Is Wholesaling Real Estate Legal In Iowa?

Real estate wholesaling is a real estate investing technique in which real estate investors begin by entering into a legally enforceable contract of sale to buy real property (rental property, investment property, or otherwise). The rights awarded by the executed contract (through the Doctrine of Equitable Conversion) are then sold to another buyer (often called an end buyer or a cash buyer). 

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The Doctrine of Equitable Conversion legally determines how a property’s ‘equitable title’ is modified when a contract is fully executed. When executed, the buyer receives equitable interest in the property. In contrast, the seller’s interests at this time convert to personal property, with a primary function to act as security until closing. 

The property’s ownership hits a gray-legal area when a purchase agreement is fully executed. At this time, the ownership of the property is shared among the seller and the buyer in accordance with the rules dictated by the Principe of Equitable Conversion/Interest. 

Two events on the transaction’s timeline define the time in which the property’s ownership/equity is spread among two owners -

• The First Event - The agreement for an owner-occupied or rental property is fully executed, which generally requires the provision of an earnest money deposit.  
• The Second Event - The closing when the delivery of the deed & marketable title is transferred to the buyer from the seller.

During the time defined by these two events, the seller maintains possession (and use) of the subject property for which a buyer has a contractual right to receive the property at a later date, according to the terms of the purchase agreement. 

As such, during this time, the real property’s ownership is said to be divvied as follows – the legal ownership belongs to the seller (acting as a security interest), while the equitable ownership belongs to the buyer named in the contract. 

The ultimate objective for real estate wholesalers and flippers in Iowa is quite similar -  find a property for sale (among the many real estate deals) that is priced beneath the property market value. The reduced sales price is likely resulting from financially challenged owners with strong motivations to sell. When a property has been located, the next step for a real estate wholesaler is to find another buyer (often known as end buyers or cash buyers) interested in purchasing the wholesaler’s right to purchase the subject property – which is accomplished by the use of the legal instrument known as the assignment of contract.

Real estate wholesaling offers a manageable and viable way to enter the real estate investment market without the need for a massive capital influx. Real estate wholesaling is also a great way to build a network of potential and consistent cash flow streams, end buyer or cash buyers list, colleagues, and lenders or companies offering special financing.

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

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

Iowa is a midwestern state in the heart of the United States Corn Belt. It is bordered by six states and three Rivers – The Mississippi River, The Missouri River, and the Big Sioux River. 

Iowa, nicknamed “The Hawkeye State”, reached statehood as the 29th state in 1846. Its name is derived from the original names of the Native American nations occupying the area – the Ioway Nation. 

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Iowa covers nearly 56,000 square miles, making the state the 26th largest in the United States. Its lowest elevation is where the Mississippi and Des Moines Rivers meet. Iowa’s highest elevation is 1,600+ feet above sea level at Hawkeye Point – located in the northeastern portion of the state.

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The population of Iowa, as of 2021, is as follows –

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Iowa’s largest cities include the following –

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The largest city, Des Moines, which translates to ‘of the monks,’ is also Iowa’s state capital. Des Moines was originally developed as Fort Des Moines. 

Des Moines plays an integral role in the country’s presidential politics. The state and state capital is the site of the first caucuses held during primary cycles of presidential elections. 

The following represents the larger real estate trade & professional organizations in Iowa. Each of these real estate associations noted below is a member of the National Association of REALTORS (NAR) –

• The Iowa Association of REALTORS (IAR)

IAR is the state’s leading vocal advocate and resource for real estate professionals and property owners throughout the Hawkeye State. In addition to academic & legal defense help, the Iowa Association of REALTORS serves nearly 8,000 members with valuable discounts and member savings. 

• The Des Moines Area Association of REALTORS (DMAAR)

The DMAAR was developed to empower real estate professionals to serve the communities in and around the greater Des Moines area. The Des Moines Area Association of REALTORS has a membership that exceeds 2,500, which includes licensees and other affiliate/ancillary support members in the appraisal trade. 

