Is Wholesaling Real Estate Legal In Minnesota?

Real estate wholesaling is an investment strategy that has become popular in the current real estate marketplace. For experienced real estate investors, wholesaling real estate deals is certainly not a new investment technique but a strategy that aligns with the current market showing great appreciation. Currently, the national average appreciation rate in the United States is 14.5%, which is in deep contrast from 2019’s national average appreciation rate in the United States of 4%.

Historically, appreciation rates tend to follow significant economic events. The table below indicates a few recent economic events – which generated varying appreciation rates -

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Note that a recession does not always result in the same rate or even the direction of housing prices.

But if you want to know why real estate wholesaling has become a preferred investment strategy, the answer is the 13.3% appreciation rate generated during the COVID-19 recession!

Localized statistics for Minnesota offer investors even greater insight, as follows. With a median sales price (July 2021) of $315,000. The following metrics define the year-over-year changes from July 2020 – July 2021–

With an underlying market experiencing rapid appreciation, real estate wholesaling in Minnesota offers impressive benefits that include -–

• A viable entrance into real estate investing with minimal capital requirements and risk compared to its sister investment strategy, the fix, and flip. But note, a wholesale transaction typically requires the provision of an earnest money deposit as an act of good faith.
• A smart way to familiarize yourself with the real estate industry – while working towards a profitable objective.
• An opportunity to build a professional network of lenders, plus a viable buyers list.

Those opposed to real estate wholesaling assert that the wholesaler violates license law by ‘selling a property without a license.’ However, the reality is that a wholesaler can stay within the legal limits of Minnesota law by selling the one thing they have a legal right to market – their equitable title or interest in the property – awarded when the buyer and seller sign a legally enforceable real estate contract or purchase agreement.

The Principle of Equitable Conversion/Interest/Title

A real estate wholesaler follows a simple strategy acting as a middleman, no different from the kid selling lemonade or the local gas station down the street. As an investor, a real estate wholesaler is awarded the equitable title when signing a contract of sale. Simultaneously, the seller (or property owner) maintains legal title to ensure the buyer comes up with the funds defined in the purchase agreement.

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Real estate wholesalers (and flippers) search for wholesale deals that are priced below market value, usually because the seller is highly motivated to unload the property or has hit the financial skids. Wholesaling is a viable strategy for all types of investment properties – from an owner-occupied to a rental property, among others.

There are many online sites in the modern real estate market to help locate available wholesale properties, real estate deals, and market metrics. For example, sites like Redfin or Zillow, Craigslist are great starting points, but you may need to consider researching estate liquidations, foreclosure auctions, bankruptcies, or divorce.

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

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

The state of Minnesota is located along the United States’ northern border with Canada. In 1858, the state of Minnesota entered the union as the 32^nd state. Minnesota’s name is derived from the Dakota Native American Indian Tribe’s word for the Minnesota River – mnisota – which translates to sky-tinted water.  The state was considered a part of the American Frontier.

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Minnesota’s highest elevation is Eagle Mountain (2,310 Ft. Above Sea level), located in the northern portion of the state –

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The state’s population exceeds 5.7 million residents, which makes it the 21^st most populated state –

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The largest cities in the North Star State of Minnesota are as follows –

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The state capital is Saint Paul, which is part of the largest metropolitan area in Minnesota known as - Twin Cities which includes Minneapolis and Saint Paul. This metro area also includes parts of Wisconsin with a 2020 population of 3.15 million, an 11% growth rate from 2010 to 2020.

Real Estate Trade Organizations in Minnesota

The following organizations are the larger professional organizations in the state of Minnesota dedicated to the real estate profession -including every brokerage and real estate agent working in Minnesota’s real estate market. Each of these real estate professional associations is a member of the National Association of REALTORS (NAR) –

• The Minnesota REALTORS (MR)

Established in 1919, the MR is recognized among Minnesota’s oldest professional organizations. The Minnesota REALTORS is now more than 20,000 member-strong and a prominent vocal advocate for Minnesota homeowners and industry professionals.

• The Saint Paul Area Association of REALTORS (SPAAR)

With dual offices in Saint Paul and Coon Rapids, the SPAAR is a professional organization that serves property owners and real estate professionals in the greater Twin Cities area. With benefits including networking, continuing education, legal support, and conferences in support of members.

