Is Wholesaling Real Estate Legal In Montana?

Wholesaling real estate is currently one of the most popular real estate techniques - reaching the upper echelon of profit-generating strategies, along with its sister strategy, the fix and flip.

What Is Real Estate Wholesaling?

Real estate wholesaling is simply a type of real estate investing strategy in which an investor executes a legal contract to purchase an investment property – single-family, rental property, a multi-unit property, or otherwise. But before closing on the first purchase contract, they choose to assign their right to purchase the property to another end buyer.

The difference that exists between the two sale prices is known as the defined gross profit. Wholesale properties are often sold to other potential buyers from a curated cash buyers list.

A fully executed real estate contract awards the purchaser/wholesaler with a bundle of rights to purchase the property through the Principle of Equitable Interest or the Principle of Equitable Conversion. The sale and transfer of these awarded equitable rights to a new buyer are made with the use of an 'assignment of contract.'

Wholesaling real estate has likely experienced this recent rise in popularity due to a surprising and dramatic confluence of events –

• A global pandemic that modified the demands & priorities of home dwellers and purchasers in a modern, digital marketplace.
• A historically low-interest-rate environment – set in motion to combat the alarming economic/political/healthcare predicted consequences set forth by experts.
• An unrelenting real estate market met with an undersupply of homes – elevating prices at historic rates.
• The NAR reports that the median national list price for an active listing was $380,000 – up 8.6% compared to 2020 and up nearly 22% compared to 2019. [Delineated by bright yellow]
• The price of the average house has increased from 1980 to 2020 by 416%.

As a real estate technique, wholesaling real estate tends to generate the best results when the market is in Stage 2, also known as the second half of the Seller's Market or the Expansion Phase.

Phase 2 dovetails with real estate flipping as a viable investment strategy. Phase 2's characteristics sum up the major features of both current and recent markets.

• Increasing prices that are driven by low inventory that cannot meet current buyer demand.
• Decreasing overall vacancies.
• Scarcity pushing prices higher in both rental and sales markets.
• Moderate to quick absorption of homes, well below industry averages over time. According to the NAR, as of 10/2021, homes were selling eight days faster in 2021 than the previous year.

Current Real Estate Market Metrics in Montana

Montana real estate prices typically fall below national averages but have dramatically increased recently, as follows –

• The median Montana price of a home in July 2020 was $322,000.
• A little more than one year later, the median price of a home in Montana was $394,498 – A 27.8% INCREASE from the previous year. Montana's median home price is about $10,000 below the median annual home price for 2021 – Q3, of $404,700.

Source

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

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

Montana is located in the mountain west region of the United States. It was admitted as a state in November 1889 – the 41^st state to join the Union. Its name is derived from the word mountainous, translated from Spanish.  Montana is bordered by Canada to its North, Wyoming to its South, Idaho to its West, and South & North Dakota to its East.

Source

Montana is a winter sports-fanatic haven with more than a dozen public skiing areas in the state and millions of acres available for cross-country skiing and snowmobiling in government-owned parks like Yellowstone National Park, for example.

Montana's highest point is Granite Peak, with an elevation of 12,806 feet above sea level. Granite Peak is located about ten miles to the north of Wyoming's northern border.

With more than 147,000 square miles, Montana is the fourth largest state and about three times the size of New York, but with a population that just exceeds 1,000,000 – making it the third-least dense state in the nation. Note that half of one county in South Florida – Broward County has nearly twice Montana’s state population.

These are Montana's five largest cities –

Helena, Montana's capital, with more than 34,000 residents, falls into sixth place in terms of population. Billings is the most populous city and the anchor city in Montana's most populated statistical area.

To provide some perspective, the entire state population of Montana is about 1/3 the population of Chicago, Illinois.

The following represents the larger trade and professional organizations in Montana that are dedicated to the real estate profession and each brokerage and individual working in the state's real estate market. Each of these professional organizations is a member of the National Association of REALTORS (NAR) –

• The Montana Association of REALTORS (MAR)

The MAR is Montana's voice for all that is real estate. The Montana Association of REALTORS represents real estate agents, brokerages, and other related real estate professionals across Montana. Headquartered in Helena, the MAR represents more than 5,250 professional members.

