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

*Before we begin our guide on Is Wholesaling Real Estate Legal In Illinois, 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!

The real estate market in the United States has seen some significant appreciation in recent years. With rapid increases in home values, typically referred to as a ‘seller’s market,’ the investment technique known as real estate wholesaling has become an increasingly popular investment technique. To that end, wholesale real estate in Illinois offers the following benefits:

• Wholesaling requires little to no upfront capital. Real Estate buyers must provide an earnest money deposit (typically a percentage of the purchase price, at contract) held in escrow by a third party to show good faith.
• If a traditional wholesale won't work, investors can attempt a double close to increase the likelihood of a successful deal.
• Wholesale properties in Illinois allow new investors to build a network of lenders, other investors, and a list of end buyers—typically cash buyers, ready to invest.

Wholesaling real estate in Illinois coincides with attractive benefits. Nonetheless, skeptics are still asking an ever-pressing question: Is wholesaling real estate legal in Illinois? Due to the general public's unfamiliarity with wholesaling, many aren't sure if it is legal to wholesale in Illinois. Much of the recent doubt is voiced by a vocal minority of real estate professionals asserting that wholesalers are violating Illinois license law.

In reality, wholesale real estate in Illinois combines the wholesaling principle, where investors buy low and sell high, and the Principle of Equitable Conversion. The principle of equitable conversion in a wholesale real estate deal refers to the legal concept where the buyer becomes the equitable owner of the property upon signing a contract, even before the actual closing; this means that while the seller retains legal title to the property until the transaction is completed, the equitable interest—or the right to obtain full ownership—is considered to belong to the buyer from the moment the contract is executed.

Despite equitable conversion, many doubters still ask, "Is wholesaling real estate legal in Illinois." That said, we want to be abundantly clear: equitable conversion holds that a vendee, or real estate buyer, takes equitable title to the land upon executing an enforceable contract for its sale. If you have an equitable title, the law recognizes that you have a beneficial interest in the real estate even though you don't currently hold legal title. The property's vendor, or seller, maintains legal title only as security to ensure he's paid pursuant to the sales contract. In other words, the seller can withhold granting a deed and conveying legal title until the buyer pays for the property.

These beneficial interests awarded to the buyer in the real estate contract can legally be transferred to a new buyer using the legal instrument known as an assignment of contract.

Wholesale real estate in Illinois shares some similarities with house flipping. In particular, each investment strategy is designed to generate a profit. However, fix-and-flip exit strategies often require significantly more money and time. As a result, wholesale properties in Illinois have developed a reputation for quicker profits in return for less work. So, instead of asking, " Is wholesaling real estate legal in Illinois?" aspiring investors should ask how they can start wholesaling in Illinois.

Simply put, each investor searches for a discounted property sold by a highly motivated seller (e.g., someone facing foreclosure). Once located, wholesalers in Illinois secure the right to buy the property (they are not purchasing the property itself but rather obtaining the right to buy it). Next, wholesalers find a subsequent buyer to sell their rights to, securing a fee for their services in the process.

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

Illinois, known as the Land of Lincoln, was admitted to the Union as a state in 1818. Illinois covers nearly 58,000 square miles, about half the size of Italy. Illinois’ total area includes about 4% water.

The Mississippi River defines Illinois’s borders with Iowa and Missouri. Illinois is located in the Midwest and has the fifth-largest GDP (Gross Domestic Product) of any state. In addition, Illinois’s population is the sixth-largest. Most of the state's population centers around its five most populous cities: Chicago, Aurora, Joliet, Naperville, and Rockford.

The capital of Illinois is Springfield, which is centrally located within the state. Springfield ranks as the state’s sixth-largest city. The northeastern area of Illinois is the most densely populated region and home to Chicago, with its main airport – O’Hare, which is recognized to be one of the busiest in the world.

With such a dense population, Illinois has established several organizations to help govern the local real estate market and help people answer the question, "Is wholesaling real estate legal in Illinois?" Many of the organizations are members of the National Association of Realtors (NAR), adding to their credibility. Here's a list of the largest trade and real estate professional organizations in the state of Illinois that are dedicated to the local real estate market:

• The Illinois Realtors (IR): The IR is one of the largest trade organizations in the state. It represents approximately 50,000 members across Illinois. The IR seeks to advance the real estate profession and protect the property rights of owners in the state, making them a prime source to answer the question, "Is wholesaling real estate legal in Illinois?" It offers education, outreach programs, ethics accountability, and advocacy, among other things.

