is wholesaling real estate legal in delaware

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

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

Real estate wholesaling has made investment headlines lately. While it is not a new real estate investment strategy, its recent popularity can be attributed to some of the benefits it offers real estate investors. In spite of its popularity, however, there are plenty of doubters who are asking the same question: Is wholesaling real estate legal in Delaware?

For one reason or another, those unfamiliar with the process are confused as to whether wholesaling real estate in Delaware is legal. However, we are here to tell you that it's not only legal but all of the laws that make wholesaling in Delaware legal. In doing so, we'll cover everything there is to know about legally wholesaling in Delaware, starting with the following:

*Before we begin our guide on [KEYWORD], 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 primarily revolves around a strategy called the assignment of contract. Essentially, instead of buying and selling properties themselves, wholesalers sort of "reserve" a property under a contract. They then pass on their right to purchase the home to someone else using what's called the doctrine of equitable conversion. This sounds fancy, but it just means once the contract is signed, the wholesaler has the right to buy the property, and they can choose to transfer this right to another buyer.

There are also a couple of other wholesaling methods that come in handy in special cases: double closing and wholetailing. With double closing, the wholesaler actually buys the property but quickly sells it off to the final buyer. Wholetailing is a bit different; here, the wholesaler buys the property, spruces it up a bit, and then sells it, usually to someone who plans to live in it. These strategies give wholesalers flexibility based on how they want to handle the deal and the market conditions they face. Yet, despite their viability, far too many people are still asking the same question: Is wholesaling real estate legal in Delaware?

Read Also: How To Flip Houses In Delaware

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

If you're considering jumping into wholesaling houses in Delaware, there are a few key things you need to know. First, it's crucial to understand the local real estate laws and regulations that govern transactions. Additionally, getting familiar with different wholesaling strategies like contract assignment, double closing, and wholetailing can significantly enhance your approach based on various situations.

Now, why is Delaware a hotspot for wholesalers right now? According to RedFin, the market is showing positive signs for such investments. The median sales price has increased by 9.7% year over year, and the number of homes sold has risen by 5.1%. Although homes are staying on the market a bit longer—up five days from last year—this can actually benefit new wholesalers, giving you a bit more time to negotiate and secure properties. Additionally, with only two months of existing inventory, there’s a tighter supply, which can drive up demand and prices, making it a great time to get involved.

For those new to the real estate game, diving into Delaware’s wholesaling scene could be a promising start. By understanding the local landscape and choosing the right strategy, you can tap into these favorable market conditions and start your journey in real estate investment. Of course, if you are looking for more answers to the question, "Is wholesaling real estate legal in Delaware?" you may want to reach out to the state's real estate trade organizations.

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

Real Estate Trade Organizations In Delaware

The following organizations are the larger professional organizations in Delaware that are dedicated to the real estate profession -including every brokerage and individual working in Delaware real estate. Each of these real estate professional associations is a member of the National Association of Realtors (NAR):

  • The Delaware Association of REALTORS (DAR): Located in Dover, the Delaware Association of REALTORS is the state’s leading advocate in safeguarding property rights and the essential resource for real estate professionals serving the public. The DAR’s headquarters is housed in one of the last standing 18th-century wood-framed buildings, estimated to have been moved to the Water Street location in the 1830s.
  • The Sussex County Association of REALTORS (SCAR): Established in 1950, the SCAR has more than 1,500 REALTOR members engaged in the profession of real estate in more than 100 offices across Sussex County. The Sussex County Association of REALTORS offers resources and benefits to real estate professionals practicing in Delaware’s Sussex County.
  • Kent County Association of REALTORS (KCAR): Founded in the mid-1940s, KCAR is the professional association for real estate professionals in Central Delaware. It sets forth policies, guidelines, and advocacy groups to protect and enhance property ownership in Delaware. KCAR has more than 400 members.

The Delaware Real Estate Commission (DREC) administers real estate activities (including brokerage services) and licensing functions. It is housed in the state’s Division of Professional Regulation and has authority defined in Delaware Code, Title 24 Professions and Occupations Chapter 29—Real Estate Services, Brokers, Associate Brokers & Salespersons.

In Delaware, the Real Estate Commission issues three types of real estate licenses: a real estate broker’s license, an associate broker’s license, and a salesperson’s license. These varying licenses are described in Title 24, Chapter 2902 (a) 1, 2, 23.

License Reciprocity In Delaware

Licensees and real estate agents from other states may be eligible for license reciprocity in the state of Delaware, as stated in Chapter 2909.

Note, though, that the level of real estate license reciprocity may require additional conditions.

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

Absolutely, wholesaling real estate is perfectly legal in Delaware. This approach works well because it doesn't require a real estate license. Wholesalers operate quite differently from real estate agents; they're not out there helping homeowners buy, sell, or market their properties.

Here's how it typically works in Delaware: wholesalers lock down the rights to buy a property by signing a contract with the seller. This contract gives the wholesaler what's called an equitable interest in the property, which they can legally pass on to someone else. This is usually done through an assignment of contract, where the wholesaler transfers their right to buy the property to an end buyer. They don't ever own the property; they simply transfer their buying rights for a fee, often making a profit based on the difference between their contract price and what the end buyer is willing to pay.

