is wholesaling real estate legal in michigan

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

real estate investing strategies real estate markets wholesale real estate May 09, 2024

Is wholesaling real estate legal in Michigan? This article dives deep into whether this investment strategy aligns with Michigan's real estate laws. Whether you're a seasoned investor or a newcomer eager to break into the market, understanding the legal framework is crucial. Read on as we explore the ins and outs of wholesaling real estate in Michigan, starting with the following:

*Before we begin our guide on whether wholesaling real estate is legal in Michigan, 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 is a strategy where an individual, known as a wholesaler, contracts to buy a property and then sells that contract to another buyer before the sale closes. Essentially, the wholesaler finds a property usually below market value, secures a contract to purchase it, and then transfers the right to buy it to another buyer for a higher price. The wholesaler makes a profit from the difference between the contracted price and the price paid by the end buyer without ever actually owning the property.

There are scenarios in real estate wholesaling where the wholesaler may need to actually purchase the property. This can happen if the original contract doesn’t allow for assignment or if the end buyer prefers it. In such cases, strategies like double closing or wholetailing come into play.

  • Double Closing: This strategy involves two separate closings happening back-to-back. First, the wholesaler closes the deal with the seller and officially buys the property. Immediately after, a second closing occurs where the wholesaler sells the property to the end buyer. The wholesaler never holds onto the property for long—sometimes just for a few hours. This method ensures a smooth transfer and mitigates legal or contractual issues related to contract assignments.
  • Wholetailing: Wholetailing is a blend of wholesaling and retailing. In this strategy, the wholesaler buys the property and may perform minimal repairs to improve its value. Instead of rehabilitating the property extensively as a typical flipper would, the wholesaler puts it back on the market quickly to sell at a profit. This strategy is used when the property is already in fairly good condition and needs only slight enhancements to appeal to retail buyers. It allows wholesalers to tap into a broader market by making the property more financeable and appealing to buyers looking for move-in-ready homes.

What Do You Need To Know About Wholesaling In Michigan?

As a new investor looking to start wholesaling real estate in Michigan, you need to understand several critical factors to ensure success and compliance. First, familiarize yourself with local laws and regulations that govern real estate transactions in Michigan. This knowledge is crucial to operate legally and avoid potential legal issues.

Additionally, understanding specific exit strategies like contract assignment, double closing, and wholetailing will enable you to navigate various investment scenarios effectively. Each strategy has its own benefits and can be utilized based on the property and market conditions.

Speaking of market dynamics, knowing the current trends in the Michigan real estate market can significantly influence your investment decisions. According to RedFin, the median sales price in Michigan has increased by 6.5% year over year, indicating a potential for healthy profit margins. However, the number of homes sold has decreased by 13.4% from last year, suggesting a tighter market with less inventory. Interestingly, homes are spending four days less on the market than last year, showing increased buyer urgency. With only two months of supply available, this creates a favorable environment for wholesalers, as lower inventory typically drives quicker sales at higher prices.

Consider engaging with Michigan's most prominent Realtor organizations to navigate these dynamics and stay updated on the latest market conditions and legal requirements. These organizations provide valuable resources and can help answer the question all new investors are asking: Is wholesaling real estate legal in Michigan?

A few of the larger groups in the state include:

Another outstanding resource is the Michigan Economic Development Corporation (MEDC). You can tap into a high-level overview of emerging and revitalized communities.

The MEDC, in collaboration with more than 100 economic development partners, markets Michigan as a place to do business, helps businesses develop growth strategies, and fosters the growth of vibrant communities throughout Michigan.

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

Yes, wholesaling real estate is legal in Michigan. Unlicensed wholesalers operate legally because they are not acting as licensed real estate agents; rather, they are acquiring the rights to purchase a property and then transferring these rights to an end buyer for a fee. This process is legitimized by the doctrine of equitable conversion, which allows the wholesaler to treat their contractual right to purchase the property as a marketable commodity. Essentially, wholesalers are selling their position in the contract, not the property itself, thus not requiring a real estate license as long as they adhere strictly to this practice and avoid activities reserved for licensed professionals.

It must be noted, however, that unlicensed wholesalers can only wholesale up to five properties a year under state law. Investors who want to wholesale more properties in a single year can sidestep this law by getting their real estate license.

What Are The Wholesaling Laws In Michigan?

Michigan is one of the few states that limit the number of real estate transactions you can engage in before you must have a real estate license. The others are South Dakota, Wisconsin, Maryland, and Minnesota. According to state law, you are limited to engaging in no more than five real estate sales in any 12-month period.

Occupational Code 339.22319 states:

Licensure required for the owner of real estate engaging in the sale as principal vocation; acts constituting principal vocation; sale of real estate owned by broker or associate broker; licensee to reveal ownership or interest when selling property licensee owns or has interest in.

Rule 319. (1) Licensure as a real estate broker is required of an owner of real estate who engages in the sale of real estate as a principal vocation unless the owner engages the services of a real estate broker. Acts constituting a principal vocation include any of the following:

(a) Engaging in more than 5 real estate sales in any 12-month period.