• The Gallatin Association of REALTORS (GAR)– Big Sky Country

Located in Bozeman, the GAR is one of this southwest county's largest professional organizations, with more than 1,500 professional members representing various real estate subspecialties. The Gallatin Association of REALTORS is a Big Sky Country Multiple Listing Service (MLS) member.

• The Billings Association of REALTORS (BAR)

The BAR represents the real estate licensees and professionals in the state's largest city. The Billings Association offers political advocacy, professional development, networking opportunities, and member services to its professional members.

• The Northwest Montana Association of REALTORS (NMAR)

The NWMAR offers its members and community a variety of real estate-related support and educational resources. The Northwest Montana Association of REALTORS has more than 1,200 professional members.

• The Missoula Organization of REALTORS (MOR)

Headquartered in Missoula, the MOR was established about 75 years ago to represent property owners and professional realtors working in and around Missoula. The Missoula Organization of REALTORS offers education, training, advocacy, and community events to improve homeownership.

• The Helena Association of REALTORS (HAR)

Chartered more than two decades ago, the Helena Association of REALTORS and its more than 500 members and affiliates have served the capital region's homeowners and real estate community. The Helena Association of REALTORS is the voice for all that is real estate in Montana.

• The Great Falls Association of REALTORS (GFAR)

The Great Falls Association of REALTORS, located in Great Falls, MT, was established as the first board of real estate in the state in 1910 – known then as the Real Estate Exchange of Great Falls. The GFAR serves a seven-county area in the north and central Montana with more than 300 members.

The Montana Board Of Realty Regulation (BRR)

The Montana Department of Labor and Industry houses the state's agency that performs as the state’s real estate commission – the Montana Board of Realty Regulation. Its authority is found in these Montana Statutes –

• The Board of Realty Regulation – MCA (Montana Code Annotated) Title 2, Chapter 15, Part 17
• The Real Estate Brokers and Salespersons – MCA Title 37, Chapter 51
• General Licensure Provisions – MCA Title 27, Chapter 1
• Timeshare Sales – MCA Title 37, Chapter 53

The following definitions (MCA 37-51-102) apply to Montana's real estate statutes –

A Real Estate Broker – (MCA 37-51-102 (4)) -

(4) "Broker" includes an individual who:

(a) for another or for valuable consideration or who with the intent or expectation of receiving valuable consideration negotiates or attempts to negotiate the listing, sale, purchase, rental, exchange, or lease of real estate or of the improvements on real estate or collects rents or attempts to collect rents;

(b) is employed by or on behalf of the owner or lessor of real estate to conduct the sale, leasing, subleasing, or other disposition of real estate for consideration;

(c) engages in the business of charging an advance fee or contracting for collection of a fee in connection with a contract by which the individual undertakes primarily to promote the sale, lease, or other disposition of real estate in this state through its listing in a publication issued primarily for this purpose or for referral of information concerning real estate to brokers;

(d) makes the advertising, sale, lease, or other real estate information available by public display to potential buyers;

(e) aids or attempts or offers to aid, for a fee, any person in locating or obtaining any real estate for purchase or lease;

(f) receives a fee, commission, or other compensation for referring to a licensed broker or salesperson the name of a prospective buyer or seller of real property;

(g) performs asset management services for real property in conjunction with the marketing or transfer of the property; or

(h) advertises or represents to the public that the individual is engaged in any of the activities referred to in this subsection (4).

For this statute, negotiations – (MCA 37-51-102 (15)) are defined as -

A Supervising Broker – (MCA 37-51-102 (25)) -

(25) "Supervising broker" means a licensed broker with whom a licensed salesperson is associated, directly, indirectly, regularly, or occasionally, to sell, purchase, or negotiate for the sale, purchase, exchange, or renting of real estate.

A Salesperson - – (MCA 37-51-102 (20)) -

(20) "Salesperson" includes an individual who for a salary, commission, or compensation of any kind is associated, either directly, indirectly, regularly, or occasionally, with a real estate broker to sell, purchase, or negotiate for the sale, purchase, exchange, or renting of real estate.

Note that the following individuals below does NOT need a real estate license in Montana as stated in (MCA 37-51-103) –

Montana Real Estate License Reciprocity

The state of Montana offers this guidance to nonresidents who wish to obtain a license -

However, according to MCA 37-51-306 – nonresident transactions must agree to consent to a legal process by providing an irrevocable written consent.

