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”.
Assigning a contract in Ohio is perfectly legal. However too many people are doing it the wrong way. Keep in mind the full context matters.
(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 do a lot of wholesaling via assignments, the Division may view you as acting like an agent. One probably not, but volume matters.
- If you assign most/all of your deals, but rarely/never buy one, you look even more like an unlicensed agent.
- If you put a lot of properties under contract, Assign a few, and let the rest expire, cancel them, or ghost the seller, 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 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 acting like an agent. you are burnt toast and don’t have a prayer.
- If you negotiate price/terms with potential buyers about a property you don’t have under contract yet, you are acting like an agent. 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.
Nice post. I’d like to know about your legitimate escape clauses and how they are distinguished from weasel clauses.
If your contract was subject to Financing, you had the downpayment, and you actually applied and got turned down, that’s legitimate.
If your contract was subject to Inspection, and you or your inspector went back and found major repair items you did not see before, that’s legitimate.
If your contract was subject to Inspection, and you decided you didn’t like the paint color, that’s a weasel.
If your contract was subject to your “partner’s approval”, and your “partner” is your cat, that’s a weasel.
If you invoke ANY contract clause because you couldn’t assign the contract, that’s a weasel.
Are weasel clauses illegal though?
They’re not illegal, they’re weasel clauses. Put yourself on the other side of the table as the seller, and see how well it works for you as a seller.
However, signing a contract without the ability to perform on the contract MAY be illegal. Fraudulent Misrepresentation
Hello, I know this discussion happened months ago. But what are the condition regarding a soft proof of funds letter? What if once I’m under contract the lender refuses to finance the deal. Is that a weasel escape?
It depends on the lender, and what they actually preapproved vs prequalified. Of course, they could be a “weasel” lender or one of those “pay us a fee, you’re preapproved” websites.
Prequalified – based on our conversation, we can lend to you. But they actually didn’t check anything. Basically useless.
Preapproved – We’ve checked your background, credit, and financials and preapproved you for a loan. However the deal still needs to qualify. Very good.
For example, I could give you a preapproval for a $150,000 loan based on your background and financials. However, if the property and the deal you bring aren’t supported by the numbers, I could still say “no”.
Thank you for the information. Questions regarding going into contract on a property I want to wholesale: do I need to add an assignment clause to the standard OH purchase agreement, or is it already included? Can you please provide a copy of that clause so I can review it?
Tyler,
There is not a “standard” Ohio purchase agreement. Most investors have their own they developed on their own or by hiring a local attorney. In Ohio a purchase agreement may be assigned unless it is specifically prohibited in the purchase agreement itself.
Darrin
I understand I am far too late in the industry; however, I had a question for you. I am educating myself in the wholesaling real estate and I am concerned on which method is the safest for wholesalers? Now, I am under the impression I can cancel contract if I am unable to assign said contract. Which leads me to my first question of what would be the safest method for a wholesaler?
As the blog post points out, putting a property under contract with no intent to close and only to assign can cause problems with the Ohio Division of Real Estate. (and potentially the sellers if they made plans and took actions based on what you told them to expect.) The safest way is to make sure you area able to close on the property if you can’t assign it even if you are borrowing funds to do it. It was a group (groups?) of people who put a lot of properties under contract that never closed that brought down all the scrutiny from the State.
For me, I always close on the property first, even when I intend to wholesale it. That way it’s clear and nobody can argue that I did something wrong.
Very informative! Thank you
Darrin,
In my market, we have a wholesaler get out of the contract in a creative way. His dad is a home inspector. If they want to get out of the contract, they will do a home inspection and exaggerate certain minor issues in their home inspection report and get out of the contract without a problem. Is this a weasel? Yeah. But it is legit on the paper.
It’s legit on paper, but it really sounds like it’s being used as a weasel clause.
To me this is unethical and immoral. Always ask yourself if you were on the other side of the deal how would you feel? If you have to lie or exaggerate to get out of the deal you are by definition the problem. I remember I wondered if my lease options were reasonable as they served me so well as the lessor/optionor, one day I was negotiating with seller to buy his properties and the first thing I did was pull out my lease option and place myself on the other side of the documents. As soon as I did this I knew my contracts were reasonable because I was perfectly happy to be on the other side of the same documents. After some further negotiation we ended up going with a land contract instead but the basics came from that original lease/option contract.
Sorry to revive an old article. But, let me ask this. If I am interested in real estate in general, as well as wholesaling, is it worth my time, money and safety to simply become a licensed broker? Or, is it worth my time and money to simply hire an attorney and make sure my “assignment” documentation is in order and legally “OK”? As well as, simply double close on all assignments? Thanks in advance.
Being licensed is a totally separate activity, and is independent of wholesaling. If you’re licensed, you’ll have to be very careful to distinguish between the two activities with your customers.
Using the right Paperwork is important. However most people get in trouble with their actions.
I’m a huge fan of double closing. It shows clearly that you had an ownership interest in the deal.
But double closing requires you to already have the capital necessary to purchase the property. Isn’t the point of wholesaling to build up capital with low funds and low risk?
When Double closing, if you don’t have the cash to close, you can use Transactional Funding for the first closing.
Hello, if you don’t mind me asking, what bank, or website do you use for transactional funding?
I fund transactional funding deals directly for myself and for others.
Are you guys writing copy for Jerry Norton’s youtube videos? https://www.youtube.com/watch?v=_Z6WQrmaUHI
Thanks for pointing us to that video. Jerry’s video clearly plagiarized our blog post. I need to reach out to him and have a discussion.
Wow, this blog could have literally been his script for the video. Either you tow think exactly alike or something is a little fishy. LOL