Is Wholesaling Real Estate Illegal in Illinois? | Awesome REI

Is Wholesaling Real Estate Illegal in Illinois?

13 comments

Is wholesaling real estate illegal in Illinois now? Hmmmm…

Ever thought that doing a real estate deal—simply flipping a property—could ever be labeled a criminal activity?

“What?! What kind of melodramatic hooey is this? Balderdash! Fairy tales! Things that go ‘bump’ in the night!”

Or, is it?

What the what?!

Illinois recently passed a crazy, new law that has real estate investors nationwide in a frenzy trying to understand it. Tucked into this new, state law are some pesky, legal constraints for unlicensed people who routinely wholesale properties (buy and sell houses for quick cash) without a real estate license.

Essentially, it seems the clear aim is to bring this sordid activity squarely under the “only by licensed real estate agents” umbrella, and no longer the questionable domain of seedy real estate investors who nefariously aim to profit from a real estate transaction—for shame!

⇊ “I hurt you because I love you.” ⇊

chuck norris always punching

Laws like this that pass in one state often tend to be trendy for other states, so it’s something we should all pay attention to, not just Illinois investors.

Connecting the legal dots…

If you’re a sucker for some good legal jargon (to each his/her own, I guess) here’s the full text of this silly, new law… Enjoy. 😉

For ordinary humans, here’s a nice, little synopsis I found in this article briefly explaining how the new law impacts us in a nutshell…

With regard to business practices, in Section 1-10, the definition of "broker" has been amended to include the practice of "wholesaling" if done as a business model. Generally, "wholesaling" involves the practice of entering contracts to purchase property, then quickly assigning that contract to another buyer for a profit. When done as a business practice, "wholesaling" will now come under RELA’s enforcement provisions and the wholesaler will need a real estate broker’s license, as well as be subject to consumer protection provisions such as disclosure of self-interest and prohibition against dual agency.

A little perspective maybe?

Joe McCall and I recently had a nice little chat about what this new law might mean for investors—we the shameful who might still be dark-hearted enough to try to make a profit (gasp!) wholesaling properties without a real estate license!

You’ll hear Joe share not only how this (and similar laws likely on the horizon in other states) necessarily affect you (you damn, dirty ape), but also the brokerages that you do business with. We discuss why this law is kooky, what might happen if someone were to try challenging this new law, and simple ideas for how you can make it a non-issue altogether.

Snapple Joe Fun fact:
You don’t have to be a licensed broker to own a brokerage firm. Who knew?!

Look, some people don’t want to mess with the law, and I totally get that. In this candid conversation, Joe shares a stupid simple solution to keep you safely out of legal cross-hairs—something he’s actually done and thinks you should probably seriously consider too.

Why listen to Joe?

Joe McCallHow’s this: He’s a diversely accomplished investor, a genius marketer, and just a genuinely good guy too. With thousands of real estate deals nationwide notched on his belt, he’s also our in-house expert on The Z-Code—how an insider finds solid leads just “hiding in plain sight” in Zillow.

Joe speaks, we listen.

Watch and learn…

Video Transcription:

JP Moses: All right, guys, it’s a big freaking deal for real estate investors if you live in Illinois. Wholesaling houses is now illegal—or is it? Let’s talk about that. Next question is from Robert S. He says, “What do you think about the news or noise lately about wholesaling now being illegal in Illinois? ”

Joe McCall: It is. It’s illegal, immoral, and fattening. You can’t do wholesaling. You shouldn’t do it. You’re going to go to jail for the rest of your life. Probably get the death penalty—it’s like a serious federal offense. Capital crime, wholesaling is illegal and you shouldn’t do it.

JP Moses: It’s also of the devil really when it comes down to it.

Joe McCall: Satanic.

JP Moses: So, on a serious note, let’s give some context for people who don’t know about what happened in Illinois.

Joe McCall: So, wholesaling—here’s the thing: We’ve been hearing this for years. This is nothing new. Okay? The only new thing that happened is there actually was a law that was passed, but the local licensing board, which is responsible for enforcing that is still trying to figure it out, as we are recording this right now. They’re trying to figure out what this means.

Does this literally mean that if you are in the business of buying properties on your own and then rehabbing them and fixing them up and selling it three months later—I’m not even talking about double closes or assignments or wholesaling, I’m talking about as a business owner—is the state actually saying that you have to have your real estate license to buy a property for sale by owner and to sell it for sale by owner?