• The Cedar Rapids Area Association of REALTORS (CRAA)

The CRAA was established in 1917 to better serve the greater Cedar Rapids real estate communities. With more than 1,100 members, the Cedar Rapids Area Association of REALTORS actively participates in support of licensees, property owners, and their rights. 

• The Northwest (NW) Iowa Regional Board of REALTORS (NWIA)

The Northwest Iowa Regional Board of REALTORS has been the vocal advocate for thirteen counties in Iowa’s northwest region. The NWIA has more than 500 members of real estate professionals who receive support, resources, and professional development opportunities available across a wide variety of relevant real estate topics. 

• The Iowa City Area Association of REALTORS (ICAAR)

Chartered in 1941, the Iowa City Area Association of REALTORS serves the real estate community and property owners within the greater Iowa City area and its surrounding communities. The ICAAR has more than 450 professional and affiliate members by offering educational, networking, advocacy, and community outreach programs and resources. 

The Iowa Real Estate Commission (IREC) is the state agency authorized (by IAC Chapter 193E) to manage real estate in Iowa – from licensees, brokerages, and legal matters. Its purpose is as follows – 

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Iowa’s relevant real estate laws are found in these chapters –

• Iowa Code Chapter 543B – Real Estate Brokers & Salesperson
• Iowa Code Chapter 558A – Real Estate Disclosures
• Iowa Code Chapter 543C – Sales of Subdivided Land Outside Iowa 
• Iowa Code Chapter 557A – Iowa’s Time-Shares Act

The Iowa Professional Licensing Bureau issues real estate salesperson and broker licenses in accordance with the defined real estate licensing criteria. Each Iowa real estate agent must comply with Iowa law.

Iowa’s Professional Licensing Bureau – License Reciprocity

Iowa Administrative Code 193E § 5.3

According to Iowa’s Professional Licensing Bureau (PLB), an applicant for an Iowa real estate license may be allowed to sit for the portion of the real estate exam related to Iowa law/real estate ONLY, depending on the jurisdiction that issued their current real estate license. Note, Iowa’s reciprocity does not apply to those situations where the individual has moved to Iowa. IAC Rule 5.3 applies as follows –

The process is straightforward; applicants must submit a written request (among other essential items, like a criminal history) and evidence of current licensing to the state agency. But, to meet Rule 5.3’s mandated criteria, the licensee’s current real estate license must not have been expired (or inactive) for 6+ months immediately preceding the date on which a candidate passes the Iowa portion of the real estate exam. Additional information regarding these processes is available online. 

Also note, those holding a real estate license from New York, California, Florida, Wisconsin, and West Virginia will be required to take both the national and state portions of Iowa’s real estate examination because these states do not use The Arello Examination Accreditation Program. 

Is Wholesaling Real Estate Legal In Iowa? 

Yes. Wholesaling real estate in the state of Iowa is legal if a real estate wholesaler navigates the real estate wholesale deal and stays within Iowa’s legal boundaries, as this avoids the potential to violate Iowa real estate and license law.  

Real estate wholesaling, although new to many younger property investors, is a tried-and-true investment approach. However, its recent popularity has reached new heights, which has also caused industry members and licensees to voice their concerns regarding wholesaling as an investment option. Opponents argue that the actions of a wholesale transaction mimic those that require a real estate license in Iowa.   

However, these arguments are based upon a fundamental fallacy. The argument lacks merit because it assumes real estate wholesalers are selling the property, when in fact, wholesalers are selling their right to purchase the property, awarded by the Principle of Equitable conversion.  

Real estate wholesaling is legal in Iowa. Wholesalers act as a middleman, a well-defined role found across sectors in any free and open market or economy.  However, wholesalers must remain well-versed in Iowa’s regulations to ensure their business decisions are within Iowa’s legal limits. 

Most real estate contracts are assignable (by default) unless the purchase contract states otherwise within the contract’s language. An assignment of contract is the legal instrument Iowa wholesalers use to transfer a wholesaler’s right to purchase real property defined in the written contract.   

