An Amendment to RELRA
The Real Estate Licensing and Registration Act (RELRA) regulates the practice of real estate and is being amended to clarify that the practice of wholesaling is licensed real estate activity. This means that anyone who wants to do a wholesale transaction for themselves or represents a wholesaler who is selling a property must have a real estate license.
Act 52 of 2024 was signed into law in July 2024 and modifies RELRA to provide uniformity in real estate licensing and protect vulnerable consumers.
In recent years, the practice of wholesaling has become more prevalent with very little oversight. People who participate in wholesale transactions are sometimes promised an opportunity to “make money fast” in real estate with “little or no upfront investment” but with only a few hours’ worth of training in real estate transactions. Without this oversight, some wholesalers may have taken advantage of homeowners who are elderly or infirm, in dire financial situations or are not informed of their property’s value. Now that wholesalers will be licensed, the Pennsylvania State Real Estate Commission will be able to investigate and address this sort of behavior.
Webinar: Panelists discuss the law change, required disclosures and frequently asked questions. Watch the recording.
What Is Wholesaling?
A wholesale transaction will be defined as “undertaking to promote the sale, exchange or purchase of an equitable interest or other interest in residential real 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.” Basically, it is a real estate transaction where the buyer of the property never intends to take title or to own the property themselves.
Typically in wholesale transactions, the owner of a property enters into a contract to sell their property to a buyer. The “buyer” in this transaction usually does not want to own the property itself, so they look for a different buyer to take their place, one who does want to own the property. When the “buyer” tries to sell their interest in the contract, they become a wholesaler, or middleman, in the transaction.
What is being sold by the wholesaler is their interest in the property, which is called an equitable interest. Once the wholesaler finds someone to buy their interest in the contract, the contract is assigned to the new buyer for a fee. The wholesaler makes money by assigning their interest at a higher price than they offered to pay the property owner.
How Does This Affect Realtors®?
If a Realtor® does not engage in wholesaling, it does not affect their practice. However, as licensed practitioners, Realtors® should be aware of the legal requirements for wholesale transactions set by the law and the rights afforded to consumers. In addition, brokers may set policies on the practice of wholesaling within the brokerage.
Requirements of Wholesale Transactions
The law requires certain disclosures to be included in a wholesale contract between the consumer and the wholesaler. This applies to contracts between the property owner and the wholesaler and those between the wholesaler and the ultimate buyer.
The required elements are:
- A statement that the agreement of sale or contract is for a wholesale transaction in which the wholesaler 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.
- A statement that the consumer has the right to obtain an appraisal of the property from a certified real estate appraiser, to consult with a real estate licensee not affiliated with the wholesaler’s broker or to seek legal counsel before or after entering into the agreement of sale or contract.
- A statement that the consumer has the right to cancel the agreement of sale or contract until midnight of the 30th day after the execution date of the agreement of sale or contract, or until conveyance of the property, whichever occurs first, by certified return receipt mail or by any other bona fide means of delivery, including electronic or personal delivery so long as the consumer obtains a receipt of delivery.
- A statement that within 10 days following receipt of the notice of cancellation, all payments of any kind made by the consumer shall be refunded to the consumer.
Compensation in Wholesale Transactions
Because wholesaling is licensed real estate activity, all other laws and regulations applicable to real estate transactions apply, including compensation.
Section 604 of RELRA prohibits licensed salespersons and associate brokers from accepting a commission or any valuable consideration from anyone other than the real estate broker with whom they are affiliated for licensed real estate activity. When a wholesaler sells their interest in a contract to a third party, the third party’s payment must be made to the broker.
Consumer Resources
Parties involved in a wholesale transaction (homebuyers and homesellers) have the right to consult with an appraiser, a neutral real estate licensee and/or legal counsel before or after signing the contract.
All licensees must disclose, in writing, their interest in a real estate transaction. If they are conducting a wholesale transaction for themselves or for a company they own (either partially or fully), then they must make it known to the other party. If the wholesaler fails to meet these requirements, you may report this activity by filing a complaint with the Real Estate Commission or consider private legal action.
Verify a License
Because wholesale transactions are licensed real estate activities, all wholesalers must be licensed by the Pennsylvania State Real Estate Commission. Licenses can be verified by searching the Pennsylvania Licensing System (PALS) by doing a person search (searching an individual) or a facility search (searching a company).
