Is Wholesaling Real Estate Legal In Arkansas?

The real estate market in the United States has been firing on all cylinders for the past several years, bucking conventional wisdom in the face of what is usually an extremely disruptive economic pandemic.

And while the cyclical nature of real estate is not front-page news to investors and economists, anyone paying attention to the current market recognizes it for what it is – a seller’s market characterized by expansion and appreciation as noted below in STAGE 2-

A ‘seller’s market’ offers real estate wholesalers a ‘prime time opportunity’ for investing because Stage 2’s property appreciation is robust and meets the most salient requirements of a successful wholesale deal.

Wholesaling real estate is a type of investment technique in which an investor, acting as a middleman, follows these steps –

• They find a rental property or an investment property that is listed for a price below market value, usually because the owner is facing financial difficulties, like a foreclosure.
• After striking a deal with the homeowner or seller, the wholesaler and seller execute a real estate contract of sale, concluding with the provision of an earnest money deposit that is usually a small percentage of the purchase price.

When the contract has been signed, the Doctrine of Equitable Conversion re-arranges and divvies up the property’s ownership. The Doctrine of Equitable Conversion (also known as the Doctrine of Equitable Interest) is the legal platform upon which equitable title is transferred to the buyer from the owner. 

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When the purchase agreement has been signed, but the closing is still a future event, the subject property has dual ownership – divided among its legal ownership and equitable ownership. The homeowner has possession (and use) of the contracted property for which a buyer has a contractual right to receive the property upon the performance of the contract’s terms.

Before the transaction closes, the wholesaler finds another buyer – usually a cash buyer, and assigns his equitable rights to that party.

Real estate wholesaling is a viable way to learn how to assess potential wholesale properties and to build a buyer’s list and network of colleagues. It has become a popular investment technique because –

• It only requires a limited capital outlay.
• It mitigates risks compared to the rehabbing of a property.
• Wholesaling reduces the time that is typically required to close the wholesale deal when compared to a flippers strategy of flipping houses.

Let’s learn what is required to wholesale houses in Arkansas.

• What Do You Need To Know About Wholesaling Houses In Arkansas?
• Is Wholesaling Real Estate Legal In Arkansas?
• What Are The Wholesaling Laws In Arkansas?
• Do You Need A License To Wholesale Real Estate In Arkansas?
• Wholesale Real Estate Contract Arkansas
• Final Thoughts

                                                                              

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

The state of Arkansas is located in the south and the central United States. Arkansas, nicknamed The Natural State, joined the Union, in 1836, as the 25^th state admitted. The state is bordered by Missouri, Tennessee, Louisiana, Texas, and Oklahoma.

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The state of Arkansas covers approximately 53,170 square miles.  The Arkansas geography is diverse and includes the Ouachita and Ozark Mountains, as well as the timberlands, the Arkansas Delta, and the Mississippi River.

The highest elevation in Arkansas is Mount Magazine (2,753 Ft.), located in the west-central portion of Arkansas. The state covers more than 53,100 square miles, with about 2.1% covered by water.

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Mount Magazine also represents the highest point in what is known as the United States interior Highlands and is the highest elevation wedged between the Rocky Mountains and the Allegheny Mountains. The population of Arkansas in 2021 was over 3,000,000 residents, which is only a bit more than the population of Chicago, Illinois –

The five largest cities in Arkansas are –

Arkansas’ capital is also its largest city by far – Little Rock. Fayetteville is home to the state’s main campus of its premier institution of higher education – the University of Arkansas. 

The following represents the larger trade & professional organizations in the state of Arkansas that are specifically dedicated to the real estate profession. Each of these trade associations noted below is a member organization of the National Association of REALTORS (NAR) –

• The Arkansas REALTORS Association (ARA)

Founded in the 1920s, the Arkansas REALTORS Association is the voice for all things real estate across Arkansas. They offer members legislative advocacy, education, and a supportive function for consumers.

• The Little Rock REALTORS Association (LRRA)

Chartered more than 100 years ago in 1911, the Little Rock REALTORS Association is the voice of real estate in & around the greater Little Rock area. The LRRA offers its 1,100+ members advocacy, technological support, and continuing education and network opportunities.

• The Northwest Arkansas Board of REALTORS (NWBOR)

Established in 1944, the NWBOR is located in Lowell, Arkansas, since 2015, when their new office’s construction was completed. The Northwest Arkansas Board of REALTORS' current iteration is the result of several real estate boards, including Fayetteville, Springdale, Siloam Springs, Bentonville, and Rogers.

