Real estate wholesaling is an investment technique that has recently become quite popular because –
With its rise in popularity, opponents have voiced concern, contending that real estate wholesalers are violating license law by performing actions that rise to a level that requires a Massachusetts real estate license.
This is simply not true. Wholesaling principles are present throughout a competitive marketplace, seen even in the local lemonade stand run by the neighbor’s kid. Wholesaling real estate simply uses a principle in which one invests for value with a primary intention of selling for a profit.
And more specifically, real estate wholesaling does not require a license if the wholesaler sells their interests (their equitable right to buy), as determined by the details written in the real estate contract.
A real estate wholesaler, like a flipper, enters into a purchase agreement or real estate contract – typically for an owner-occupied or rental property that is priced below market. The reduced price for the property usually results from highly motivated sellers who need to move quickly or have financial challenges to overcome and need to raise cash fast.
The contract of sale legally re-defines the subject property’s ownership based on the Principle of Equitable Conversion (or Equitable Interest or Equitable Title), which references how financial interests in real property are determined –
In today’s real estate market, real estate wholesale opportunities can usually be found online (re: Redfin or Zillow, Craigslist, MLS), liquidation of an estate, foreclosure, bankruptcy, or divorce, among others.
The Commonwealth of Massachusetts is home to one of the original colonies – Plymouth, founded by Mayflower passengers in 1620, with the Puritans establishing what is now Boston in 1630. Its lowest elevation is 0 ft. where the Atlantic Ocean’s waters hit the Marble Head, Boston Bay, and Cape Cod shores, among others.
The population of Massachusetts, as of 2021, nears 7,000,000, which makes it New England’s most populous state –
The five largest cities in Massachusetts are –
The three most populous cities represent the eastern (Boston), central (Worcester), and western (Springfield) portions of the Bay State. The fourth-largest city, Cambridge, is home to two of the country’s most respected (and oldest) institutions of higher education – Harvard University & MIT – The Massachusetts Institute of Technology.
Boston, often called Beantown, is the capital of Massachusetts and one of the oldest communities in the nation. It is home to historical events like the Battle of Bunker Hill & the Boston Tea Party. Boston is also home to the first state school, the first subway system, and the first public park.
These are the larger trade and professional organizations in the state dedicated to the real estate profession and each brokerage and individual working in real estate. Each of these associations is a member of the National Association of REALTORS (NAR) –
Established in 1924, the MAR holds the distinction of being the leading advocate and voice for real estate in the Bay State. The Massachusetts Association of REALTORS is committed to supporting a law that protects property owners and real estate professionals in Massachusetts.
Among the largest of all real estate associations in New England (and the United States), the GBAR has more than 10,000 members from real estate and affiliated industries. The GBAR provides resources, education, and advocacy in serving both professionals and consumers in the Bay State.
The SSR is the second-largest trade association dedicated to real estate in Massachusetts. With more than 3,000 members, the South Shore REALTORS association serves two dozen downs throughout the state’s south shore area. The SSR seeks to support real estate professionals in achieving success ethically.
Established in 1923, the NSR serves real estate professionals & property ownership issues along Massachusetts’ north shore. Members include licensees and affiliate industry members in appraising, mortgage brokers, and home inspectors, among others.
Founded in 1915, the RAPV is the voice for Pioneer Valley real estate professionals and property owners in and around the greater Springfield, Massachusetts vicinity in the western portion of the state. The RAPV has more than 1,800 members that serve three counties (Hampshire, Franklin & Hampden) that include 68 towns/cities.
The state’s licensing laws are administered by the Massachusetts Board of Real Estate Brokers and Salespersons. Applications for real estate licenses can be started online on the Division of Occupational Licensure’s website. The Division of Occupational Licensure (DOL) regulates and manages more than 150 trades and nearly 600,000 professionals in the state.
The Real Estate Board in Massachusetts issues two types of licensees for each real estate agent. These include a licensed real estate broker and a licensed real estate salesperson.
Note that according to the Code of Massachusetts Regulations (CMR) Title 254, Section 2 (13) – Massachusetts offers reciprocity to any state with similar license law requirements.
The actions involved in closing a real estate transaction in the state – one involved in the transfer of property, is considered the practice of law in Massachusetts. As a result, settlements or closings of real estate transactions that include a lender must be performed by a Massachusetts licensed attorney. This requirement helps keep legality issues to a minimum, even in terms of hard money lending.
