Is Wholesaling Real Estate Legal in Arizona?

With a warm climate and a friendly, pro-business stance, Arizona has enjoyed steady growth in recent years. Phoenix has become a sprawling contemporary center for commerce, recognized for a highly educated workforce and a low tax base, and as a great place to raise a family.

Other areas of the state, while much smaller, also provide ample opportunities to make money in real estate. 

Several people choose a traditional career path in real estate in Arizona.  However, many others are excited about the freedom and flexibility that a career as a real estate wholesaler can offer. 

• What Do You Need To Know About Wholesaling In Arizona?
• Is Wholesaling Real Estate Legal In Arizona?
• What Are The Wholesaling Laws In Arizona?
• Do You Need A Real Estate License To Wholesale In Arizona?
• Is Co-Wholesaling Real Estate Legal In Arizona?
• Is Reverse Wholesaling Real Estate Legal In Arizona?
• Arizona Wholesale Contract
• Is Wholesaling Real Estate Legal In Phoenix?
• Final Thoughts

 

            

What Do You Need To Know About Wholesaling In Arizona?

To become a successful wholesaler in Arizona, you’ll need to focus on educating yourself in two key areas.  

You must fully understand real estate laws, especially those that apply to wholesaling, and you need to do your homework on market conditions both statewide and in the local markets where you intend to work on deals.

It’s critical to understand the mechanisms, timing, and financing of various wholesaling strategies so that you can best use them to your advantage.

There are several resources you can access to familiarize yourself with the markets where you want to wholesale real estate.

A great place to go for a statewide overview is the Arizona Association of Realtors (AAR).  You’ll have to log in as a guest to have access to the public areas of the site.

There are also local Realtor chapters throughout Arizona.  Some of the bigger markets and Realtor associations include:

• Phoenix Realtors
• Tucson Association of Realtors (TAR)
• Yuma Association of Realtors (YAR)
• Northern Arizona Association of Realtors (NAAR)

It also helps to have an overview of the state’s economic conditions.  The Arizona Association for Economic Development (AAED) is the state’s voice that advocates for responsible economic development through advocacy, education and collaboration.

As a state, Arizona is attractive for housing and businesses for several reasons.  In 2020, Arizona recorded the third fastest-growing population in the United States. 

The state also has an educated workforce, creating upward mobility that can spur real estate activity.

Source: Arizona Commerce Authority

Total employment is projected to keep growing at a healthy rate as well.

 

            

Is Wholesaling Real Estate Legal In Arizona?

Yes, wholesaling real estate is legal in Arizona. The most important thing you must do is follow established state laws and regulations regarding real estate transactions in the state. 

A good general understanding of real estate laws in Arizona will help you stay out of trouble as you work through your deals. 

Also, take as much time as you need to learn about the three primary methods used in wholesaling.

The legal methods to wholesale real estate in Arizona include:

1. Assignment of a Contract
2. The Double Close
3. Wholetailing

There are no laws restricting a principal from buying or selling a piece of real estate. This overarching right of private property owners paves the road for double closing, wholetaling, or buying and flipping properties legally.

Regarding the assignment of contractual rights in Arizona, Restatement (Second) of Contracts § 317(2) states that:

“A contractual right can be assigned unless:

1. The substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, or
2. The assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or
3. Assignment is validly precluded by contract.”

Thus, using terms like “and assignee” or “and/or assigns” next to the name of the principal buyer is not legally required for a contract to be assignable to a third party.

 

            

What Are The Wholesaling Laws In Arizona?

Arizona real estate law is governed by The Arizona Administrative Code and the Arizona Revised Statutes.

These references relate specifically to the authority and responsibility of the Arizona Department of Real Estate (ADRE) to administer the licensing and the real estate profession in Arizona.

The Arizona Administrative Code, Title 4, Chapter 28 details rules pertaining to real estate professions and occupations. 

The Code covers requirements for:

• Licensure
• Education
• Advertising
• Compensation
• Documents
• Professional Conduct
• Administrative Procedures

Arizona Revised Statutes Title 32. Professions and Occupations §32-2122. License required of brokers and salespersons

AZ Rev Stat § 32-2101 (2016) states that a real estate license is required of anyone acting in the capacity of a Real estate broker or Real estate salesperson. Specifically,

“It shall be unlawful for any person, corporation, partnership or limited liability company to engage in any business, occupation or activity listed in subsection A without first obtaining a license as prescribed in this chapter and otherwise complying with the provisions of this chapter.” 

Further, the definition of a real estate broker in Arizona is in part a person, other than a salesperson, who, for another and for compensation:

(a) Sells, exchanges, purchases, rents or leases real estate, businesses and business opportunities or timeshare interests.

(b) Offers to sell, exchange, purchase, rent or lease real estate, businesses and business opportunities or timeshare interests.

(c) Negotiates or offers, attempts or agrees to negotiate the sale, exchange, purchase, rental or leasing of real estate, businesses and business opportunities or timeshare interests.