(b) Holding oneself out to the public as being principally engaged in the sale of real estate.

(c) Devoting over 50% of one’s working time, or more than 15 hours per week in any 6-month period, to the sale of real estate.

Some people find workarounds to this limitation, and others have reported that enforcement is virtually non-existent. It’s up to you to decide how closely you want to follow the letter of the law, but at least you are armed with the legal information you need to know.

Wholesalers who only assign a contract never actually own that particular piece of real estate, so this Occupational Code would not appear to apply in that circumstance. However, wholesalers who engage in the double close or wholetail methods must be cognizant of this limit. In those cases, most investors will use a real estate agent anyway, so this would be a non-issue. When in doubt, it’s always best to seek the counsel of an experienced real estate attorney to protect your interests.

Commissions, Fees, and Profits

Only licensed real estate agents in Michigan can collect a commission for selling a home. A wholesaler collects a fee when assigning a contract. With the double close or a wholetail method, the wholesaler pockets a profit as a property owner when they flip a property to a final buyer.

Seller And Buyer Disclosures

In a double-close or wholetail agreement, you must disclose information about the property’s condition. This was codified as part of the Michigan Seller Disclosure Act (Act 92 of 1993), which requires a written statement to be given to the buyer. Failing to do so gives the buyer rights to pursue legal actions for fraud, misrepresentation, or omission.

If you are assigning a contract, you must also disclose this as a material fact to the seller in the interest of full transparency.

Also, under Michigan law, a seller must provide a Lead Paint Disclosure to the buyer. Many homes built before 1978 used paint containing lead, which is considered a dangerous hazard, especially to children.

Occupational Code (339.2517 - Agency Disclosure)

Suppose you are a wholesaler and decide to get your real estate license. In that case, one of the Michigan state provisions is that you must disclose whether or not you have a relationship with a real estate agency, according to the Occupational Code (339.2517 Disclosure of agency relationship), Sec. 2517.

*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!

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

No, you don't need a license to wholesale real estate in Michigan, but state statutes governing transactions are different if you decide to get a Michigan real estate license.

The biggest of these is that without a license, you can only market the rights to assign the contract you have for a property and not the actual property itself. This is where many wholesaling businesses run into problems.

Without a license, you collect a fee for your role in the assignment of contract, and this fee must be disclosed to the seller and the person to whom you assign the contract. In some cases, this puts the wholesaler at a disadvantage because both the seller and the assignor can negotiate a lower fee to consummate the deal.

With the Double Close or the Buy and Sell method, a wholesaler can buy the property for the best price they can negotiate because there are two separate transactions. Then, the wholesaler can sell the property for the best price they can negotiate.

He or she is not required to disclose the amount of profit they’ll make from combining the two deals. Many wholesalers like this level of privacy.

However, the trade-off is that the wholesaler must have ample financial resources to put together funding to buy the property initially. This is not always ideal for wholesalers, especially those just starting a wholesaling business.

Michigan wholesale real estate license

Is Co-Wholesaling Real Estate Legal In Michigan?

Yes, co-wholesaling is legal in Michigan. Co-wholesaling means that you are partnering with someone else to wholesale properties. This is an option for many people who lack resources on their own or who want to increase the number of wholesale deals they wish to conclude in a given timeframe.

Often, this means that one partner will do the legwork of finding deals, and the other partner will provide financing resources.

Either partner may also have specialized knowledge in real estate law, contracts, rehabbing, REO properties, or other areas to ensure a smooth transaction.

Transparency is important in a co-wholesaling arrangement. You want to make sure that you partner with someone who is ethical and you trust.

Even so, it’s always smart to execute a co-wholesaling/joint venture agreement to protect everyone’s legal interests.

Otherwise, all Michigan laws and statutes governing co-wholesaling are the same as wholesaling.

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

co wholesaling real estate

Is Reverse Wholesaling Real Estate Legal In Michigan?

Reverse wholesaling is legal in Michigan for the same reasons traditional wholesaling is. Although it sounds more complicated than it is, reverse wholesaling simply juggles the order of the wholesaling process. Typically, you create a buyer's list or line up buyers first and then find properties to either put under an assignment contract or buy and sell.

Many wholesalers prefer this approach because it creates a stable exit strategy and builds stronger long-term relationships with real estate investors who may want to do multiple deals. Aligning with private and hard money lenders creates a streamlined process and more reliable outcomes.

As long as wholesalers follow all Michigan real estate laws, there are no specific restrictions on conducting reverse wholesaling activities.

reverse wholesaling real estate legal Michigan

Michigan Real Estate Wholesale Contracts

There are two primary contracts you will use as a wholesaler in Michigan. They are:

The Michigan real estate sales contract formalizes the purchase agreement between the seller and the buyer (aka the wholesaler) and gives the buyer the contractual right to purchase the property.

