Is Wholesaling Real Estate Legal In Hawaii?

The technique known as real estate wholesaling has become a mainstream real estate investment trend recently. Although certainly not a new investment strategy, wholesaling real estate deals has risen in popularity primarily driven by a real estate market appreciating at unprecedented levels – while laughing in the face of a pandemic, a global event once anticipated to hit the world economy meteorically negatively.

A real estate wholesaler essentially acts as a middleman, which is hardly a radical idea when one considers the latitude of permittable actions within the worlds of capitalism and big biz. The process, in theory, is simple. A wholesaler finds an available property for sale (be it a rental property or not), usually priced below market value, and enters into a contract of sale to purchase the property from the homeowners. The reduced price is key, so it helps to understand that these available deals are often distressed properties or those available due to a seller motivated by financially challenging situations, like an ongoing foreclosure process, a loss of a job, or an unfortunate accident or illness.

A skilled real estate wholesaler then finds another buyer (usually from a list of potential buyers), typically from a curated cash buyer’s list created through connections or simply a part of the real estate community. The end buyer (or home buyers as they are more traditionally called) is legally assigned the right to buy the subject property (using the legal tool known as ‘assignment of the contract,’) at a new price (with a new real estate contract) – usually and hopefully above the original contract’s agreed-upon price.  The difference in the purchase contract prices would be the real estate wholesaler’s gross profit (cash flow from the deal), although others refer to it as an assignment fee.

The Doctrine of Equitable Conversion (or Equitable Interest) is the legal concept that permits the buyer (with a fully executed contract of sale) to assign the rights awarded by the purchase agreement.

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The principle of Equitable Conversion states when a contract is fully executed (and meets the legal criteria dictated by law), its ‘equitable title’ has effectively changed owners – from the seller to buyer. Note, though, the property’s legal title remains with the property owners/sellers, converted to personal property acting as a security interest, until the transaction is final.

And while a buyer involved in a legal contract does not yet hold legal title to the subject property, they do possess the saleable rights awarded by the contract, and thus, control of the property’s ultimate disposition.

When wholesaling real estate, investors must remain within the legal boundaries of the laws in Hawaii. As such, note - a wholesaler can ONLY sell the legal rights obtained by executing a contract – they cannot sell or market the property. This is the critical distinction between a wholesaler and someone who needs a real estate license to accomplish their task.

Real estate investors will think that the strategy to wholesale properties is a great way to tiptoe into the real estate market with limited capital. The digital landscape, with sites like Zillow and Redfin has opened a conduit to the real estate market.

The process of wholesaling properties is similar to flipping houses, except, the flipper must traditionally take title. However, a wholesaler must be specific that the wholesale deal is executed with due diligence, following the Hawaii law – which should always include an analysis evaluating the possible legal potholes against potential outcomes.

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

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

E Komo Mai – Welcome.

Hawaii is a state in the Pacific Ocean that covers more than 1,500 miles (or 10,932 square miles), including 125+ volcanic islands that define its status as an archipelago. Hawaii is the only state situated out of North America - within the designated area of the tropics.

Prior to being admitted to the union in 1959, Hawaii was once an independent nation.

Hawaii was once a thriving plantation economy for much of its history. Today the island’s economy is supported by its two largest sectors - tourism & military defense, an odd combination at best. Hawaii’s overall coastline is approximately 750 miles, making it the 4th-longest coastline of any state in the country.

The Hawaiian Islands are exposed peaks of underwater mountains situated beneath the archipelago. The state primarily consists of eight main islands, noted below from the southeast portion of the state to its north and western areas.

• Hawaiʻi – The Big Island and home to Hilo and the active volcano, Mauna Loa.
• Maui
• Kahoʻolawe
• Lānaʻi
• Molokaʻi
• Oʻahu – the home of the largest urban areas, the state capital – Honolulu. The state capital's name translates to calm port in the native Hawaiian language known as Olelo Hawaii, a sub-language of the larger family of Polynesian languages.
• Kauaʻi
• Niʻihau, with the most northwestern part of the state making up the largest protected area in the country as Papahanaumokuakea Marine Park {pictured below} a strict nature reserve and a site recognized on the World Heritage List. 