(d) Lists or offers, attempts or agrees to list real estate, businesses and business opportunities or timeshare interests for sale, lease or exchange.”

Real estate wholesalers must be aware of the differences between acting on their own behalf as a principal in the transaction vs. acting for another. It is illegal to engage in the aforementioned activities for another without a real estate license.

This line can get blurred for the inexperienced wholesaler. Simply put, as an unlicensed wholesaler, do not perform actions that classify you as a broker and require a real estate license.

Section R4-28-306 - Unlawful License Activity

Arizona Administrative Code § 4-28-306 states that Unlawful license activity includes:

“The performance of acts requiring a license under A.R.S. § 32-2122 by a person who does not hold a current and active license”

The Arizona Department of Real Estate may take disciplinary action against individuals who engage in unlawful license activity.

Section R4-28-502 - Advertising by a Licensee 

Another key provision in the Arizona Administrative Code worth noting relates to advertising.

Article 5, §4-28-502 details activities that only licensed Realtors can engage in.  This is important to note for wholesalers without a license because in an Assignment of a Contract, they cannot market or advertise a property.

They can only market or advertise their equitable interest in the contract for the property that they have under contract.

Ariz. Admin. Code Section 4-28-502 continues to state regarding Advertising by a Licensee:

"Any salesperson or broker advertising the salesperson's or broker's own property for sale, lease, or exchange shall disclose the salesperson's or broker's status as a salesperson or broker, and as the property owner by placing the words "owner/agent" in the advertisement."

A salesperson or broker shall ensure that all advertising contains accurate claims and representations, and fully states factual material relating to the information advertised. A salesperson or broker shall not misrepresent the facts or create misleading impressions."

This is especially important to take into account if you're a licensed real estate agent that is wholetailing a property and listing it on the multiple listing service (MLS).

Section R4-28-1101 - Duties to Client  

A wholesaler should always act ethically and responsibly with all parties at all times.  Realtors have a fiduciary duty to clients and must protect and promote their interests at all times. 

This is detailed in Article 11 related to professional conduct.  Unlicensed wholesalers are not legally bound by these standards, but they provide an excellent blueprint for conducting business with licensees, and the statutes are well worth the time to review.

Wholesalers may work with licensed real estate agents to acquire properties, so this law sets the expectation for conduct when an agency relationship is in place.

Wholesalers with a real estate license who represent sellers and list properties might be tempted to make these sellers a cash offer, then wholesale the deals to an end buyer.

However, in most instances, this would be a violation of the fiduciary duty owed to the client (the seller) and could have severe consequences.

In general, if you have any questions regarding wholesale deals that you don't understand, it's always smart to seek legal advice.

So, can a licensed Realtor wholesale real estate? Yes, they absolutely can.

However, they should not represent themselves as an agent of the seller with a fiduciary duty. This would be a clear conflict of interest.

To learn more about agency relationships, watch this short video: 

Disclosure 

Since wholesalers that are assigning contracts do not hold legal title to these properties, they must disclose their interest in relation to the property in any of their advertisements.

Also, if a wholesaler does not intend on actually closing on the property this should be communicated to the seller. Specifically, if they are solely focused on assigning the contract, without any intention of purchasing the property, then it should be disclosed to the seller.

 

            

Do You Need A Real Estate License To Wholesale In Arizona?

No real estate license is required to wholesale property in Arizona.

However, wholesalers without licenses must operate under a different set of rules than licensed real estate agents.

The most important of these is that without a license, you can only market the rights to the contract you have for a property and not the actual property itself.  This is where many wholesaling businesses can run into problems.

Also, if you’re a licensed real estate, that fact must be disclosed in all of your dealings with other parties.

Also, without a license, you collect an assignment fee for your role in the assignment of a contract. In the interests of transparency, this fee should be disclosed to the seller and the person to whom you assign the contract. 

A wholesaler with a real estate license has the ability to also earn a real estate sales commission, in addition to an assignment fee. Unlicensed wholesalers are not allowed to earn sales commissions.

Wholesalers who want to get an Arizona Real Estate license will work through the Arizona Department of Real Estate. 

 

            

Is Co-Wholesaling Real Estate Legal In Arizona?

When two or more parties join forces to wholesale, this is known as co-wholesaling.  This practice is legal in Arizona.

Co-wholesaling is an attractive alternative for many people who lack experience or resources to successfully wholesale on their own, or for those people who want to increase the number of deals they can complete in a given timeframe. 

Most of the time, one partner will work on finding the deals and the other partner will supply the cash buyers or financing resources.  Partners may also bring specialized knowledge to the joint efforts, providing real estate investment, contract, law, rehabbing, or other skills and experience to facilitate transactions.

One of the successful keys to wholesaling is full transparency.  You must be completely honest with your partner and that both of you are ethical and trustworthy.