Yes, it is legal for real estate wholesalers to work in the Commonwealth of Massachusetts if they stay within the legal limits set forth by Massachusetts law.
The key to wholesaling houses in Massachusetts is to do so (which essentially means selling your right to buy real property) to another end buyer without performing the actions of someone who is required by Massachusetts law to be licensed as a real estate professional.
The best way to wholesale real estate legally in Massachusetts is to fully understand those actions that would mandate a real estate license. In Massachusetts, anyone who engages (or holds themselves out as engages) in the following for a fee or other valuable consideration must be licensed by the Massachusetts real estate board to practice legally –
In addition, Massachusetts law further advises –
Staying within the legal boundaries in the Bay State makes the investing technique of real estate wholesaling legal and often a lucrative career.
The concept of 'wholesaling' is not explicitly addressed in Massachusetts real estate law. Often, the concept has more than one definition, depending on who you ask. The laws that govern the activities of real estate brokers and salespeople in Massachusetts can be found in the Code of Massachusetts Regulations Title 254.
To wholesale properties in Massachusetts, one must avoid acting – by way of actions requiring that of a licensed agent, or fall within one of these categories to be exempt from license law requirements (MGL 87QQ) –
More specifically, Massachusetts legislation related to real estate is organized as follows –
No, a real estate wholesaler does not need a license if their actions do not rise to the level that requires a real estate license in Massachusetts.
Remember that it is your right to purchase a home (rather than the home itself) that is offered for sale in a wholesale transaction.
To legally wholesale properties in Massachusetts, a real estate wholesaler must avoid acting in a manner that would require a Massachusetts real estate license.
The Greater Boston Real Estate Board or Massachusetts Association of Realtors Standard Purchase and Sale Agreement is typically used for Massachusetts real estate transactions.
This purchase agreement is a legal contract between the buyer & the seller. It defines the transaction’s terms and essentially controls the real property’s purchase and sale. It also, through an assignment of the contract, allows each party to buy/sell their equitable rights to someone else unless expressly prohibited. A purchase agreement includes, in part –
An example of an assignment is shown below -
Conceptually, real estate wholesaling is simple – real estate wholesalers look for great real estate deals, often priced below market value. If the deal makes sense, they make a legitimate offer and sign a legally enforceable purchase contract that creates certain rights. These rights – known as equitable rights, can be sold (through the legal process of assignment) to another buyer, usually another real estate investor, for a higher price. The difference between the two first and the second sale price is referred to as the earned assignment fee.
A successful real estate wholesaler must have a strong understanding of what defines an attractive real estate deal. With this knowledge (typically gained through the school of hard knocks), the path to a profitable wholesale real estate investment deal becomes easier to negotiate. Fortunately, wholesaling is a process that can be broken down into a series of steps that can generate a consistent and strong income for wholesalers at the top of their game.
In addition to selling one’s equitable rights (by way of an assignment), a real estate wholesaler can execute a Double Closing. The double closing is a bit more complicated (and costly) than a wholesale deal that closes with the use of an assignment of contract. This is because there are two closings – in which the wholesaler is the buyer in the first and the seller in the subsequent sale, and therefore, two sets of closing fees.
Real estate wholesalers provide a viable exit strategy for homeowners with distressed properties. It offers a hard-to-find option that offers a quicker exit route (and thus, a faster solution to their most pressing problem) when compared with a traditional sale. A real estate wholesaler, while staying within the legal limits in Massachusetts, meets a largely unmet need in the real estate marketplace – homeowners who need to sell quickly.
But remember, you must be the buyer in the contract, and you can only market your rights to purchase a property – not the property itself. Herein lies the crux of the matter. This is perhaps the most important concept to understand when learning how to wholesale in Massachusetts. A license is required to sell a property. A license is not required to sell your rights inherent in an executed contract, provided the contract is enforceable.
Real estate wholesaling is a smart strategy for an investment property for those who have little capital. Real estate wholesaling is also a great investment technique to network and learn the business from the inside out.
But, considering the potential consequences for mishaps, real estate wholesalers and investors must approach wholesaling with great prudence and transparency, with a proactive effort to remain within Massachusetts state law. The fact that Massachusetts is an attorney-close state helps ensure you have the legal advice as you navigate towards closing. A real estate attorney will typically be the best source of information regarding the steps required to violate license law.
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