and been questioned by them about a deal I was offering. (It turned out I was ok, but there’s a lesson there for another post.)
Ohio law plainly states that you may only advertise a property for sale under two conditions:
- You are the property owner
- You are a licensed agent with a listing agreement with the property owner, and acting within license law.
Other than that, it is ILLEGAL to market a property for sale.
This is why people who are wholesaling by assigning contracts market their signed contract, not properties. As in “contract for the property at 123 Main St”. Keep in mind context can matter. (For the rest of this post, I’m going to refer to the property, not the contract. The contract is implied)
Here are the key takeaways on wholesaling according to the Division of Real Estate. Keep in mind, for the ones that are not directly law, the Division could change their stance at any time.
- If you have the deed, market away. No licensing limitations.
- If you are wholesaling via assignments, the Division may view you as acting like an agent. One probably not, but context matters. 10 probably yes.
- If you consistently let contracts expire or you cancel them when you can’t assign them, you’re toast.
- If you put a lot of properties under contract, Assign a few, and let the rest expire, and never take title to any, you don’t have a prayer. They really emphasized this one. (This is what caused all the additional scrutiny on wholesaling. YOU are the problem.)
- If you assign most/all of your deals, but rarely/never buy one, you look like an unlicensed agent; you’re toast.
- If you put properties under contract without the means to purchase/close on them, you’re probably acting as an agent, and thus, toast. This was also important to them. And according to attorneys, there are legal issues under contract law with this.
- If you market a property you have under contract, but your marketing does not distinguish you from owning the property, you have a problem.
- If you market a property you do not have under contract, you are burnt toast and don’t have a prayer.
- Verbal JV marketing agreements are worth the paper they are written on.
- Written JV marketing agreements likely won’t survive scrutiny. They’re an agreement to market a property for a fee upon sale; it goes back to 3rd and 4th paragraphs above. However, I have not discussed this with the Division directly.
Interestingly enough, when you have a contract, the Division reluctantly said advertising the address was ok, but were more hesitant about pictures. They would not directly say whether pictures were ok or not ok. I got the impression they didn’t already have a stance on that and were reluctant to have one on the spot. It’ll be a question for next time.
The Division doesn’t have a problem with assigning the contract, it’s perfectly legal. Their concerns:
- Are you misleading consumers, sellers and/or buyers?
- Are you really just acting as an unlicensed agent?
- Are you leaving a wake of destruction behind you?
The Division is really focused on the consumer protection and the consumer confusion caused by wholesalers. Remember, their job is to protect the consumer. They really hammered on certain things.
- Sellers who were under the impression their property under contract was sold, and the wholesalers who couldn’t or wouldn’t perform on the contract.
- Wholesalers marketing deals to the general public, but then couldn’t perform.
- They weren’t very concerned about marketing to investors. I expect they could become more concerned, most likely because of a bad wholesaler.
They were especially pissed about the wholesalers who had greatly misled consumers and left sellers/buyers in a world of hurt, both financially and life planning wise.
People had quit jobs, moved families, contracted to buy a new home, lost earnest money, moved grandma and more based on wholesalers’ representations that the deal was as good as done.
Someone reading this will have the seemingly brilliant insight that they’ll simply tell the seller they intend to Assign the contract, and if they don’t, they won’t be closing. Congratulations, you’ve just admitted to the Division you are acting as an unlicensed real estate agent.
When wholesalers ghost people, don’t show up to closing, say, “I couldn’t assign it so I’m not closing”, put 50 properties under contract, assign a couple, and let the rest expire, those are the kinds of problems that cause scrutiny on wholesaling from the Division.
Think they won’t find you? Guess again.
- A complaint by seller, buyer, or agent, to the Real Estate Division is probably the number 1 way to get their attention
- Their lead investigator signed up for my Buyers list via my website
- The lead investigator came to our local meetup in Dayton
- They have also attended various guru pitches and seminars including some of the full weekend events
When you put a property under contract, you have a legal and moral obligation to perform on the contract. Yes, there are legitimate escape clauses, which I’ll distinguish from weasel clauses. Don’t be a weasel.