is wholesaling real estate legal in arkansas

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

legal real estate investing strategies wholesale real estate wholesaling real estate May 09, 2024

Investing in real estate wholesaling demands a comprehensive understanding of legal nuances and regulatory guidelines. As investors explore the viability of wholesaling within the Arkansas market, familiarity with state-specific statutes governing real estate transactions becomes imperative to navigate potential legal pitfalls and safeguard investment endeavors.

The question, "Is Wholesaling Real Estate Legal in Arkansas?" underscores the pivotal role of due diligence in real estate investment, serving as a linchpin for informed decision-making and risk mitigation strategies. Amidst the allure of high profit margins and expedited transaction processes, investors must prioritize compliance with regulatory frameworks to foster sustainable and ethically sound business practices within real estate wholesaling. Thus, this guide aims to illuminate the legal landscape surrounding wholesaling in Arkansas, empowering investors with the knowledge and insights necessary to navigate the exit strategy, starting with the following:

*Before we begin our guide on whether wholesaling real estate is legal in Arkansas, 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 strategic investment strategy where an investor or wholesaler contracts to buy a property and then sells that contract to another buyer for a profit. It's a popular way to break into real estate investing because it typically requires less capital upfront than other strategies. Contract assignment is the most popular and preferred method among the various wholesaling techniques; this involves acquiring the rights to buy a property and then transferring these rights to an end buyer, supported by the doctrine of equitable conversion, which treats the contract as the property itself for transfer purposes.

Other methods include double closing, where the wholesaler closes on the property and resells it shortly thereafter, and wholetailing, which involves buying a property that needs minimal repair and reselling it quickly for a small profit.

If you're wondering, "Is wholesaling real estate legal in Arkansas?" the answer is yes. However, it's essential to understand the specific legal requirements and regulations in Arkansas to ensure you operate within the law. Wholesaling, especially through contract assignment, offers a low-risk entry point into the real estate market, making it an attractive strategy for new investors.

*For in-depth training on real estate investing, Real Estate Skills offers extensive courses to prepare you for your first investment! Attend our FREE training and gain insider knowledge, expert strategies, and essential skills to make the most of every real estate opportunity that comes your way!

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

Aspiring real estate investors in Arkansas looking to start wholesaling properties should first understand the laws that govern real estate transactions within the state. Knowing these regulations is crucial for operating legally and effectively. It's also vital to determine which properties and situations are best suited for specific exit strategies, such as contract assignments, double closings, or wholetailing, depending on the circumstances of the deal.

Understanding local market dynamics is another key factor. This knowledge can significantly influence the success of your wholesaling business. For instance, in the Arkansas real estate market, these indicators provided by RedFin can influence market activity:

  • Median Sales Price: The median sales price has increased by 2.4% over the last year. This rise suggests a growing market where property values are appreciating, potentially offering more room for profit when flipping contracts.
  • Number Of Homes Sold: The number of homes sold has decreased by 8.8% over the past year. This decline could indicate less competition among buyers, allowing wholesalers more negotiation power and possibly better deals.
  • Days On Market: Homes are staying on the market for an average of 48 days, which is slightly longer than last year. This slight increase in market time might suggest that while the market is cooling, there's still considerable interest in purchasing homes.
  • Inventory Levels: With three months of inventory available, the market is neither too saturated nor too scarce. This inventory level provides a balanced environment for wholesalers to find opportunities without the pressure of too much competition.

These indicators suggest that while the market is showing signs of cooling, there are still opportunities to profit through wholesaling. For those wondering if wholesaling real estate is legal in Arkansas, rest assured it is a permissible activity, but like any business, it requires adherence to state laws and regulations.

Aspiring investors should consult with local Realtor organizations in Arkansas for more detailed information and resources to answer the question, "Is wholesaling real estate legal in Arkansas?" These bodies can provide valuable insights, updated market data, and further clarification on the state's legal aspects of real estate investment.