The assignment contract transfers the buyer's rights to purchase the property under the sales agreement to a new buyer. It is the document used when wholesaling through the contract assignment method.

Unless expressly prohibited in the original purchase agreement, an assignment addendum will assign the contract to the new buyer with the seller’s written permission.

If the original contract is assignable, additional seller permission for the assignment is not required on the assignment addendum or assignment contract used with the new buyer.

If a wholesaler is going to perform a double closing or wholetail the property, two separate purchase agreements will facilitate the two independent transactions.

wholesale real estate contract pdf

Legal Tips For Wholesaling Real Estate In Michigan

Although many wholesalers enjoy the freedom and independence that comes with wholesaling properties in Michigan, it’s smart to understand that you should get legal help when you need it. Don’t make the mistake of consulting with an experienced real estate attorney after the fact.

Legal Information for Wholesaling Methods

When you enter into an Assignment of Contract arrangement, you must be fully transparent with the seller that this is your intention. Also, you can only market the rights to the contract that you have already signed with the seller. You can’t market the property itself unless you are a licensed Realtor.

This is where the potential for legal problems can arise more often than not.

As a wholesaler, you will collect a fee when you assign the contract to another party. You’ll need to disclose what this fee is to both the original seller and the party you assign the contract to.

Realtors can collect a commission when a house sells. It’s important to understand this distinction.

A Double Close and a Buy and Sell agreement both involve two separate transactions. As a wholesaler, first, you buy a property from a motivated seller. Then you sell the property in a separate transaction to a third party.

The Double Close often takes place on the same day. A Buy and Sell arrangement make take days or weeks, during which time a wholesaler might perform minor maintenance or upgrades before selling to a final buyer.

The primary difference between an Assignment of a Contract and these other two methods is that the wholesaler must arrange financing since they are purchasing the property outright from the original seller.

In a Double Close, both transactions are completed either the same day or within a day or two after the first transaction. The Buy and Sell method involves holding the property for a longer time, perhaps for several days or weeks, before selling to the final owner.

This does require deeper pockets, and cash flow concerns, but the trade-off for wholesalers is that they don’t need to disclose how much profit they’ll make when they sell the home to the third party.

You do not need a real estate license to complete any of these types of transactions, although some people go through the effort and expense.

Michigan Regulatory Agencies

The following agencies can provide wholesalers with information and resources to assist wholesalers who want to grow their base of knowledge.

Michigan Department of Licensing and Regulatory Affairs (LARA)

At the very least, as a wholesaler, it’s smart to familiarize yourself with Michigan real estate laws. One of the best places to do this is on the Michigan Department of Licensing and Regulatory Affairs (LARA) website. You’ll find a wealth of information regulating brokers and salespeople that will help you define provisions that may impact your wholesaling activities.

The Michigan Board of Real Estate Brokers and Salespersons.

Michigan real estate laws are also regulated and amended with input from The Michigan Board of Real Estate Brokers and Salespersons. You will find specific essential information about Michigan real estate laws in the Michigan Occupational Code under Article 25 of Public Act 299 of 1980.

Michigan Realtors Association

You may also find value by becoming affiliated with Michigan Realtors®. This statewide advocacy group has 34,000 members and is a leading resource for professional development, business services, and industry knowledge.

If you want to focus your activities on a specific area in Michigan, consider contacting one of the local Realtor boards and associations throughout the state.

There are a couple of other things to focus on when wholesaling real estate in Michigan. They involve contingency clauses and advertising/marketing properties.

Contingency Clauses

Contingency clauses are conditions or actions that must be met for a real estate contract to become a binding legal document. There are several types of contingency clauses that protect both buyers and sellers. Some of these include:

  • Appraisal contingency
  • Financing contingency
  • Inspection/Due Diligence contingency
  • Sale of a Prior Home contingency
  • Clear Title contingency
  • Homeowners Insurance contingency

For example, a financing contingency might give a buyer x number of days to secure a loan. An inspection contingency may give the buyer x number of days to inspect the property. An appraisal contingency can protect the buyer to ensure the property is valued at a certain minimum dollar value.

When a contingency isn’t met, either party can consider the purchase contract null and void.

Advertising and Marketing

Advertising and marketing properties are also strictly regulated, as well. Again, only licensed real estate agents can market and advertise a property as outlined in the Occupational Code Act 299 of 1980, Section 339.2512e.

Final Thoughts

Is wholesaling real estate legal in Michigan? Yes, wholesaling real estate is legal in Michigan, provided that unlicensed wholesalers strictly follow state laws and avoid performing activities that would require a real estate license. At the same time, unlicensed real estate investors are limited to five deals a year under state law. Understanding these legal boundaries is crucial for operating within the law.

Now that you know wholesaling is a legal investment strategy in Michigan, consider taking advantage of current opportunities by attending Real Estate Skills' free training. This training will equip you with the necessary skills and knowledge to navigate the real estate market effectively and capitalize on its potential.

*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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