• The Mainstreet Organization of Realtors (MOR): With roots that extend back to the 1920s, the MOR's current variation was developed in 2007. Its jurisdiction covers many wholesale properties in Illinois. The MOR’s 18,000+ members serve more than 200 communities across Southern and Western Suburban Cook, Lake, and DuPage Counties.

• The Chicago Association of Realtors (CAR): Established in the 1880s, the CAR is metropolitan Chicago’s voice for the real estate community. With more than 17,000 members from many facets of the real estate market, the CAR offers market resources and member services. It seeks to influence the city and suburban Chicago locations with outreach programs.

• The North Shore-Barrington Association of Realtors (NSBAR): The NSBAR supports the real estate community and professions throughout the Barrington and North Shore communities. The association offers a variety of member benefits to facilitate the growth of the local real estate market.

• The Greater Gateway Association of Realtors (GGAR): Established in the 1940s and headquartered in Glen Carbon, the GGAR is among the most prominent professional organizations serving the Metro East Area. More than 1,400 real estate brokers, agents, and professionals are members of the GGAR.

*For in-depth training on real estate investing, Real Estate Skills offers extensive courses to get you ready to make 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!

The Illinois Division Of Real Estate

In addition to the organizations listed above, the state has its own real estate regulatory entity. The Illinois Division of Real Estate (DRE) is housed in the IDFPR (the Illinois Department of Financial and Professional Regulation), along with:

• The Division of Financial Institutions.
• The Division of Professional Regulation.
• The Division of Banking.

The Division of Real Estate’s mission is to safeguard the public by ensuring the real estate profession requires licensing to practice in the state. Due to its authority in the state's real estate sector, the Illinois Division of Real Estate is an excellent source of information for anyone asking, "Is wholesaling real estate legal in Illinois?" More specifically, however, the Illinois Division of Real Estate is responsible for issuing real estate licenses.

Those interested in becoming a licensed agent in Illinois (with an appropriate brokerage sponsorship) might consider reviewing the requirements in the Illinois State Real Estate Examination Program’s Candidate Handbook.

According to the Real Estate License Act of 2000, the DRE issues three types of real estate licenses:

1. A Broker’s License: "Broker" means an individual, entity, corporation, foreign or domestic partnership, limited liability company, registered limited liability partnership, or other business entity other than a residential leasing agent who, whether in person or through any media or technology, for another and compensation, or with the intention or expectation of receiving compensation, either directly or indirectly.
2. A Managing Broker’s License: "Managing broker" means a licensee who may be authorized to assume responsibilities as a designated managing broker for licensees in one or, in the case of a multi-office company, more than one office upon appointment by the sponsoring broker and registration with the Department. A managing broker may act as their own sponsor.
3. Residential Leasing Agent: "A Residential leasing agent" means a person employed by a broker to engage in licensed activities limited to leasing residential real estate and who has obtained a license as provided for in Section 5-5 of this act.

However, dual licensure in Illinois is not permitted, as noted by the Illinois General Assembly (ILGA), which is stated in Section 1450.160 Dual Licensure. According to the ILGA, a licensee may not simultaneously hold licenses as:

• Managing broker and residential leasing agent
• Managing broker and broker
• Broker and residential leasing agent

Section 1450 goes on to explain that any prior licenses will expire upon the issuance of a new license.

Illinois Real Estate License Reciprocity

According to the IDFPR, the following states have a reciprocity agreement with Illinois.
When other states have a reciprocity agreement with Illinois regarding real estate licenses, it means that real estate professionals licensed in one state can obtain a license in another state without having to complete all the licensing requirements of the second state. These agreements are based on the premise that the licensing standards are similar or equivalent across the reciprocating states. As a result, licensed real estate agents or brokers can expand their practice to include multiple states, enhancing their business opportunities while ensuring regulatory standards are met. The IDFPR offers this reciprocity guidance for these states:

• Colorado
• Connecticut
• Florida
• Georgia
• Indiana
• Iowa
• Nebraska
• Wisconsin

These rules apply to Illinois’s reciprocity licensing arrangements:

• The applicant must be actively licensed when applying.
• The applicant must pass the state portion of the Illinois licensure exam.
• The applicant must have an active broker/managing broker in Illinois.

It is important to note that Illinois is an ‘escrow state,’ which means that a real estate attorney is not required to close retail and wholesale deals or transactions. However, an attorney is a prudent idea for investors new to the market.

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

Is Wholesaling Real Estate Legal In Illinois?

