Wholesaling real estate, on the face of it, seems like a straightforward enough business. You find a property and seller, enter into a purchase contract with them, and then sell and transfer that contract to the end buyer. Unfortunately, it’s often more complicated than that, not least because laws and regulations vary from state to state. That’s where consulting a wholesale real estate lawyer comes in. 

A good lawyer can save you from making a mistake that costs you dearly financially – or even opens you up to prosecution. This article looks at whether and when you need a real estate lawyer when wholesaling real estate and how requirements vary from state to state.

Do You Need A Real Estate Lawyer for Wholesaling? 

As a real estate wholesaler, depending on the state you’re in, you might be able to make do without a real estate lawyer. If you’re confident that you can draw up watertight contracts and navigate local rules and regulations, you can go it alone. The truth is, though, that very few people are legal experts in real estate law. On top of that, it’s one thing to read and understand the laws and regulations that would apply to your wholesaling deals. It’s another thing entirely to have the knowledge and contacts of an experienced real estate lawyer. In case of legal disputes, judges will look at laws and legal precedents set by previous cases. 

A good wholesale real estate lawyer can help you avoid liability. They can add escape clauses to purchase contracts that make it possible for you to walk away from the deal with no penalty. The problem with this, though, is that courts often strike these clauses, citing fairness and non-compliance issue violations, i.e., entering into a purchase contract in bad faith. In these cases, the quality of the draftsmanship (wording) of the contract can make the difference between no-fault for you or a painful financial and legal penalty. Do you think you can draw up a watertight, legally binding contract? 

Finally, if you want to do real estate wholesaling seriously, you’ll want an attorney to help you set up an S-corp – and if you’re planning to buy and hold, you’ll want a separate LLC as well (but that’s another topic.)

Do States Require A Lawyer for Wholesaling Real Estate? 

The short answer is that it varies from state to state. Some states do require lawyer involvement at some point in the wholesaling process; others do not. Some states are attorney-only closings, while others require only the involvement of a title company. However, nearly half of all states require a real estate attorney’s involvement in the purchasing process. They are:

  • Alabama
  • Connecticut
  • Delaware
  • District of Columbia
  • Florida
  • Georgia
  • Kansas
  • Kentucky
  • Maine
  • Maryland
  • Massachusetts
  • Mississippi
  • New Hampshire
  • New Jersey
  • New York
  • North Dakota
  • Pennsylvania
  • Rhode Island
  • South Carolina
  • Vermont
  • Virginia
  • West Virginia

While you, as a real estate wholesaler, won’t be buying the property yourself, you will be transferring the purchase contract to the end buyer. They may want you to be present at the closing, or their lawyer may want to clarify some points. That’s why it’s a good idea to have a lawyer you can consult or involve if the need arises. 

How Lawyers Can Help You Legally Wholesale Houses: Compliance and Best Practices

Since the legality of real estate wholesaling varies from state to state and isn’t always clear-cut, a wholesale real estate lawyer can keep you on the right side of the law. They can help ensure that you stick to best practices that don’t open you up to litigation. In that way, while their legal advice might seem pricey, especially if you don’t have a lot of money to invest initially, they can save you from much higher penalties and fees. For example, in Ohio, you must have a sales license to market a property for sale that you do not own. If you don’t own the property, aren’t on the title, but are marketing it for sale without having a broker’s license, you risk serious financial penalties. By all accounts, Ohio authorities take this seriously.

Here are some best practices to abide by when wholesaling real estate. A real estate lawyer can help you make sure that you do so.

Position Yourself As The Principal Buyer and Seller

As a wholesaler, you must always act as the principal party throughout the whole deal, both when drawing up the contract and when selling it on. 

Ensure All Agreements Are Valid

Use valid written purchase and sales agreements that conform to your local market’s requirements and regulations.

Include Required Language

Be sure to include clear, precise, compliant language required in your area in any agreement that you draw up. 

Put Down A Deposit

Also known as earnest money, putting down a deposit gives upcoming transactions validity. They are evidence that you are a serious buyer.

Market & Sell What You Own (Interest in the Contract, Not the Property Itself)

Purchase agreements don’t give you the title to a property until you close. In a wholesale deal, you receive the right to buy a property at agreed-upon terms. This means you need to be careful what you market and sell to the end buyer. You can only market and sell the purchase agreement itself – not the property. You need to be transparent that you are a contract holder and not the property owner.

Be Transparent

There should be no confusion among any party about what the essence of the transaction is. Not only is this legally required, but it’s also ethical and good business sense. Dishonest wholesalers might make money on a few deals, but the stress and liability of unethical wholesaling aren’t worth it.

Any wholesale real estate lawyer worth their salt will agree with the above-mentioned points. They can help guide you and make sure that you stick to them in your real estate wholesaling career. Good luck choosing one that will help your business grow!

 

Did you find this useful? If so please share and comment!