In addition, Montana real estate licensees can obtain a license through agreed-upon reciprocity with the following states –

• Alabama
• Alaska
• Colorado
• Delaware
• Georgia
• Idaho
• Kansas
• Kentucky
• Maine
• Missouri
• Nebraska
• North Carolina
• Virginia
• Washington

Note: Montana is NOT an attorney-close state, but buyers and sellers are encouraged to seek legal advice from a Montana licensed real estate attorney when needed, to avoid legality issues.

Is Wholesaling Real Estate Legal In Montana?

Yes. It is legal to wholesale real estate deals in Montana.

Wholesaling real estate remains lawful if the wholesaler/investor does not violate Montana's real estate and license law. Important considerations offered to wholesalers in Montana include the following -

• Must market and sell the only asset they own with regard to the subject property – the right to purchase the property, awarded by the Principle of Equitable Conversion.

Note that this is different from marketing or selling real property. The selling of one's equitable rights does not require a Montana real estate license, whereas Montana real estate law mandates a license when selling/marketing real property or real estate.

• Most purchase agreements use standard language, which, by default, typically offers assignability as a legal option. But note, the contract's language may be revised to require the seller's written consent or even strictly prohibit the use of an assignment.

But, wholesaling real estate in Montana within the law and with caution is legal and often profitable.

What Are The Wholesaling Laws In Montana?

License law in Montana is quite clear. According to MCA 37-51-301 –

In Montana, under (MCA 37-51-102 (4)) you are considered a broker or salesperson if you -

The penalties & consequences for violating Montana Code Annotated Title 37, Chapter 51-323 –

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

No, real estate wholesalers operating in the state of Montana will not require a real estate license if they do not violate Montana's real estate or license law.  The following suggestions will help wholesalers mitigate the potential risks - 

• Keep intentions/actions transparent.
• Act with integrity and complete due diligence.
• Pay close attention to cash flow requirements.
• Manage expectations appropriately.

DO NOT market/sell the contracted property – only your equitable rights. This may seem like a difference without a distinction (to quote legal scholars), but in fact, selling the property and selling equitable title are two completely different transactions. 

Wholesale Real Estate Contract Montana         

Real estate contracts delineate the transaction's terms. They are legally enforceable if one or both parties default on the contract's agreed terms – most include timeframes upon which each party must complete their obligations.

A contract of sale includes tremendous amounts of information which includes -

• The subject property's legal description.
• The earnest money
• Personal items that are included in the sale.
• The real estate transaction's financial terms and obligations.

Download Free Wholesale Real Estate Contracts Here (PDF)

Source

An Assignment Of Contract

The legal document known as an assignment contract allows a contracted purchaser to transfer the rights awarded by the contract (thru the Principle of Equitable Conversion) to another buyer. When using an Assignment of Sale, it is the wholesaler who is the Assignor, with the new buyer considered the Assignee. Montana State law is silent with regard to guidelines for using this legal document.

Source

The Double Close Strategy to Exit Montana Wholesale Deals

The double-close exit strategy offers wholesalers the most direct way to avoid violating Montana law. If you want to ensure you do not violate any Montana law as a wholesaler, the double close offers the safest path to completion without obtaining a real estate license. 

A double closing, as its moniker suggests, is defined by two closings. Most investors try to schedule them back-to-back, although there are times when the closings may take place on different days.

In the first closing, the wholesaler is the contracted purchaser – becoming the seller in the subsequent transaction. The price that differs between the two contracts is the gross revenue, which is often called the assignment fee.

Note: The Double Close Exit Strategy is not always free because it requires an additional set of closing fees, with most investors understanding that the extra expense is the cost of protection against significant consequences.

Final Thoughts

Real estate wholesaling is a type of investment strategy that fits with the current market's placement in the real estate cycle. It offers beginner wholesalers the opportunity to build a successful career and to learn about real estate investments without the need for significant capital. 

A real estate investor/wholesaler operates as a middleman – meeting the needs of homeowners who need to sell quickly – for whatever reason. Instead of selling groceries, sneakers, or clothing, a real estate wholesaler sells the only marketable asset they have to sell in the transaction - their equitable title - to another interested buyer. 

Future and potential investments are easily found these days thanks to the modern, digital real estate marketplace (like Zillow & Redfin) and various foreclosure podcasts and infomercials.

However, like every investment, real estate wholesalers must manage the process with vigilance, transparency, and integrity. This begins with a solid contract that details both the buyer's and seller's contractual obligations.