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The population of Hawaii, as of 2021, is just above 1.4 million residents.

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The following cities are the largest in the Aloha State –

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The two largest cities are the state capital of Honolulu (divided for census purposes). Honolulu, Pearl City, and Waipahu are also located on Oahu, the most populated of the Hawaiian Islands. The fourth-largest city is Hilo, and Hilo is the only Hawaiian city not located on Oahu but on the Big Island.

There are six real estate boards located in Hawaii. The most prominent real estate trade & professional organizations in Hawaii are noted below. Each of these associations is a member of - National Association of REALTORS (NAR) –

• The Hawaii Association of REALTORS (HAR)

The HAR provides innovative resources in support of the real estate professionals practicing real estate in Hawaii. The Hawaii Association of REALTORS’s mission is to be the state’s leading advocate of real property rights. In addition, the HAR seeks to cultivate partnerships throughout the state in support of prioritized real estate issues.

• The Honolulu Board of REALTORS (HBR)

Established in the early 1920s, the Honolulu Board of REALTORS is Oahu’s largest professional organization dedicated to real estate, with a membership that exceeds 6,000. Additionally, HBR is recognized as one of the largest real estate boards in the country. The Honolulu Board of REALTORS is considered the voice of the real estate industry in Honolulu.

• The Hawaii Island REALTORS (HIR)

Founded in the mid-to-late 1960s, the Hawaii Island REALTORS serves the real estate professionals and property owners on the Big Island of Hawaii. The HIR offers a variety of benefits and educational development opportunities on the big island.

• The REALTORS Association of Maui (RAM)

The RAM was developed to serve the real estate interests of property owners and real estate professionals in Maui. The REALTORS Association of Maui seeks to protect consumers, support professionals, and continue the thoughtful expansion of the Aloha spirit.

• The West Hawaii Association of REALTORS (WHAR)

Founded in the late 1960s, the West Hawaii Association of REALTORS serves the western portion of the Big Island of Hawaii from Naalehu (at its southern end) and Hawi (at its northern parts). The WHAR supports local property owners and real estate professionals with the resources required to keep consumers and real estate ownership safe and transparent.

The Hawaii Real Estate Commission (HREC) is one of more than two dozen administrative boards within the state’s Professional and Vocational Licensing Division, within the Dept. of Commerce & Consumer Affairs (DCCA). Hawaiian real estate licenses are issued for two years and expire on even-numbered years on November 30^th.

The Real Estate Commission’s powers and duties are noted in Chapter 467-4 of the Hawaii Revised Statutes. The commission manages more than 17,000 licenses and is responsible for the licensure, discipline, education, and registration of all real estate-related activities in the Aloha State, including the development and management of condominiums. The Licensing Department offers helpful general information via the FAQ sheet online.

Hawaii Real Estate License Reciprocity

Applicants for a Hawaii real estate license who –

• Currently hold a valid real estate license issued from another jurisdiction or state AND,
• Have passed the uniform portion of the state's licensing examination for the equal real estate license level, may obtain an equivalency for Hawaii’s uniform section of the state’s licensing exam.

Note that certain pre-licensing education requirements may be satisfied as follows. Hawaiian law’s use of equivalency refers to an individual’s ability to waive certain requirements. The state offers a helpful broker flowchart.

Note that Hawaii is an escrow state. As such, an attorney is not required to close a real estate transaction, although it is highly recommended that you seek legal advice, especially for those investors with limited knowledge of laws they could potentially violate.

Is Wholesaling Real Estate Legal In Hawaii? 

Yes, real estate wholesalers can legally wholesale real estate in Hawaii if they do not violate any of Hawaii’s real estate licensing laws. 

A real estate wholesaler must ensure they sell their established equitable interests or their ‘right to purchase’ rather than incorrectly (and potentially illegally) selling/marketing the property itself to stay within the legal lanes defined by Hawaii real estate law.

