Is Wholesaling Real Estate Legal In Michigan?Mar 16, 2021
Michigan has long been recognized as one of the industrial giants in the United States. Driven by the auto industry and thousands of feeder businesses, the state has undergone changes in recent years but is still a vibrant economic powerhouse.
Residential sales throughout the state remain strong, offering lots of opportunities to find real estate deals for aggressive go-getters.
According to the U.S. Census, the Michigan real estate market is huge. There are more than 4.6 million housing units for the state’s 10 million people.
If you’re considering a career in real estate in Michigan, you should be encouraged by the state’s vitality. You can opt for a traditional career path but many people are also intrigued about the possibility of wholesaling Michigan real estate as a viable alternative.
Here’s what you need to know.
- What Do You Need To Know About Wholesaling In Michigan?
- Is Wholesaling Real Estate Legal In Michigan?
- What Are The Wholesaling Laws In Michigan?
- Do You Need A License To Wholesale Real Estate In Michigan?
- Is Co-Wholesaling Real Estate Legal in Michigan?
- Is Reverse Wholesaling Real Estate Legal In Michigan?
- Michigan Real Estate Wholesale Contracts
- Legal Tips for Wholesaling Real Estate In Michigan
- Final Thoughts
What Do You Need To Know About Wholesaling In Michigan?
The keys to successfully wholesaling real estate in Michigan hinges on a couple of things.
The most critical of these is you must understand the laws and statutes that apply to wholesaling in the state.
To start, it’s essential to become familiar with the various methods used in wholesaling. The three primary ways are the Assignment of a Contract, The Double Close, or a Buy and Sell agreement which is sometimes known as Wholetailing.
Understanding the overall structure, methodology, and timing of each of these is vital to your efforts.
In addition to understanding wholesaling deal methods, you must also start to familiarize yourself with market conditions locally and throughout the state. A good generalized knowledge can save you time and money, allowing you to narrow your efforts to the most productive real estate investing localities and regions.
A great place to start is with local Realtor associations in Michigan.
A few of the larger groups in the state include:
- The Ann Arbor Area Board of Realtors (AAABoR)
- Detroit Association of Realtors (DAR)
- Greater Lansing Association of Realtors (GLAR)
- Upper Peninsula Association of Realtors (UPAR)
- Greater Regional Alliance of Realtors (Grand Rapids) (GRAR)
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 the place to do business, helps businesses in their growth strategies, and fosters the growth of vibrant communities throughout Michigan.
Is Wholesaling Real Estate Legal In Michigan?
Wholesaling real estate in Michigan is legal, but you must make sure you follow established state laws and regulations regarding real estate transactions in the state.
Let’s take a closer look at what those legalities and regulations are.
What Are The Wholesaling Laws In Michigan?
Occupational Code 339.22319 - Limit on the Number of Transactions
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.
DISCLAIMER: Some people find workarounds to this limitation. Others have reported that enforcement is pretty much 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 about.
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 Buy and Sell methods must be cognizant of this limit. Most investors will use a real estate agent anyway, so this would be a non-issue in those cases. 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
In Michigan, only licensed real estate agents can collect a commission for selling a home. A wholesaler collects a fee with the assignment of a contract. With the Double Close or a Buy and Sell method, the wholesaler pockets a profit as a property owner when they flip a property to a final buyer.
Seller’s and Buyer’s Disclosures
In a Double Close or Buy and Sell agreement, you must also disclose information about the property’s condition. This was codified as part of the Michigan Seller Disclosure Act (Act 92 of 1993) that requires a written statement that must be given to the buyer. Failing to do so provides the buyer with 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 you do 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.
Do You Need A License To Wholesale Real Estate In Michigan?
No, 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.
Is Co-Wholesaling Real Estate 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.
Is Reverse Wholesaling Real Estate Legal In Michigan?
Reverse wholesaling sounds more complicated than it is. With reverse wholesaling, you simply juggle 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.
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 will serve the purpose of formalizing the purchase agreement between the seller and the buyer (aka the wholesaler). It gives the buyer the contractual right to purchase the property.
The assignment contract will transfer the buyer's rights to purchase the property under the sales agreement to a new buyer. This 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, then two separate purchase agreements will be used to facilitate the two independent transactions.
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 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.
Source: Michigan Realtors®
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 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.
Michigan is a big and diverse state. Trying to understand the forces that shape the various regions and individual communities can help a wholesaler pinpoint more targeted real estate investment opportunities, whether it’s single-family dwellings, commercial real estate, or multifamily properties.
There are several places to gather information that will help in this regard.
Michiganders are famous for their hard work. Applying the tools at your disposal and with dedicated effort and creativity, you can add to that legacy by building a thriving wholesaling career.
*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.