This process is backed by something called the doctrine of equitable conversion. Essentially, once the contract is inked, the property's equitable title—think of it as the right to obtain full ownership—is considered to belong to the wholesaler. As long as wholesalers in Delaware stick to this approach and meet any specific state requirements for contracts and disclosures, they’re on solid legal ground.

What Are The Wholesaling Laws In Delaware?

Delaware law in § 2901 is clear regarding license requirements. However, Delaware’s license law, according to § 2901 (e, 1-5), there are situations and circumstances for which a Delaware license would not be required.

Item number one, noted in § 2901 (e, 1-5), does reference the fact that the following individuals would be exempt if they had “common ownership or control” (see Principle of Equitable Conversion) of said property.

  • Owner
  • Lessor or lessee
  • Buyer

However, investors in wholesale properties are advised to work cautiously and with great transparency—those with nothing to hide, hide nothing!

According to Chapter 2901 (License Requirements), anyone who engages in providing real estate services without a license is in violation of Chapter 29 – Real Estate Services, Broker Associate Brokers and Salesperson, subject to the provisions in Chapter 10161 Title 29.

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

No, Delaware real estate wholesalers do not need a real estate license to wholesale real estate if their actions do not violate Delaware's real estate and license laws. However, real estate wholesalers who follow these suggestions will find it easier to steer clear of any legality issues.

  • A real estate wholesaler’s actions should be transparent throughout the transaction; this includes their ultimate intentions. A strongly and smartly worded purchase agreement is the simplest way to accomplish transparency.
  • Manage the expectations of the contract’s parties.
  • A real estate wholesaler’s actions should be done with integrity. Offer a disclaimer when appropriate.
  • Don’t market/sell the real property. Do market/sell your right to purchase real property as defined by the purchase agreement’s terms.

Additionally, it is noted that the state of Delaware is recognized as one of the several "Attorney Closing States" in the nation. This essentially means that real estate closings must be performed by a Delaware attorney in good standing with the Delaware State Bar.

As a result, a seasoned Delaware real estate attorney with wholesaling experience can become a real estate wholesaler’s greatest source of legal advice to avoid legal potholes created by Delaware law. To boot, Delaware law mandates that you are protected by a licensed representative of the legal field.

Read Also: Delaware Real Estate Schools Online

delaware wholesale real estate license

Wholesale Real Estate Contract Delaware

To wholesale real estate in Delaware, investors use two fundamental legal/financial instruments to accomplish their objectives. The wholesale contract in Delaware and the contract assignment are two forms, each of which is discussed and shown below.

A purchase agreement is considered a bilateral contract. The contract of sale defines the terms and conditions of the sale, with each party to the deal responsible for certain obligations. Another standard contract language will likely include the following:

  • The legal description of the property the wholesaler has the right to buy—i.e., metes and bounds, etc.
  • The provision of earnest money as a sign of good faith is typically held in escrow.
  • Those items (i.e., furniture or appliances, for example) that will be included in the sale
  • The sale’s financial terms
  • The option for either party to modify the terms of the contract with the addition of other written provisions that are mutually agreeable

But note, Delaware’s contract includes this provision – (Item 29 – Succession) that can be found on page 8 of the contract:

Delaware legal advice

The Assignment Of Contract

The Delaware law permits an assignment of the contract, but only with the seller’s prior written approval. It is also noted that the seller can only withhold consent if the assignment would adversely affect the seller’s position or interest.

The Assignment of Contract is a legal document that transfers an Assignor’s rights/obligations (the assignor in this instance is the real estate wholesaler) to another end buyer – who is then known as the Assignee. The state of Delaware does not have a specific document, but to provide some perspective, the following is a general assignment of contract:

assignment of contract

The most direct way to avoid a potential legal issue as a Delaware real estate wholesaler is to do a double closing. As the name suggests, there are two closings – which typically occur back-to-back. In the first closing, the real estate wholesaler is the buyer, whereas in the second closing, the real estate wholesaler is now the seller.

The difference between the two sales prices (minus the cost to do business) would be the profit or assignment fee. However, although more cautious, double closing costs are included—which most would say is money well spent considering the protection it offers.

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

wholesale real estate contract pdf

Final Thoughts

Is wholesaling real estate legal in Delaware? Yes, it is. In fact, real estate wholesaling has become a wildly popular investment strategy in the recent past, although as an investment strategy, there is nothing new (or improved) about wholesaling real estate deals. Real estate wholesaling offers new investors a way to inch into the real estate market with little capital required.

However, considering the potential consequences of errors and unexpected consequences, real estate wholesalers should approach wholesaling proactively, get the proper training, and engage with great prudence and transparency.

Delaware's inclusion on the list of attorney-close states helps real estate wholesalers avoid legal issues while the transaction closes. Wholesalers should take advantage of their chosen attorney’s legal knowledge and location experience to ensure the best outcome.

*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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