Read Also: Virtual Wholesaling (How To Flip Houses From Home)

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

No, a real estate license is not required if real estate wholesalers in the Aloha State do not violate the state’s real estate and license law.

In addition, Hawaiian real estate wholesalers would steer clear of legal woes by –

• Staying transparent – make sure the contract of sale is straightforward.
• Managing the seller’s expectations with integrity.
• Not marketing/selling the property – a wholesaler must only market/sell their right to purchase real property.
• Consulting an attorney to ensure you protect yourself. 

In Hawaii, real estate activity and license laws can be found in the Hawaii Revised Statutes, Chapter 467 – Real Estate Brokers & Salespersons and The Professional & Vocational Licensing Act (Chapter 436B).

What Are The Wholesaling Laws In Hawaii?

First, it is noted in Chapter 436B-2, the purpose of licensing and licensing law, according to Hawaiian law –

Staying in the Aloha State’s defined legal boundaries will make real estate investing at the wholesale level both lawful and profitable.  It begins by reviewing the legal definitions in Hawaii’s HRS §467-1 (Definitions), noted below.

A real estate salesperson in Hawaii is defined as follows -

A real estate broker in Hawaii is defined as follows -

With regard to the legislation, the term real estate is defined as follows –

It is equally relevant to understand when a real estate license will not be needed. This is found in Hawaii (Chapter 467-2 Exceptions) –

• Any individual who –
  • Is the owner of real estate, or,
  • Is performing as a Power of Attorney for the owner of real estate who performs the actions denoted in the licensing definitions noted above. However, it is noted that the term ‘owner’ or ‘Power of Attorney’ DOES NOT include -
    • Anyone who is engaged in real estate brokerage or development, or,
    • Anyone who acquires an interest in real property with the purpose of evading Hawaii’s licensing requirements. This is an essential legal nuance regarding Hawaii real estate wholesaling. The best way to avoid a legality issue (of needing a broker’s license) is to –
      • Ensure all parties to the transaction have complete knowledge of your intentions – 100% Transparency is key to avoiding legal hassles.
      • Execute a double close, which effectively eliminates the potential of violating licensing law. This is because your actions ultimately reveal your intentions to be lawful and not in need of a real estate license as a legitimate buyer or seller.
      • However, you are advised to tread carefully, though.
    • Any person who is acting as a trustee, receiver, the response to a court order, or other fiduciary capacities.
    • Any individual who rents/leases real property or improvements for which the person is a caretaker/custodian.
    • Any individual who rents/manages/operates a hotel.
    • Owners/operators/agencies that manage a homeless facility (See Chapter 346 Part XVII)

The Double Close

The most direct way to avoid potential legal troubles is to do a double closing. While it might be more expensive to close (remember, there are double closing fees for two closings), this method ensures you, as the buyer, had lawful intentions regarding the initial transaction. 

It also helps to be transparent, issues a disclaimer (if applicable), and act honorably. But note, with this more cautious exit route, there are double closing costs – which most would say is money well spent considering the protection it offers.

To wholesale real estate legally in Hawaii, the investor must be sure to have a working knowledge of the state licensing laws. In sum, these are the laws to review –

According to HRC Chapter 467-26, the penalties for violations are as follows –

Final Thoughts

The legality of wholesaling real estate has become a ‘hot topic.’  Oppositionists of the process of real estate wholesaling often have an erroneous view of the strategic intentions of this investment strategy, which, as noted above, is – The right to market your “right to buy the property” but not the property itself.

The reality is that wholesalers do meet an unmet need – highly motivated sellers in need of a quick turnaround, that may not be able to be met by a traditional real estate agent.

Those who oppose real estate wholesaling do so because, without due diligence and cautious handling, wholesalers could unknowingly cross a license-law boundary. However, if you comply with Hawaii law and receive the proper training, real estate wholesaling is legal and, in specific markets, quite profitable. A well-written contract of sale coupled with transparent negotiations is the ideal way to manage the transaction.

*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