Yes, it is legal to wholesale real estate in Illinois under certain conditions. Wholesaling real estate is legal, provided individuals comply with state laws governing real estate transactions. Precisely, wholesalers must either possess a real estate license if they intend to engage in the practice regularly or structure deals in a manner that does not require one, such as selling their interest in the contract rather than the property itself. Adhering to these legal frameworks allows wholesalers to operate within the state, facilitating property sales between sellers and end buyers without violating real estate regulations.

Note that the Illinois Real Estate License Act of 2000 has been updated with revisions that address real estate wholesalers doing business in Illinois.

The state governor, Pritzker, signed these legal updates into a new law in August 2019. The law was effective upon signing. Most modifications to the current law were technical (e.g., rules about referral fees) and unrelated to wholesaling properties in Illinois; however, the definition of a broker in Illinois has been updated to include wholesaling.

It is important to note how Illinois law defines the real estate wholesaling business. According to Illinois State law, wholesaling involves the practice of entering into a contract and then assigning the contract to another buyer quickly—for a profit.

The operative word in that definition is "practice," which, according to the updated legislation, includes any individual or entity that transacts more than one wholesale deal per 12-month period.

So, while this updated legal provision significantly narrows the playing field for real estate wholesaling in Illinois, it is still perfectly legal to wholesale one property each year without needing a real estate license under RELA 2020.

What Are The Wholesaling Laws In Illinois?

The Illinois Real Estate License Act of 2000 was ‘sunsetting’ at the close of 2019. As such, recent amendments to Illinois license laws (RELA 2020, from Public Act 101-0357) that regulate real estate activities in Illinois have been made. The RELA aims to enhance consumer protections and strengthen regulations for training and professionalism.

The Illinois Realtors Association offers a quick summary of these recent updates.

New Wholesaling Law In Illinois

This new law updates the exact language of a broker. The purpose of this definition is to include wholesaling within the services defined as needing a broker’s license. According to Justia, "Broker" means an individual, entity, corporation, foreign or domestic partnership, limited liability company, registered limited liability partnership, or other business entity other than a residential leasing agent.

According to the Illinois Act, unprofessional conduct (unethical or dishonorable) is conduct done with the intent to harm or defraud. The specific amended provision includes seventeen potential actions considered unprofessional. As stated by the Illinois Government, there will be a penalty for possible consequences for unlicensed individuals.

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

No, if you stay within the legal boundaries established by Illinois state law, you do not need a real estate license to wholesale properties.

Illinois law allows non-licensed individuals to wholesale one real estate transaction in a 12-month period. However, suppose you conduct more than one real estate transaction a year. In that case, you will be required to have a broker’s license (Realtor’s license) to move forward with this strategy and continue wholesaling houses in Illinois.

Getting the proper license will require a little more homework. You must also comply with the Illinois Real Estate Brokerage Licensing Act’s ethics rules and consult with a real estate attorney when needed.

Read Also: How To Become A Real Estate Agent: The Ultimate Guide

Is Virtual Wholesaling In Illinois Legal?

As technology develops, these advances have begun to transform how the real estate industry conducts business. According to the National Association of Realtors' latest Home Buyers and Sellers Generational Trends Report, "Ninety-six percent of home buyers used the Internet to
search for homes."

Most buyers use an online website to search for a home to purchase. As one would expect, the percentage of online usage inversely relates to the homebuyer's age, declining as the homebuyer’s age increases.

Thanks to the advent of technology and our propensity to use it, real estate investors now conduct wholesale deals on the Internet through a process known as virtual wholesaling. The entire transaction is done electronically, allowing an investor to complete a wholesale deal that taps a market previously out of reach.

Illinois investors who want to wholesale more than one property per year (the maximum allowed by state law) might want to consider virtual wholesaling (i.e., transacting in other states). Illinois wholesalers may operate their businesses remotely in other real estate markets, which do not have restrictions on the number of deals they may conduct, even as they reside in their home state.

Virtual wholesaling has become a viable alternative to doing business without violating license law.

Is Double Dry Closing In Illinois Legal?

Illinois is a ‘wet funding state' (also known as table funding), which means that all conditions must be met on the day of closing when funds are distributed, and the title and mortgage paperwork must be finalized.

The closing process is the moment in time when the parties to the contract meet (virtually or in person), where the property ownership is exchanged for the agreed-upon price.

The dry closing occurs when all the contract’s provisions have been met, except that the purchase funds are unavailable. Technically, this would cause a breach of contract; however, the parties to the agreement can agree to move forward with the closing—agreeing to anticipate the funds arriving after the fact.