The following represents the larger trade and professional organizations in Arkansas:

  • The Arkansas Realtors Association (ARA): Founded in the 1920s, the ARA is the voice for all things real estate in Arkansas. It offers 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 and around the greater Little Rock area. The LRRA offers its 1000+ members advocacy, technological support, continuing education, and network opportunities.
  • The Northwest Arkansas Board of Realtors (NWBOR): Established in 1944, the NWBOR has been located in Lowell, Arkansas, since 2015, when its new office construction was completed. The NWBOR's 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 in Arkansas’ northeast sections, including Jonesboro.

Read Also: How To Find Off-Market Properties In Arkansas

The Arkansas Real Estate Commission (AREC)

The AREC is the state authority tasked with managing Arkansas's real estate, licensee, and brokerage activities. Its 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 that it's necessary to regulate the practice of real estate brokers and salespersons to protect public health, safety, and welfare. It is the legislature's intent that only individuals who meet and maintain minimum standards of competence and conduct may provide service to the public.

These are the licenses issued by the Arkansas Real Estate Commission;

  • A Real Estate Salesperson: A salesperson means an individual who has a salesperson's license, is employed by a principal broker or is associated with a principal broker as an independent contractor, and participates in any activity described in subdivision (10) of this section while under the supervision of a principal broker or executive broker.
  • A Real Estate Associate Broker: An Associate Broker means an individual who has a broker's license and who is employed by a principal broker or is associated with a principal broker as an independent contractor and who participates in any activity described in subdivision(10) of this section while under the supervision of a principal broker or executive broker. An associate broker will have no supervisory authority over any other licensee.
  • Principal Real Estate Broker’s License: This includes what Arkansas law considers real estate activities that require a real estate license for an individual expecting to act or acting for another for a fee, commission, or other consideration who sells, exchanges, purchases, rents, or leases real estate and negotiates, offers, lists, or auctions real estate.

In addition, AREC also issues an Executive Broker License to an individual who has a broker's license, who is employed by a principal broker or associated with a principal broker as an independent contractor and who participates in any activity described in subdivision (10) of this section while under the supervision of a principal broker.

Arkansas law exempts individuals and situations from requiring a license or being a real estate agent if a person is not licensed under this chapter who performs any of the acts described in 17-42-103(10).

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 -

Yes, wholesaling real estate is legal in Arkansas. The legality hinges on ensuring that unlicensed wholesalers do not engage in activities that would require a real estate license. To be clear, wholesaling is legal under the doctrine of equitable conversion. This legal principle allows wholesalers to acquire the right to buy a property under contract and then transfer their right to purchase to an end buyer for a fee. Essentially, the wholesaler doesn't take possession of the property; instead, they sell their contractual rights. This transaction doesn't require a real estate license as long as the wholesaler strictly negotiates the sale of their contract rights and avoids activities reserved for licensed professionals, such as conducting property showings or marketing the property as their own.

Arkansas does not require an attorney to close the transaction. However, obtaining legal advice from a real estate attorney is prudent 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 clearly states that 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, which states that if the Arkansas Real Estate Commission finds that a person has engaged in unlicensed real estate activity, the commission may impose a civil penalty of no more than five thousand dollars ($5,000), and assess costs against the person.

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 any of the behaviors defined 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.

Read Also: How To Become A Real Estate Agent In Arkansas (5 Steps)

Wholesaling real estate in Arkansas

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 purc ase price, down payment, and if the buyer intends to obtain mortgage financing.

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 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 would be the Assignee.

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

wholesale real estate contract pdf

Final Thoughts

Is wholesaling real estate legal in Arkansas? Wholesaling real estate is indeed legal in Arkansas, provided that unlicensed wholesalers comply with state laws and avoid activities requiring a real estate license. Now that you know it's legal, why not take the next step? Consider attending Real Estate Skills' free training to fully capitalize on today's opportunities in the real estate market. This training can equip you with the necessary knowledge and tools to navigate the wholesaling landscape successfully and make the most of the legal framework available to you in Arkansas.

*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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