I think that is crazy, and obviously everybody thinks that it is. But I’ve talked to, and I’ve heard of attorneys in Illinois that are saying that will never happen. It’ll never happen. If anybody challenges that in court, there’s no way it can stand.

Okay, but so what? Get your license, right? I have my license. I have my real estate license with Keller Williams. It’s not a big deal, but there’s some things you need to understand though, okay? You can get your license—in fact, I recommend to people that you should—go ahead and get it, but you need to make sure you’re hanging your license with an investor friendly broker, right?

So how do you find them? Well you just ask around. You go to your local real estate clubs. There’s some brokers there, you can go look on Facebook groups or bigger pockets. Try to find the investor friendly brokers. And there’s a lot of these virtual brokers that are around the country now too. I think EXP is one where they don’t have a physical office, you know?

So you find an investor friendly broker and this is how I approach a broker. I always put it into, into their perspective— What’s in it for them, what’s the benefit to them, why they should let me hang my license with them?

And I say this: I do a lot of marketing and I come across a lot of leads. I’m an investor, okay? And I’m not looking for to do traditional listing brokerage stuff, right? But I’m an and I do a lot of marketing and I have a lot of leads that I can’t do anything with and I want to refer them to an agent—some other agents or to the brokerage in the office—but I’m looking for a broker that I can hang my license with that will let me do my own deals. I buy a lot of properties for sale by owner and I sell them by owner. I don’t want to list them on the MLS. I also do a lot of rehabbing . I do a lot of buy and hold investing, etc.

You see how I’m kind of phrasing it like or not using wholesaling language? I talk about how I’m buying properties by owner and I’m selling them by owner. Of course, you disclose that you’re an agent and all of that, but you should not have a hard time finding a broker that’ll let you do that. It’s not that big of a deal. Okay. There, there is no law and they could never do this. I mean maybe they could in Illinois, but they can never tell you that.

Okay, now that you have your license, you cannot buy and sell properties by owner. You can’t, okay—that’s overreach. And, if that ever goes to court, there’s no way that the state could win that kind of a law. So to make a quick, easy answer to this question. Number one, get your license, not a big deal.

Number two, double close on the deals, right? And I’ve been saying that for years and years, double close on the deal—use private money, or even your end buyers money—if you’ve got a good buyer that you’re working for, use their money to close on the deal. Use transactional funding, you know, go out and get some business credit cards. You can go and get some business credit cards that you get like $100,000 credit limit and you can buy these houses close on them, turn around and sell them.

JP Moses: Yeah, I think, I think what you just said is the bottom line. Really, what it comes down to is the people who made this regulation or law, whatever it is, they’re still trying to figure out exactly what it means and how it applies in different situations. It’s not critical that you really understand it, if you understand that the worst case scenario is, you get licensed or you go through a licensed Realtor for every transaction. Neither one of which invalidates buying and selling a house and double closing, right?

Rather than assigning a contract, for example. I think the bigger thing to recognize here is the opportunity this is in Illinois because all the wannabes, all the Johnny come latelys are going to go, “Oh man, now it’s illegal!” and they’re going to go away and they’re no longer going to be your competition. They’re not going to be cluttering the atmosphere, and that creates a unique opportunity for everyone who’s really serious in Illinois and says, “Okay, you know what? I’m willing to get a real estate license.”

I used to have a real estate license for three years in Tennessee because I got a licensed specifically for the benefit it would give me in wholesaling houses. Once I realized in Tennessee, really the benefit and the costs weren’t really working out. I just let my license go, but if I were in Illinois I would have no problem checking that box.

Joe McCall: There’s a lot of advantages to having your license too. Number one, you get access to the MLS, but you also get access to a lot of tools in the back office of the MLS, OK? A lot of MLSs have connections to Realist, which is owned by Corelogic. Corelogic owns Listsource. You’ve heard of that and Real Quest and then another service called Realist, so you can go into Realist and download, at least here, and I’ve heard this in other states, 5,000-10,000 records a month for free—you can go in and buy lists of absentee owners with equity and stuff like that.

And you can also—I do a lot of deals virtually, and there’s a tool in the back office that I can go into and get mls data on any property in the United States. So I can go in and get property data all over the country on any property.