• The Minneapolis Area Association of REALTORS (MAR)

Established in the 1880s, the MAR is the birthplace of the moniker – REALTOR. The Minneapolis Area Association of REALTORS was founded to offer real estate professionals and property owners the resources and leadership to maintain sustainable communities.

• The Lake Superior Area REALTORS (LSAR)

Founded in 2017 as the result of a merger of two local real estate professional organizations, the Lake Superior Area REALTORS offers MLS services, networking opportunities, education, and conferences to its members. LSAR seeks to be the Voice for Minnesota Real Estate.

• The REALTOR Association of Southern Minnesota (RASM)

Developed in the 1940s and situated in North Mankato, the RASM is a professional real estate organization that serves a ten-county area of Southern Minnesota. The RASM has more than 300 members and another several hundred subscribers.

The Minnesota Commerce Department

The Minnesota Commerce Department (MCD) is the state agency tasked with managing the real estate activities and issuing real estate licenses in Minnesota pursuant to Chapter 82.81 – Subdivision 1.

In Minnesota, real estate is defined as follows –

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And it is noted, when acting for another (i.e., buyer or seller), a license is required –

The MCD issues these real estate licenses in Minnesota. The first is a real estate salesperson’s license –

A real estate broker is defined as follows –

It is essential to understand who does NOT need a license in Minnesota for a wholesale real estate transaction.

License Reciprocity in Minnesota

According to Minnesota Statute 82.64, these are conditions under which reciprocity is available to out-of-state real estate licensees and professionals.

Additional Licensing Options in Minnesota

The Minnesota Commerce Department is also responsible for issuing licenses to individuals performing real estate closings. (See Chapter 82.641 – Real Estate Closing Agent Licensing)

Is Wholesaling Real Estate Legal In Minnesota?

Yes.

Wholesaling real estate in Minnesota remains legal if the real estate wholesaler’s actions are not considered the actions that require a real estate license.

The contract of sale or purchase agreement is the legal instrument that grants the purchaser the legal right to market or sell or assign their equitable interest in the contract – pursuant to the terms delineated in the contract. 

Most real estate contracts are, by default, assignable. However, contracts are typically modified to fit the uniqueness of the transaction and may include a provision that requires the seller’s written approval.

Wholesaling real estate in Minnesota requires that the investor to only market their equitable interest in the contract – A Minnesota real estate wholesaler CANNOT SELL REAL PROPERTY. They can only market/sell THEIR EQUITABLE INTEREST IN THE PROPERTY.

It is important to consider using a licensed real estate attorney in Minnesota to help navigate the wholesaling waters. In fact, Minnesota law explicitly prohibits real estate licensees from discouraging the use of a real estate attorney’s services.

What Are The Wholesaling Laws In Minnesota?

There are no specific laws in Minnesota related to wholesaling real estate.

The Minnesota statute that sets forth the real estate laws for licensing and activities is Chapter 82 – Real Estate Brokers and Salespersons.

The key to successfully wholesaling in Minnesota is for wholesalers to proactively be mindful of the legality issues by avoiding the actions requiring a Minnesota real estate license. These actions include those defined by Minnesota Statute 82.55 –

Subd. 19. Real estate broker; broker. "Real estate broker" or "broker" means any person who:

(a) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly lists, sells, exchanges, buys or rents, manages, or offers or attempts to negotiate a sale, option, exchange, purchase or rental of an interest or estate in real estate, or advertises or holds out as engaged in these activities;

(b) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly negotiates or offers or attempts to negotiate a loan, secured or to be secured by a mortgage or other encumbrance on real estate, which is not a residential mortgage loan as defined by section 58.02, subdivision 18;

(c) "real estate broker" or "broker" as set forth in clause (b) shall not apply to the originating, making, processing, selling, or servicing of a loan in connection with the ordinary business activities of a mortgagee, lender, or servicer approved or certified by the secretary of Housing and Urban Development, or approved or certified by the administrator of Veterans Affairs, or approved or certified by the administrator of the Farmers Home Administration, or approved as a multifamily seller/servicer by the Federal Home Loan Mortgage Corporation, or as a multifamily partner approved by the Federal National Mortgage Association;