An Iowa real estate wholesaler can only sell one thing legally – the rights/obligations defined by the fully executed contract to purchase.

What Are The Wholesaling Laws In Iowa?

The concept of 'wholesaling' real estate is not specifically mentioned in Iowa’s real estate law. Various meanings are often attributed to the concept, depending upon the individual describing the act of real estate wholesaling.  

To wholesale properties in the state of Iowa, one’s actions must not rise to the level that requires a real estate license as delineated in Iowa state law.  According to Iowa Code (IC) Chapter 543B.1 –

Additionally, Iowa Code 543B.3 states those actions that define an Iowa real estate broker –

Those actions which define a real estate transaction are described in IC 543B.6 –

Furthermore, for this Iowa Chapter of law, real estate is defined as follows –

To wholesale real estate in Iowa, an investor/wholesaler must proactively avoid acting in a manner that would require a real estate license as delineated in the selected legal provisions noted above.

Iowa Real Estate Licensing Exclusions 

However, if you are planning on wholesaling real estate in Iowa, it is equally important to understand those instances when a real estate license is not required by Iowa law. Below are the first four exclusions as noted in IC 543B.7 Exclusions 1 to 4 -

Note, Item #1 above advises explicitly that owners of real property are exempt from licensing requirements ONLY if their actions are not seen as a pattern of “repeated and successive transactions of a like character.

Given the specifics of the written law, real estate wholesalers should tread carefully to avoid overstepping Iowa’s real estate boundaries. 

IC 543B.7 (Item #5) continues with specifics regarding the actions and choices of auctioneers selling real estate in Iowa. Iowa law also provides these additional exclusions with regard to real estate licenses –

The Double Close

The most direct way to steer clear of legal issues when wholesaling is to do a double closing. A double closing, as its name implies, includes two separate closings –

• The first closing is to transfer ownership as defined by the terms in the first contract in which the wholesaler is the buyer.
• The second closing is to transfer ownership from the owner (who is the wholesaler) to another buyer – actions that fall well within license law.  

Related: Wholesaling Lease Options - The (Ultimate) Guide

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

No, wholesalers in Iowa are not required to hold a real estate license if their actions do not violate Iowa’s real estate and license laws. However, the following suggestions will help a real estate wholesaler avoid legal issues by-

• Remaining transparent throughout the transaction. This is best achieved by ensuring the purchase agreement is clear and straightforward. 
• Proactively managing the expectations of all parties to the contract.
• Acting with integrity. 
• Not marketing/selling the real property, market/sell your right to purchase real property as defined by the executed contract.
• Consulting a lawyer or attorney to ensure you are protected to the fullest extent of the law. 

Iowa does NOT require that a real estate transaction be managed/handled by a legal professional, making it an escrow state rather than an attorney-close state.

In Iowa, real estate activity and license laws can be found in these statutes –

• Iowa Code Chapter 543B – Real Estate Brokers & Salesperson
• Iowa Code Chapter 558A – Real Estate Disclosures
• Iowa Code Chapter 543C – Sales of Subdivided Land Outside Iowa 
• Iowa Code Chapter 557A – Iowa’s Time-Shares Act

Final Thoughts

Wholesaling can be legally accomplished in Iowa if real estate wholesalers go through proper training and do not act in a manner that would require a real estate license as defined by law.  Real estate wholesalers must follow these strategies to ensure they avoid legality issues in Iowa and acting in a manner that could be construed to need a broker’s license -

• Transactional intentions are critical. Disclose your role and intentions to ensure all parties to the contract make well-informed decisions. 
• Ensure you, as a buyer, have a legal right to assign the contract to another buyer, as noted in the written agreement.  
• Disclose appropriately and offer a disclaimer, if applicable. 
• Contingencies and contract terms should be written in clear and concise language to ensure each party’s expectations are appropriately managed.  

Wholesaling real estate is a viable Iowa investment strategy and quite profitable in an appreciating real estate market if the real estate wholesaler remains within the legal limits defined by Iowa law.

*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