In other words, a ‘dry closing’ occurs due to a delay in funding. And while the transaction’s sellers and buyers would likely prefer a ‘wet closing,’ dry closings can happen in these situations –

• The lender has a delay
• Buyers still have outstanding mortgage loan approval conditions
• Sellers have yet to resolve the agreed-upon property condition

A ‘dry closing’ offers a way to prevent the above-noted conditions from killing the transaction. To avoid a breach of contract, the dry closing offers an agreement by both parties that the sale will be finalized with outstanding conditions resolved shortly after. Certain states are dry closing states where all transactions are conducted this way:

• Alaska
• Arizona
• California
• Hawaii
• Idaho
• Nevada
• New Mexico
• Oregon
• Washington

The double closing is a strategy that facilitates the closing process for wholesalers. The double closing includes the following:

• Two independent transactions for one property
• The wholesaler is the buyer in the first closing and the seller in the second closing
• The title legally passes through all parties
• Two sets of closing fees

Although not mandatory, working with an experienced real estate lawyer is the most direct way to ensure that you, as the investor, receive accurate legal advice and complete protection under the law. That way, when you ask, "Is wholesaling real estate legal in Illinois," you can confirm what you learned here.

How We're Wholesaling In Illinois

Is wholesaling real estate legal in Illinois? Yes, but don't just take our word for it. Let's look at our case study of someone who has successfully wholesaled real estate in Illinois. An investor friend of ours who was looking to develop a property brought a deal to us. It was an abandoned triplex on a multifamily-zoned, triple-wide lot in an excellent location on the south side of Chicago. Our friend's issue was that the seller was ready to sell, but he needed about 30 days to raise around $2,000,000 to demolish the existing structure and build nine luxury condos with an after-repair value (ARV) of $3.6 million.

Under certain conditions, we agreed to buy the property from a wholesaler our friend put us in touch with and then resell it back to our friend as soon as he raised the money to develop it. He offered to repurchase it from us for more than we'd pay since he'd make over seven figures of profit after the development was complete!

We bought the deal from the wholesaler for $385,000 cash and closed in 10 days. The wholesaler pocketed an incredible $70,000 assignment fee, and the seller kept the rest of the proceeds.

How'd we fund it? We brought in a combination of two different equity partners. The first equity partner funded 85% of the total investment in exchange for roughly 50% of the net profits. The second investor agreed to loan us the remaining 15%, and we offered to pay them a double-digit interest rate on their used money. This interest accrued, meaning we had no monthly payment obligations during the hold period! All in all, we bought the property using none of our own money!

Our investor friend was dragging his feet and couldn't raise the money within 30 days, so we gave him some additional time.

Meanwhile, we hired a law firm to split the large lot into three equally sized parcels, which jumpstarted the development process. Remember, time equals money in the real estate business, so the further you can move a project down the development process, the more valuable it becomes.

After 90 days, we decided to list the property on the MLS since our friend could still not raise money for the development. After less than 30 days on the market, we received a full-priced cash offer for $592,500. After closing costs and interest paid to our investors, we netted around $182,000! We never saw the property in person, inspected it, or even had to leave the comfort of our own homes. There was no rehab or management of contractors; they were just working with an attorney's office to split the lots and do a ton of desktop analysis on the front end.

This was more of a "wholesaling" strategy since we closed on the property and listed it on the MLS. We love this case study because not only was the annualized ROI in the triple digits, but it's a great example of working smarter, not harder. We made more money in one deal than we used to make in multiple years of high-paying, full-time work. And, of course, it's 100% legal.

Final Thoughts

Savvy investors do not try to control the market—new investors learn this valuable lesson the hard way. Instead, savvy investors follow market trends, adjusting their investment strategies to match market conditions.

They recognize opportunities as market metrics shift. With the digital landscape, the practice of real estate wholesaling (and virtual wholesaling) has begun to explode across many markets.

So, is wholesaling real estate legal in Illinois? It can be a viable and profitable investment strategy if the wholesaler stays within the state’s legal boundaries and receives proper training. However, Illinois state law sets a strict limit on this practice.

It is one-and-done for real estate wholesalers in Illinois unless they want to violate license law or obtain a real estate license.

Real estate investing offers no guarantees, and no single aspect can generate success; this is one of the reasons entrepreneurial types often succeed in the real estate market– they think fast on their feet, act professionally, and operate from a platform of integrity.

*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