So, there’s a lot of advantages to having the mls. Sometimes too, it gives you credibility. This, if you’re a serious wholesaler in Illinois right now, I would be excited because like this is going to eliminate a ton of the competition. It’s freaking everybody out. And if I had my license, I’d be like, “You know what? All these other shucksters that are trying to”—if I’m talking to the seller, I might say—”…you know, I wouldn’t trust these other wholesalers. They don’t have their license. I’m actually a licensed real estate professional in the state of Illinois. Now, I’m not looking for a listing. I want to buy your house. But you need to be careful of anybody who comes around here that doesn’t have a license because they don’t know what they’re doing.”

JP Moses: That’s beautiful because you totally check the box of disclosing your agency, and also framed it as a benefit to them. Love it.

Joe McCall: So those wholesalers don’t have anybody that they have to report to. You know, I have a real estate commission that I have to answer to. I have to take an ethics class every two years, I have to go through all of this training. You know, you can look me up, I have a broker that I hang my license with, etc.

But, you know, there’s some good brokers out there too, by the way, that aren’t going to get involved in your day to day business, right? They’re not going to require that you sit in an office. They’re going to let you work from home. You’re going to have rules that you have to abide to that you didn’t have to before, like, you’re going to have to disclose that you’re an agent.

But you know, this is important to understand: Just because you have a license doesn’t mean you have to use the Realtor’s contracts for your own deals. Okay? When you’re doing your own deals, you can use your own contracts. And you’ve just got to disclose to everybody that you’re an agent. You’re not representing them. You’re representing yourself. And make sure that your broker doesn’t have a problem with that. Now, if it does find a new one.

JP Moses: There’s an often related question to this that I hear that “wasn’t asked specifically by someone, but people have asked: “If I’m licensed, doesn’t that mean that every real estate deal I do has to go through my broker? My broker has to get a cut?” If that is the company policy with your broker, that your deals, that you’re a principal in to buy and sell, have to give them a commission, then yes, you’re required to, not by law but by company policy.

Joe McCall: That’s a company policy thing. It’s not a state law.

JP Moses: Exactly, so you want to make sure if they say, “No, those wholesale deals you’re doing, I’ve got to have a piece of that because I’m your broker.” He may even think or she may even think your broker, that that’s a legal requirement because a lot of times their company policies, they act like they’re legal and they believe that they are sometimes.

Joe McCall: Yeah. So just find a broker that doesn’t require that. I’m with Keller Williams, I’ve been with them for a while. You know what, I haven’t been in that office for about four years. I don’t even think they know I exist. I get emails from them. I never read them. I just pay my dues every single month. And you know what, I have an assistant who’s licensed Realtor, so she kind of helps me do the licensing requirements and stuff like that. She doesn’t take the classes for me. I wish I could let her take the classes for me, but I still have to take them. But they just don’t even know who I am, which is fine. I have a Keller Williams email address. I have no idea what it is.

But you know, I don’t know if I wouldn’t be able to get into a Keller Williams again today, because at the time I was good friends with the broker, who was a very investor, friendly broker, right? Done a lot of deals. All kinds of deals: lease options, wholesaling, short sales, foreclosures, you know, traditional listings. And he actually invested in a brokerage.

By the way, did you know that you don’t have to be licensed to own a brokerage? I know several investors that have done this: You can actually buy a brokerage—create a brokerage or buy a franchise brokerage—and you don’t have to be licensed yourself. You have to hire somebody under you that’s licensed to run the brokerage. But as the owner, you don’t have to be licensed. I know several big investors that do this. And so when they need to do, when they need to wear their Realtor hat, they get one of their employees to do the Realtor stuff for them.

Now again, there’s virtual brokerages out there that, I’m not sure what the requirements are. It’s varies by state, but EXP Realty is one of them. If you just start going around to bigger pockets or Facebook groups and stuff like that, and finding out who are the investor friendly brokers in these certain areas of your state, or asking around at the local real estate clubs. There’s a lot of mom and pop brokers that do real estate deals themselves. And you know, you have to pay them some kind of fee, but it’s, it’s worth it. And if you ever need help or support, they’re there for you. They can help you with their stuff.

Thoughts?

What’s your take on this new law? Excited about it like Joe is? An opportunity to squash some competition while leveling-up your own REI game? Or, maybe a big, fat nuisance—an ominous sign of the times? I’d love to read a quick comment from you (below) if you’d be so inclined. 🙂

(PS: Want to learn more about how you can make money using Zillow, without even owning any real estate if you want? Take a look at our Z-code sessions with Joe McCall—really only 4 videos—and see the REI ninjery in action.)