• The Northeast Arkansas Board of REALTORS (NABOR)

Chartered in the mid-1970s, the NABOR seeks to serve property owners and real estate professionals working in Arkansas’ northeast sections – including Jonesboro.

Current Arkansas Real Estate Market Metrics

The Arkansas real estate market’s median home value for 2021 is $143,303, which falls significantly below the national median home price of $404,000, as shown below -

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Arkansas’s moderate home prices offer real estate wholesalers a unique opportunity not found in other more expensive real estate markets.

The following graphic represents the growth rate of communities across Arkansas since 2000, with the darker areas representing the strongest growth in the past two decades -

The latest market data regarding Arkansas’ appreciation is as follows. Note that the latest quarter (Q3 2021) reveals a nearly 20% annual appreciation rate, which is twice the appreciation rate for 2020.

The Arkansas Real Estate Commission (AREC)

The AREC is the state authority tasked with the responsibility of managing real estate, licensee, and brokerage activities and licensing in Arkansas. Their powers and duties are found in 17-42-201 of the Arkansas Real Estate License Law.

Real estate law for the state is located in The Real Estate License Law Act (§17-42-101, ET SEQ.). The Arkansas Legislature notes its legislative intent with regard to this law regarding a licensed agent  –

The concept of real estate is defined as follows –

These are the licenses issued by the Arkansas Real Estate commission –

A Real Estate Salesperson

A Real Estate Associate Broker

A Principal Real Estate Broker’s License– which includes what Arkansas law considers real estate activities that require a real estate license –

In addition, AREC also issues an Executive Broker License –

Note, however, Arkansas law exempts these individuals and situations from requiring a license or being a real estate agent –

Arkansas Real Estate License Reciprocity

According to the Arkansas Real Estate Commission, these are the 16 states where AREC has entered into a reciprocal agreement concerning real estate licenses -

• Alabama Real Estate Commission
• Colorado Real Estate Commission
• Florida Real Estate Commission
• Georgia Real Estate Commission
• Iowa Real Estate Commission
• Kansas Real Estate Commission
• Louisiana Real Estate Commission
• Mississippi Real Estate Commission
• Nebraska Real Estate Commission
• New York Department of State, Division of Licensing Services
• Ohio Division of Real Estate & Professional Licensing
• Oklahoma Real Estate Commission
• Pennsylvania Real Estate Commission
• South Dakota Real Estate Commission
• Washington Department of Licensing, Real Estate Commission
• West Virginia Real Estate Commission

                                                                              

Is Wholesaling Real Estate Legal In Arkansas?

The qualified answer is yes.

Wholesaling real estate in the state of Arkansas is legal if the investor ensures their actions do not rise to the level requiring a license in the state. 

Wholesaling real estate requires that the investor possess a working knowledge of the local market, the actions that require a license in Arkansas, as well as state real estate laws. In addition, wholesalers must only market or sell their equitable ownership if they avoid those actions requiring an Arkansas real estate license.

The reality is that wholesaling real estate is more about marketing an asset (the right to purchase the home) than it is about selling real property.

Arkansas Is Not An Attorney-Close State

Note that Arkansas does not require an attorney to close the transaction, although it is prudent to obtain legal advice with a real estate attorney should the wholesaler face complex decisions with genuine legal consequences.

                                                                              

What Are The Wholesaling Laws In Arkansas?

Arkansas requires a real estate license for any of the following actions, except those noted as exceptions in 17-42-107 of the Arkansas Real Estate License Law, as follows -

(A) Sells, exchanges, purchases, rents, or leases real estate;

(B) Offers to sell, exchange, purchase, rent, or lease real estate;

(C) Negotiates, offers, attempts, or agrees to negotiate the sale, exchange, purchase, rent, or lease of real estate;

(D) Lists, offers, attempts, or agrees to list real estate for sale, lease, or exchange;

(E) Auctions, offers, attempts, or agrees to auction real estate, or participates in a real estate auction;

(F) Buys, sells, or assigns or offers to buy, sell, or assign or otherwise deals in options on real estate or improvements to real estate;

(G) Collects, offers, attempts, or agrees to collect rent for the use of real estate;

(H) Advertises or holds himself or herself out as being engaged in the business of buying, selling, exchanging, renting, or leasing real estate;