Select “State Real Estate Commission” in the Board/Commission field, populate any known fields and click “search.”
Unlicensed real estate activity of any kind can be reported by filing a complaint with the Real Estate Commission.
Ask the Question
If you think you might be involved in a wholesale transaction, just ask!
No real estate licensee should conceal important facts related to the transaction, so asking a question like, “Is this a wholesale transaction?” or “Do you intend to assign this contract to someone else?” should be met with simple answers.
Frequently Asked Questions
What is wholesaling?
A wholesale transaction is one that involves a middleman, sometimes referred to as a strawman or straw purchaser, who enters a contract to purchase a property from the deeded owner. However, the wholesaler never intends to finalize the contract. They are looking for a secondary buyer who will purchase their (the wholesaler’s) interest in the contract.
As amended, RELRA will define wholesaling as “undertaking to promote the sale, exchange or purchase of an equitable interest or other interest in residential real 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.”
Is there a special license for wholesalers?
No. Wholesaling is general licensed activity. Any company or individual that engages in wholesaling must have a real estate license.
If my broker doesn’t allow wholesaling, can I do it myself?
Although RELRA typically does not require a license to sell one’s own property, this exclusion does not apply to wholesale transactions. This is licensed activity that, for salespersons and associate brokers, must be done with the supervision of the broker.
What if a wholesaler isn’t licensed?
The Pennsylvania State Real Estate Commission oversees the Real Estate Licensing and Registration Act (RELRA) and the licensing of brokerages and individuals. Unlicensed real estate activity of any kind can be reported by filing a complaint with the Real Estate Commission.
Can I list a wholesale contract in the MLS?
Contact your MLS. Some will not allow a listing that is selling just an equitable interest in the property.
Is a wholesale transaction subject to realty transfer tax?
Yes, any transfer of an interest in real property, whether by sale or assignment, is a taxable event.
Can I represent someone who wants to sell their interest in the contract to another buyer?
Legally, yes, you can represent the wholesaler who wants to sell their interest in the contract to another buyer. However, just because it’s legal doesn’t mean that you have the green light. Representing the seller is real estate activity, which must be done with the broker’s approval and oversight. Check with your broker before agreeing to represent a wholesaler.
Does the wholesaler need to provide a property disclosure statement?
Any transfer of an interest in fewer than four residential dwelling units requires a property disclosure statement. Keep in mind that a wholesaler is not going to be the deeded owner of the property who has lived in the house for the past 30 years. Any statement that is completed by the wholesaler is likely to be lacking in relevant information. The deeded owner of the property should have provided a property disclosure statement to the wholesaler, however, and it may be possible to get a copy of that disclosure.
Can consumers get out of a contract with a wholesaler?
If the contract has all the elements required by RELRA, the consumer may cancel their contract for a wholesale transaction within 30 days or before conveyance, whichever happens first.
If the contract is not legally compliant, the consumer may cancel the contract at any time prior to conveyance.
The right to cancel is NOT waivable. This right to cancel applies to all consumers who are a party to a wholesale transaction. Both the property owner and the ultimate buyer have the right to cancel their agreements with the wholesaler.
What does the Code of Ethics say about wholesaling?
The National Association of Realtors® Code of Ethics does not specifically address wholesale transactions, but there are articles that could apply to these types of transactions, such as:
- Article 1 – requires Realtors® to treat all parties honestly
- Article 2 – requires Realtors® to reveal all pertinent facts relating to the transaction
- Article 4 – requires Realtors® to reveal their own interest as a buyer or seller
- Article 5 – prohibits Realtors® from providing professional services concerning a property or its value without disclosing their present or contemplated interest to all affected parties
- Article 11 – requires Realtors® to provide services which conform to the standards of practice and competence which are reasonably expected in the disciplines in with they engage
- Article 12 – requires Realtors® to be honest and truthful in their communications and advertisements
Can you tell me how to… ?
How to get paid? How to list the property? How to market to wholesalers?
No. We cannot answer any of these types of questions. PAR provides guidance to help members understand the relevant laws and regulations, but we do not advise members on how to implement specific business practices. We can explain the law’s requirements, but we can’t help you decide whether to engage in wholesaling or how to set up and run that business if you choose to do so.
