Webinar Recap: Wholesaling Updates

PAR’s Legal Corner webinar on Jan. 8 discussed current legal topics related to recent license law changes that define and regulate “wholesale” real estate transactions. Chief Legal Officer Hank Lerner, Assistant General Counsel Desiree Brougher, Associate Counsel Kacy Clouser and Advocacy Managers Jeffrey Dempsey and Marcus Huertas discussed these changes and some of what it may mean in the market. Here’s a recap. 

What Is Wholesaling? 

The webinar started out with some basics of what wholesaling actually is. The Real Estate Licensing and Registration Act now defines a wholesale transaction as “Undertaking to promote the sale, exchange or purchase of an equitable interest or other interest in residential property with the intent to assign, sell or otherwise transfer the interest for a fee, commission or other valuable monetary consideration without having taken title as the owner of record of the interest.” 

A wholesale transaction often looks similar to a typical real estate transaction – in both scenarios a seller and buyer eventually connect though a middleman to transfer ownership rights in a property. But in a typical real estate transaction that middleman is often a real estate broker who owes some sort of legal duty to the seller and/or buyer in exchange for a negotiated fee. In a wholesale transaction, the middleman/wholesaler facilitates the eventual transaction without any duties to either the buyer or seller. That means wholesale transactions were essentially unregulated, which is what the statutory changes are trying to fix.  

Advocacy 

Next, Huertas and Dempsey outlined how members who encountered wholesaling were able to bring attention to the issue and how PAR’s advocacy team was able to work with legislative champions to amend the Real Estate Licensing and Registration Act to bring about uniformity, transparency and accountability for residential wholesaling transactions. 

You can find out more about this legislative win here. 

RELRA Changes 

What are the changes?  

Aside from creating a new definition of wholesale transactions, the act changes the definitions of “broker” and “salesperson” to include those who engage in wholesale transactions. That is what now brings wholesale transactions under the scope of RELRA, and makes wholesale transactions licensed activity. 

1. There are now four required disclosures that must be included on both sides of a wholesale transaction contract (property owner to wholesaler, and then wholesaler to the final purchaser of the property). A statement that the agreement or contract is for a wholesale transaction in which the licensee intends to assign, sell or otherwise transfer the interest for a fee, commission or other valuable monetary consideration without having taken title as the owner of record of the interest. 

2. A statement that the consumer has the right to obtain an appraisal of the property from a real estate appraiser certified under Section 3 of the act of July 10, 1990 (P.L. 404, No. 98), known as the “Real Estate Appraisers Certification Act,” to consult with a licensee not affiliated with the licensee’s broker or to seek legal counsel before or after entering into the agreement or contract. 

3. A statement that the consumer has the right to cancel the agreement or contract until midnight of the 30th day after the date when the consumer executed the agreement or contract, or until conveyance, whichever occurs first, by certified return receipt mail or by any other bona fide means of delivery, including electronic delivery or personal delivery, provided that the consumer obtains a receipt. 

4. A statement that within 10 business days after the receipt of a notice of cancellation, all payments of any kind made by the consumer shall be refunded to the consumer. 

These added disclosures help provide transparency throughout the transaction, so all parties are aware of the moving parts and who has what role. 

RELRA now gives consumers the right to cancel wholesale contracts. If the contract has all of the required disclosures, consumers have until midnight of the 30^th day following execution of the contract OR conveyance, whichever occurs first. If the required disclosures are not in the contract, consumers have the right to cancel the contract at any time prior to conveyance. This right to cancel is not waivable. 

If a consumer is going to cancel the contract, they should give notice by certified mail or any other method in which the sender gets a receipt. Within 10 days of receiving a cancellation of notice, all payments need to be refunded to the consumer. Consumers cannot be held liable for any damages that result from cancellation. Also, if the consumer was given any promotional prizes, gifts or premiums, they remain the property of the consumer. So, if the wholesaler was offering a free toaster to the homeowner, if the homeowner cancels the contract, they still get to keep the free toaster. 

Forms Updates 

There are many ways to structure a wholesale transaction, and those different ways are really business practice based. Historically, the Standard Forms Committee does their best to not get involved in business practices. The Standard Agreement of Sale for Real Estate is not drafted in a way that is intended for wholesaling. At this time, Standard Forms Committee has decided NOT to proceed with a form. Rather, the required disclosures are available on the PAR wholesealing resource page, so they are easily accessible for you to work with an attorney to draft forms. 

Market Impact 

What does this mean for you?  

For starters, stay alert for wholesale transactions in the marketplace. If a potential client under a wholesaling contract approaches you with questions, send them to an attorney if they have questions about their rights. 

If you are interested in doing wholesaling, you will need a real estate license and brokerage affiliation. Work with your broker and an attorney to draft the appropriate forms to ensure those forms include the required disclosures. 

If you are a broker, you should be discussing with your E&O carrier, consulting with brokerage counsel and making sure that you have the proper policies in place. 

Wholesaling Regulations 

At this time, the State Real Estate Commission has not released regulations specific to wholesaling. Without regulations, PAR can tell you what the law says, but we are unable to state how exactly specifics will be enforced. We cannot say how the fees will be accounted for or the extent of supervision for the broker. Keep in mind that the PAR Legal Hotline cannot help write or interpret contractual language, so ensure that brokerage counsel is involved in all aspects of these transactions and related business practices. 

Resources 

PAR has great resource page that includes a lot of this information, including the definition of wholesaling, the requirements for a wholesale transaction and links to the State Real Estate Commission. We also have some frequently asked questions and will update them as needed. 

To hear about the wholesaling changes in further detail, view the webinar recording on PAR’s website.