(I) Assists or directs in the procuring of prospects calculated to result in the sale, exchange, lease, or rent of real estate;

(J) Assists or directs in the negotiation of any transaction calculated or intended to result in the sale, exchange, lease, or rent of real estate;

(K) Engages in the business of charging an advance fee in connection with any contract whereby he or she undertakes to promote the sale or lease of real estate either through its listing in a publication issued for such a purpose or for referral of information concerning the real estate to brokers, or both; or

(L) Performs any of the acts described in this subdivision (10) as an employee of or on behalf of the owner of, or any person who has an interest in, real estate;

Arkansas law is clear about when a license is required in 17-42-301 License Required -- Violations –

The violations and penalties for violating Arkansas’ Real Estate License Law are found in 17-42-105. In addition, there are civil penalties for engaging in unlicensed real estate actions found in 17-42-109–

                                                                              

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

No, real estate wholesalers operating in Arkansas do not need a state-issued license if their actions do not fall within avoid any defined behaviors in 17-42-107.

Remember that the key to wholesaling legally is to market the only asset legally available, the wholesaler’s equitable interest awarded upon the full execution of the real estate purchase agreement. 

To stay within Arkansas’s legal limits, the wholesaler should ensure the contract is clearly-written and offers the appropriate disclosures and disclaimer statements

                                                                              

Wholesale Real Estate Contract Arkansas

A real estate contract (sometimes known as a purchase and sale agreement) is a legally binding contract that defines the terms required to close the transaction (see the bilateral contract).

A purchase agreement or contract of sale will include, in part, the following information –

• A legal description and address of the subject property.
• The earnest money deposit that was provided in good faith.
• Any personal items (i.e., appliances, for example) that are to be included in the transaction.
• The agreed-upon financial terms that are required to close the transaction. This includes the purchase price, down payment, and if the buyer intends to obtain mortgage financing.

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Download Free Wholesale Real Estate Contracts Here (PDF)

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Wholesalers who have little confidence or experience with confident in completing this legally enforceable agreement would find it quite beneficial to consult with an experienced real estate attorney to help ensure that you have the full protection of the law

A real estate contract is assignable – by default- unless the language in the agreement specifically prohibits the use of an assignment.

A contract of sale becomes legally enforceable if it meets the definition and both parties to the contract have executed the agreement. The following offers a glimpse of Page 1 of a 2010 Arkansas Residential Purchase Agreement -

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The Assignment Of Contract

The second relevant document used in real estate wholesaling is the Assignment of Contract. The assignment is the legal document that allows the original contract’s buyer to legally transfer their rights/obligations to a different end buyer.

The wholesaler would be the Assignor, while the new purchaser is the Assignee. 

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There are several exit strategies for real estate wholesalers operating in Arkansas.

Exit Strategies For Real Estate Wholesalers In The State of Arkansas

Arkansas real estate wholesalers choice concerning transaction exit strategies - 

• The Buy & Sell Closing Strategy
• The Assignment of Contract Method
• A Double Closing – the double close refers to a strategy that includes two closings – typically occurring back-to-back. The double close facilitates the closing process and helps to ensure wholesalers remain within Arkansas’ legal limits. More specifically, a double closing includes the following –
  • Two entirely different transactions that transfer the ownership twice.
  • The wholesaler is the buyer in the first closing and the seller in the 2^nd closing. The title to the property legally passes through all parties.
  • There are two sets of closing costs, which makes a double close more expensive to close – however, the double close offers real estate wholesalers a ‘safety net’ as this method ensures the wholesaler is the owner when acting as the seller in the second closing.
• Wholetailing

                                                                              

Final Thoughts

Real estate wholesaling offers investors a profitable investment strategy - if the investor does not violate Arkansas state law.

But real estate investing provides no guarantees. This unknown factor is one of the primary reasons that wholesalers are often entrepreneurs – they have the skills and talent to think fast and act professionally while remaining within Arkansas’ real estate law. 

Knowledgeable and properly trained real estate investors know that trying to control the market is fruitless and often counterproductive. Savvy investors identify and seize upon natural market trends - adjusting their investments to match the opportunities defined by the market conditions.

With the modern, 21^st digital landscape, the practice of real estate wholesaling has begun to explode across the country, as potential real estate deals are often accessible online, using a foreclosure auction podcast or a real estate-related website – like Zillow or Redfin, among others.

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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