The Z-Code by Joe McCall

Click Here to Leave a Comment Below

13 comments
PR

So Just as every knee jerk overreaction law that is passed in the name of “Consumer Protection”, here’s another poorly thought out offensive that is only going to HURT the consumer in the long run!
I don’t disagree with Joe’s thoughts for those who just conform and play the game but…
Being forced to do double closings only means more cost to the transaction to which the “Licensed” wholesaler is now going to need an even bigger discount on the deal, thereby screwing the consumer out of that much more of their hard earned/or squandered (otherwise they wouldn’t be distressed) Money!
Craig B says you need to negotiate lower closing commissions – Now with the law on their side forcing more closings I’m sure the cost will only go UP, not down.
Good luck Illini!

Reply
Alan Kueker

To sell Real Estate without a license…you must own it. Buy It, sell it. Double closings. Simple.

Reply
Zach Shepard

As a guy who’s assigned, flipped, rehabbed and bought deals in IL for the last 10 years, the closing costs are overly burdensome to make double closings worth it on some assignment deals. $10k to $15k get eaten up pretty quickly when you start talking about title ins, transfer stamps and tax prorations. You need a pretty decent spread to make the double-close worth your while!

Reply
Pansy Walker

It is another strategy to hold down people’s progress. The end game for all get the RE License so the complainers who will not do the job that REI does will stop their bickering. RE Agents does not understand the strategy of investors. All they do is show fancy homes to get a commission. They don’t even assist their sellers, that is what is sad. Yes, Bernie Sanders was even touting tax be applied on Fix and Flip homes. The money game is on as the bigger ups does not want to see people progress like them. What a world. Folks don’t try to fight it as if you can’s beat them join them.
~~Pansy

Reply
Vince Mayer

Why don’t you use transactional funding and buy the house before you wholesale it?

Reply
Duane

I am so confused on the text part. Is it illegal or legal if you have a RE license to buy homes and how can you get it in another state and be in a brokerage firm? I think that this makes no sense. Is this real? JP, since you brought this to all of our attention, can you kindly break this down for us that can not get it.

Reply
    Johnpaul Moses

    OK, Duane—here’s my quick-n-dirty summary…which is definitely not legal advice in any way, shape or form:

    Joe’s opinion (and everyone he’s talked to so far) is that, when push comes to shove, it likely won’t end up being applied to people who legitimately buy and sell (i.e. flip) a property for profit. I.E. fix-and-flip deals, and also double closings—meaning A-B and B-C the same day via transactional funding. Assigning contracts in Illinois would put you squarely in the legal line of fire now, but not so much legit (and legally) buying and selling property.

    Yes, it’ seems possible that the Illinois real estate commission (which is all Realtors btw) might try to enforce it to people buying and selling properties. But Joe seems to feel strongly that, based on everything he knows and the higher-level people he’s consulted with, there’s no way it’d stand up that way if challenged in court.

    In the end, it may take someone calling this to the carpet in court. Buying and selling a property that you legally own is a fundamental right of any property owner, and this law (at least the way some seem to be interpreting it) seems to squarely infringe on that right.

    But still, bottom line the easy-button solutions for wholesalers are:

    * Option 1: Become licensed w/an investor-friendly broker (then wholesale away)
    * Option 2: Focus on wholesaling deals remotely (not in Illinois)
    * Option 3: Continue wholesaling without a license in Illinois, and volunteer as a possible Case Law guinea pig 🙂

    Reply
Zach

I recently had an RE Agent question me about what I do

Reply
Anthony Woods

This was great. I have been going crazy to find someone who could really explain this so I would know what I need to do to do things right when wholesaling. Thank. You!

Reply
Sarah Santiago

Double Closings are included in this law, as I spoke with Amber J. Attorney in Chicago ILL, and of course there is no way around this!

Reply
    Bill

    The IL attorneys to whom I’ve spoken say that the licensing requirements apply ONLY to contract ASSIGNMENTS. If that’s the case, then double-closing would be perfectly acceptable.

    Reply
Carl Greenler

It appears that they are only talking about assignments- not fix and flips.

Reply
Craig Biddle

So we are now into double closings in Illinois? We will need to negotiate lower closing commissions with the title companies.

Reply
Leave a Reply:

Share This