The great thing about a career in real estate is that there are many avenues you can pursue to make a living.
Some people choose a traditional route, get their real estate license or broker’s license, and do quite well buying and selling all types of properties in Colorado.
However, there are many other ways you can also succeed in real estate as well. One of these is wholesaling, which has gained more attention in recent years as people look for flexible and creative ways to pursue a full-time real estate investing career.
If you’re considering wholesaling as an option, the first and most basic question is whether or not wholesaling is legal in Colorado.
Here’s what you need to know.
It doesn’t matter if you live in Denver, Colorado Springs, Fort Collins, Pueblo, or any other community in Colorado. You can start and run a thriving wholesale business just about anywhere.
There are some key provisions you need to know about, otherwise, you could run into problems that could result in some serious fines and penalties.
The good news is that with a little bit of directed work, wholesaling is a repeatable business model that can be mastered, allowing you to grow and produce considerable results over time.
You have options for how you can wholesale. These options may be driven by necessity, the unique nature of each deal, or simply how you choose to pursue your wholesaling efforts.
For example, the Assignment of Contract method is the lowest barrier to entry into wholesaling. But it’s critical for you to understand that you are not allowed to market a property under contract with a homeowner. You can only market the rights to the contract you have entered into with the seller.
You can also wholesale using either The Double Close or a Buy and Sell agreement. Both of these are two separate transactions for investment properties that will require larger amounts of cash on hand or financing to complete the transactions. However, because they are treated separately, a wholesaler has free reign to set market value and purchase price after acquiring the property. The wholesaler does not need to reveal how much money they will make to sellers, rehabbers, or real estate investors when using these methods.
You don’t need to have a real estate license to complete these transactions either. Some people choose to obtain a license or become a real estate broker, but it is purely a matter of personal choice on their part.
Read Also: How To Wholesale Real Estate Step By Step (The Simple Process)
The short answer is “Yes.”
But there’s more to the answer than that.
It’s legal as long as you follow state rules and regulations as set forth by the Colorado Department of Regulatory Agencies, Division of Real Estate. This state agency oversees all aspects of real estate transactions in Colorado.
The Division of Real Estate protects consumers through the licensing, regulation, and enforcement of licensed real estate professionals. It also helps the public navigate real estate regulations through a collaborative, transparent, and user-friendly approach.
Even though you’re not required to have a real estate license to wholesale in Colorado, it’s critical to understand what the real estate regulations are because any real estate transaction must follow guidelines to avoid legal issues.
Colorado real estate statutes regulate all aspects of real and personal real property in the state. The 2016 Colorado Revised Statutes, Title 38 (Property – Real and Personal Real Property) define all aspects of real estate laws and real estate transactions.
You can also view the full official Title 38 contents here as well.
A real estate license is not necessary if you want to wholesale property in Colorado. However, if you don’t have a real estate license, you need to understand what the limitations are so you don’t run afoul of the law.
If you are not a licensed real estate agent, you cannot market a property if you want to assign a contract. You can only market the rights to the contract you hold. This is a critical distinction.
As a wholesaler, when you assign a contract, you’ll collect an assignment fee for your efforts. But as a licensed Realtor, you will earn a commission when you sell your client’s property.
Rather than take chances, many wholesalers choose to get a Colorado real estate license. Applicants must go through the Department of Regulatory Agencies, Division of Real Estate and complete prerequisites before making an application.
Applicants must be at least 18 years old, pass 168 hours of education, a course exam and broker exam, submit fingerprints to the Colorado Bureau of Investigation, get Errors & Omissions insurance, and then apply for a license online.
Read Also: Can You Wholesale MLS Properties?
There is not a specific body of laws that cover real estate wholesaling in Colorado, so as a wholesaler, you will need to piece together various existing real estate statutes to ensure you stay within the limits of Colorado law.
This is made easier by the fact that if you want to wholesale properties in Denver, Colorado Springs, or anywhere else in the state, the laws will apply equally in all instances.
As we already mentioned, the complete laws governing real estate transactions are found in Title 38. However, there is a lot of excess legal jargon in Title 38 that doesn’t apply to a wholesaler, so let's try and zero in on a few things that do, including pertinent tools from other places.
