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is wholesaling real estate legal in arizona

Is Wholesaling Real Estate Legal In Arizona? A 2024 Guide For Investors

real estate investing strategies real estate markets wholesale real estate May 16, 2024

Wholesaling real estate is a compelling investment strategy that can yield substantial returns, but many potential investors find themselves asking, "Is wholesaling real estate legal in Arizona?" It's a valid question, especially considering the complexities and variations in real estate laws from state to state.

To address this uncertainty and ensure you're fully informed, we've developed a comprehensive guide that dives deep into the legalities of wholesaling in Arizona. This guide is designed not only to confirm that wholesaling is indeed legal in the state but also to explore the reasons why and outline what you need to do to ensure your wholesaling activities are compliant with Arizona law.

Whether you're just starting out or looking to expand your real estate investment portfolio, understanding these nuances is crucial for leveraging wholesaling effectively and legally in Arizona:


*Before we begin our guide on whether wholesaling real estate is legal in Arizona, we invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)!

Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, step-by-step guide for beginners to start wholesaling real estate!


What Is Real Estate Wholesaling?

Real estate wholesaling is a strategy that lets you dip your toes into the real estate market without the financial burdens of purchasing properties outright. At its core, wholesaling involves securing the rights to buy a property, and then, instead of buying it yourself, you transfer those rights to someone else for a profit. This is mostly done through what's called the "assignment of contract."

Here's how it works: First, you find a property—usually one that's underpriced or in need of renovations—and negotiate a price with the seller. You then enter into a contract that states you intend to buy the property. However, instead of closing the deal yourself, you find another buyer; this could be an investor looking for a good deal or someone wanting to buy a fixer-upper.

Using the doctrine of equitable conversion, you have an equitable interest in the property once you sign the contract; this doesn't mean you own the property, but you do have the right to buy it. You can sell this right to the end buyer. In exchange, you charge a fee, which is often the difference between what you agreed to pay the seller and what the end buyer pays you. This fee is your profit for effectively playing matchmaker between the seller and the end buyer.

Despite its viability, quite a few people are still wondering, "Is wholesaling real estate legal in Arizona?"

What Do You Need To Know About Wholesaling Houses In Arizona?

If you’re considering getting into wholesaling houses in Arizona, it’s essential to start with a strong understanding of what’s involved. Firstly, you need to know that it's not just about finding properties; it's about understanding local real estate laws, the strategies you can use, and the current market dynamics.

For new wholesalers, mastering the different strategies like contract assignment, double closing, and wholetailing is crucial. Contract assignment is particularly popular, where you secure a contract with a seller and then sell this contract to an end buyer for a fee. Double closing might come into play if you prefer not to disclose your earnings or need to handle financing differently, as it involves you briefly taking ownership before selling the property. Wholetailing is an option if the property needs minor fixes before selling it to a retail buyer for a higher price.

Arizona's market is ripe for wholesalers right now, according to RedFin data. The median sales price has risen by 7.2% year over year, and home sales have increased by 3.8%. Properties are moving faster, staying on the market two days less than last year, with three months of inventory available. These factors create a dynamic environment for wholesalers, making it a promising time to start tapping into this market. If you're ready to dive into real estate, Arizona's current conditions provide a great opportunity to get started with wholesaling.

In addition to market dynamics, anyone looking for an answer to the question, "Is wholesaling real estate legal in Arizona?" should inquire with the state's biggest real estate organizations. A great place to go for a statewide overview is the Arizona Association of Realtors (AAR).

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

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.

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

Read Also: How To Wholesale Real Estate In Arizona: Step-By-Step

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.

The assignment of contract exit strategy is legal in Arizona because it operates within specific legal boundaries. Wholesalers using this strategy aren't acting as unlicensed real estate agents; rather, they are transferring their rights to purchase a property, not representing others in the sale or purchase of real estate. When wholesalers sign a contract with a seller, they gain an equitable interest in the property, which legally entitles them to transfer this interest to an end buyer. This process doesn't require a real estate license as long as the wholesaler is merely selling their right to buy the property, not engaging in other activities reserved for licensed agents.

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 wholesaling laws

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.

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.


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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.

Arizona wholesale real estate license

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?

Co-wholesaling real estate is legal in Arizona because it is governed by the same rules that regulate traditional wholesale deals. 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.

Co-Wholesaling Real Estate

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 is legal in Arizona and includes all 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.

Reverse wholesaling real estate legal in Arizona

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:

Arizona Wholesaling Real Estate Contract

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.

wholesale real estate contract pdf

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 legal 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.

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.

Read Also: The Pros & Cons Of Wholesaling Real Estate: An Investor's Guide

Final Thoughts

So, is wholesaling real estate legal in Arizona? Yes, wholesaling real estate in Arizona is completely legal, provided you stick to the guidelines we've discussed. By focusing on the assignment of contracts, you ensure that you're operating within the legal framework, transferring only your rights to purchase a property rather than engaging in licensed activities. Now that you know the ins and outs of what makes wholesaling legal here, it’s the perfect time to put this knowledge to work.

Seize the opportunity to make your mark in the Arizona real estate market. Consider stepping up your game by attending Real Estate Skills’ free training program; this could be the catalyst you need to transform your understanding into tangible success. Dive in, learn the ropes, and start capitalizing on the opportunities in today's market. The path to your real estate success could begin today—why wait to take that first step?


*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.


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