(d) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly lists, sells, exchanges, buys, rents, manages, offers or attempts to negotiate a sale, option, exchange, purchase or rental of any business opportunity or business, or its good will, inventory, or fixtures, or any interest therein;

(e) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same directly or indirectly offers, sells or attempts to negotiate the sale of property that is subject to the registration requirements of chapter 83, concerning subdivided land;

(f) for another and for commission, fee, or other valuable consideration or with the intention or expectation of receiving the same, promotes the sale of real estate by advertising it in a publication issued primarily for this purpose, if the person:

(1) negotiates on behalf of any party to a transaction;

(2) disseminates any information regarding the property to any party or potential party to a transaction subsequent to the publication of the advertisement, except that in response to an initial inquiry from a potential purchaser, the person may forward additional written information regarding the property which has been prepared prior to the publication by the seller or broker or a representative of either;

(3) counsels, advises, or offers suggestions to the seller or a representative of the seller with regard to the marketing, offer, sale, or lease of the real estate, whether prior to or subsequent to the publication of the advertisement;

(4) counsels, advises, or offers suggestions to a potential buyer or a representative of the seller with regard to the purchase or rental of any advertised real estate; or

(5) engages in any other activity otherwise subject to licensure under this chapter;

(g) engages wholly or in part in the business of selling real estate to the extent that a pattern of real estate sales is established, whether or not the real estate is owned by the person. A person shall be presumed to be engaged in the business of selling real estate if the person engages as principal in five or more transactions during any 12-month period, unless the person is represented by a licensed real estate broker or salesperson.

The consequential penalties for those who violate license law are found in MN 82.83 as follows –

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

No, in Minnesota, real estate wholesalers are not required to be licensed if their actions avoid violating the license laws in the state.  To remain within the legal limits, consider these helpful suggestions -

• A real estate wholesaler should always be transparent; this includes disclosing their ultimate intentions. A smartly worded real estate contract is the most direct way to be transparent.
• Manage the expectations of the contract’s parties.
• A real estate wholesaler should act with integrity.
• Offer a disclaimer when appropriate or required.
• Don’t market or sell the real property attached to your equitable interest. Do market/sell your right to purchase real property as defined by the purchase agreement’s terms. 

Wholesale Real Estate Contract In Minnesota

A real estate contract is the legal instrument that defines the terms of the transaction and the property rights of the seller and the buyer.  A contract of sale is a complex document. In Minnesota, this 12-page (without appendices) document includes a tremendous amount of information, as follows -

• The property’s legal description
• The property’s mailing address.
• Notice of the earnest money.
• Any personal items of the seller that may be included as a part of the sale.
• The financing terms.
• Relevant contingency dates, among others.

Wholesalers who are new to this strategy or unfamiliar with Minnesota’s license and real estate law, are encouraged to consult with a qualified, licensed real estate attorney to obtain the necessary legal advice. 

Download Free Wholesale Real Estate Contracts Here (PDF)

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The Assignment Contract

An assignment of contract is the legal instrument that permits a buyer to transfer their equitable interest to another buyer (often a cash buyer).

It is essential to note that not every purchase contract is assignable, so be sure the real estate contract you sign permits the use of assignments.

Assignability is the legal mechanism by which a wholesaler can sell their equitable interest or right to buy the subject property - to another buyer. The difference between the sales prices of these two wholesaling deals determines the assignment fee or the wholesaler’s generated revenue.

Minnesota Real Estate Wholesaling Exit Strategies

Real estate wholesalers have several options with regard to exiting the wholesale transaction.

• The Buy & Sell Strategy
• The Buy & Assign Strategy
• The Double Closing Strategy – in a double closing, the wholesaler purchases and sells the property on the same day. But note that this exit strategy may be more costly due to the double closing costs generated by two closings.
• Wholetailing

Final Thoughts

As an overall strategy, real estate investing has never offered an investor guarantee but varying and evolving investment opportunities to savvy, well-informed investors.  A real estate investor must understand the cyclical nature of real estate and be prepared to jump at the different investment opportunities created by the current cycle.

These are the reasons real estate investments are often considered best suited for entrepreneurial types – those who have a knack for understanding markets, people, and the line of the law.

Wholesale properties can be quite profitable if the investor has gone through proper training and is mindful of Minnesota state law and chooses not to act in ways that may be construed to require a license.