For example, you can access a generic Assignment of a Contract to Buy and Sell Real Estate in Colorado here. Keep in mind, this form is only an example, and it is always wise to work with a real estate attorney who can review your legal documents related to wholesaling to make sure they fully protect your interests.
The specific Colorado Statute governing the assignment of a contract is found in CO Rev Stat § 4-2-210 (2016). In specific legal terms, this refers to Title 4 - Uniform Commercial Code
Article 2 – Sales Part 2 - Form, Formation, and Readjustment of Contract § 4-2-210. Delegation of performance - assignment of rights.
Specific language from this statute states:
Except as otherwise provided in section 4-9-406, unless otherwise agreed, all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him or her by his or her contract, or impair materially his or her chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his or her entire obligation can be assigned despite agreement otherwise.
It’s strongly suggested that you try and use Colorado Department of Regulatory Agency (DORA) approved real estate contract forms so that you know your deal is compliant.
Licensed brokers must provide transparency, disclaimers, and full disclosure to sellers, so if you do have a license and you want to wholesale a property, you need to complete a Colorado Real Estate Commission Form DD25-5-09. This provides the seller with definitions of working relationships.
If you’re a wholesaler without a license, you still need to be transparent with the seller and let them know that you intend to market the contract as a way to ultimately assign it. Disclosure protects you as the wholesaler, and the seller who fully understands the nature of the deal you’re trying to complete.
If you assign a contract, you will need to disclose how much of a fee you’re going to receive for acting as the middleman for the transaction.
When you use a Double Close or a Buy and Sell method, because you are facilitating two separate transactions, you do not need to disclose the amount of money you’ll receive. The potential to make more money is possible, but you'll have to use a hard money lender or obtain transactional funding and come up with financing to complete the deals.
Unless you’re a seasoned real estate professional or an experienced contracts attorney, it’s probably best to work with these professionals and get critical legal advice to help you avoid costly mistakes.
Read Also: Hard Money Lenders 101 - What Are They & How To Find Them
Larger real estate markets such as Denver or Colorado Springs provide more opportunities for wholesalers and flippers, simply because the markets and the corresponding number of properties are greater in number.
While this creates more opportunities, it can also create more competition. Sometimes, the best way to compete in wholesaling more properties is to join forces with a strategic partner. This is known as co-wholesaling.
Co-wholesaling is legal in Colorado.
A joint partnership brings two or more entities together with diverse skill sets and strengths. For example, one person may actively search for wholesaling deals, while the other partner provides real estate investment, financing, legal, or contract expertise to create a more desirable outcome. This arrangement makes it easier to do more deals since the workload is distributed between multiple partners.
With a co-wholesaling agreement, the key caveat is to be transparent and identify all partners in the deal upfront. All other wholesaling requirements are the same.
Reverse wholesaling is the same process as wholesaling, except that you develop a buyer's list and line up buyers before you find specific properties that fit the buyer’s needs. Because it is essentially the same transaction, Colorado does not have any restrictions that are unique to reverse wholesaling so this form of wholesaling is legal in the state.
The approach does build closer relationships with cash buyers and creates a more reliable exit strategy for wholesalers, so it is often a preferred way to conduct business.
The right way to legally wholesale real estate in Colorado is to follow all state laws and statutes pertaining to this activity.
The wrong way is to ignore restrictions on wholesaling. You could face onerous penalties if you do.
The key points are simple.
You can wholesale using an Assignment of a Contract, a Double Close, or a Buy and Sell method. You must be well versed with how each of these works before attempting to complete your first deal.
Many wholesalers add critical layers of protection by working closely with an experienced real estate and contracts attorney. Although some costs are involved, the peace of mind that comes from knowing you are in full compliance is well worth the legal fees you’ll incur.
Read Also: What Is A Short Sale In Real Estate? What's The Process?
You can wholesale residential properties in Colorado Springs, cut wholesale deals on commercial properties in Denver, or make a great living putting together real estate deals and wholesaling just about any type of property anywhere in Colorado.
To find more specific information on these areas, consider contacting these appropriate Realtors’ associations (and others) throughout the state:
If you’re willing to put in the work and stay within the legal boundaries of Colorado state laws regarding real estate transactions, you can get started almost immediately and begin reaping the rewards of a wholesaling career for many years to come.
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