To better protect your interests, it’s always wise to enter into a co-wholesaling/joint venture agreement, providing an added layer of security for all partners.

 

            

Is Reverse Wholesaling Real Estate Legal In Arizona?

Reverse wholesaling includes all of the same steps as traditional wholesaling.  The only difference is the deal steps are executed in a different order.

This means that you’ll create a buyer's list or line up buyers first and then find investment properties to either put under an assignment contract or buy and sell. 

Wholesalers often prefer this approach because it creates a stable exit strategy and builds stronger long-term relationships with cash buyers, flippers, or investors who may want to do multiple deals.  When you align with private and hard money lenders in advance, you create a streamlined process and more reliable outcomes.

 

            

Arizona Wholesale Contract

There are two primary Arizona real estate wholesale contracts that you’ll want to utilize, depending on your wholesaling strategy:

1. Real Estate Purchase and Sale Agreement
2. Wholesale Assignment Contract

When formalizing an agreement to buy a property as a wholesaler in Arizona, you will want to complete an Arizona REALTORS® Residential Resale Real Estate Purchase Agreement or similar purchase contract. 

To familiarize yourself with the contents and requirements of this agreement, carefully review the contract and consult with a local real estate professional or attorney.

After completing a purchase agreement, a wholesaler will utilize an Assignment Contract or an Assignment Addendum to assign their interest in the contract to an end buyer.

Real estate transactions are freely assignable in Arizona unless there are restrictions or prohibitions in the underlying purchase agreement to the contrary. 

An assignment may be as simple as one sentence in an Assignment Addendum:

The buyer assigns any and all rights, title, and/or interest in the underlying purchase agreement, the escrow, and the underlying real property, to the named assignee.

In other instances, a one-page Assignment Contract may be drafted and signed by the parties.  It will look similar to this: 

Be aware that sometimes real estate purchase agreements contain restrictions against assignments to any other party except for affiliated or related entities, or a flat-out prohibition against any assignments without the seller's prior written consent.

Other real estate purchase contract forms, such as the Arizona wholesale contract (linked above), contain no such prohibition or restriction.

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Click Here To Download Free Wholesale Real Estate Contracts (PDF)

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Contingencies

One of the most important aspects of a purchase agreement are contingencies.  All purchase agreements contain contingency clauses which are conditions or actions that must be met for a real estate contract to become a binding legal document.  When a contingency isn’t met, either party can consider the purchase contract null and void.

There are several types of contingency clauses.  Some of these include: 

• Appraisal contingency
• Financing contingency
• Inspection/Due Diligence contingency
• Sale of a Prior Home contingency
• Clear Title contingency
• Homeowners Insurance contingency

 

            

Is Wholesaling Real Estate Legal In Phoenix?

Wholesaling real estate is absolutely a viable option in Phoenix.

As the largest city in the state, Phoenix is the key indicator of housing sales in Arizona.  Both home sales and inventory are up in recent months.  This is great news for wholesalers looking to put together deals in this sprawling metropolis. 

Let’s look at some key stats comparing 2019 vs. 2020:

Source: ARMLS

The other exciting news about the Phoenix market is that the average sales price is up +23.1% year-over-year while the year-over-year median sales price is also up +17.5%.  Also, the days on market were down 13 days year-over-year.

Despite these strengths, there are still lots of opportunities to find motivated sellers and distressed properties below market value.

 

            

Final Thoughts

There is a lot to like about Arizona if you’re considering wholesaling as a career.  The economy is strong and diverse, housing prices remain affordable, and the state is one of the top in the nation for population growth. 

These are all important indicators that you have the opportunity to do well in the real estate wholesaling field, if you’re willing to work hard and apply critical knowledge to your efforts.

There are a few final things to consider when it comes to wholesaling in Arizona.

Enter into agreements with every intention of closing a deal.  If your goal is anything other than this, don’t get into the contract.  Have an exit strategy in mind, and be ethical in your efforts.

Also, you should have the capacity to complete a deal.  You should have access to adequate funding in a Double Close or Wholetailing situation.  Work with private lenders, hard money lenders, obtain a line of credit, or have other resources available to complete your transaction.  Having a proof of funds letter in place when you submit an offer is a powerful incentive for everyone to get the deal done.

Transparency is also a must!  Do not misrepresent yourself at any point along the way.  You must state that you have an equitable interest in a purchase contract instead of claiming you're the owner of the property when undertaking an Assignment of a Contract. 

Of course, if you’re planning on buying a property and then reselling it such as in a Double Close or Wholetailing scenario, then this would not apply.

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*Disclosure: Real Estate Skills is not a law firm and the information contained here does not constitute legal advice. You should consult with an attorney before making any legal conclusions. The information presented here is educational in nature. All investments involve risks and the past performance of an investment, industry, sector, and/or market does not guarantee future returns or results. Investors are responsible for any investment decision they make. Such decisions should be based on an evaluation of their financial situation, investment objectives, risk tolerance, and liquidity needs.