Is Wholesaling Real Estate Legal In Nebraska?

Wholesaling real estate has become a wildly popular real estate investment technique, primarily due to the fact that it fits hand-in-glove with the current cycle of the real estate market. As noted by FRED (Federal Reserve Economic Data), the third quarter of the median sales price of a home in the US in Q3 – 2021 has hit a new high – of $404,700, as follows (Note – the shaded areas indicate those times when the US economy hit a recession

The pandemic and the resulting shortage of homes inventoried for sale dropped to some of the lowest levels but has since recovered to about 5.7 months, as follows –

Wholesaling real estate as an investment strategy is also wildly popular with new investors for these reasons –

• The capital and cash flow requirements are minimal, which is typically the earnest money deposit
• These real estate deals are considered short-term in nature.
• It allows investors to learn the wholesale strategy and real estate market from the inside out

Acting as a middleman, the real estate wholesaler also meets a need created by highly motivated sellers who have no other exit strategy! But like every other investment strategy – be it real estate-related or another type, there are benefits to reap and potholes to avoid.

What Is Real Estate Wholesaling?

Real estate wholesaling is a technique for investing where an investor signs a purchase contract as a buyer, but before the closing or changing of possession, the wholesaler sells the bundle of rights to another buyer – often called an end buyer. Wholesale properties are often sold to other investors from the investor’s potential cash buyers list.

The right to purchase the property is awarded to the buyer by the Principle of Equitable Interest or Equitable Conversion. The sale and transfer of equitable rights to a new buyer is accomplished using an "assignment of contract".

Real estate wholesalers can generate profits in three steps -

• Find a piece of property that is marketed below market value, typically because the seller needs to sell.
• Enter into a purchase agreement with the seller.
• Assign the agreement to purchase to another buyer. Typically, an end buyer is an investor specializing in rehabbing properties or just doesn’t want to find the rental property or the investment property.

Between the time the first contract has been executed and the closing, the ownership of the property is temporarily redefined with dual ownership, as follows -

• The current owner/seller has possession and use and possession of the subject property
• Home buyers are granted the contractual right to own the subject property, providing they meet the terms of the purchase and sale contract.

In other words, during this time, the property has two owners, with the equitable ownership awarded to the buyer and the legal ownership remaining with the seller/buyer until the contract’s terms are met.

Are you ready to find out what you need to know about wholesaling real estate in Nebraska?

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

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

Nebraska is located in the middle of the United States. The state entered the Union as the 37^th state in 1867. The state covers approximately 77,200 square miles, which makes it the 16^th largest state in the nation.

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Nebraska is a midwestern state that is recognized to be the only triply landlocked state, which means that to get to an ocean from Nebraska, you must travel through at least three states! The state is bordered by South Dakota, Iowa, Missouri, Kansas, Colorado, and Wyoming. Almost 90% of Nebraska’s cities have less than 3,000 residents.

The highest point in Nebraska is located at Panorama Point in the extreme western section of the state at its border with Colorado and Wyoming –

Nebraska’s 2021 population is as follows and is ranked among the top ten least dense states. To provide perspective the state of Nebraska is about 50% larger than nearby Illinois, however, Nebraska has only 15% of Illinois’ population -

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Nebraska’s largest cities include the following –

The largest city is Omaha, with about 25% of the state’s residents. The Cornhusker State capital of Lincoln, with 293,446 residents, ranks as the second-largest city. Bellevue, Grand Island, and Kearney complete the top five largest cities.

The following represents the larger trade and professional organizations in Rhode Island dedicated to the real estate profession and each brokerage and individual working in real estate. Each of these professional organizations is a member of the National Association of REALTORS (NAR) –

• The Nebraska REALTORS Association (NRA)

The NRA is comprised of local chapters throughout the state, divided as follows –

• The Omaha Area Board of REALTORS (OABOR)

Headquartered in Omaha, the OABOR is the primary advocacy for real estate ownership (and property ownership) in and around the greater Omaha area. The OABOR offers supportive, and resources functions to the real estate professionals in metro Omaha. Members align with its core values of trust, integrity, knowledge, and honesty.

• The REALTORS Association of Lincoln (RAL)

Founded in the 1920s, the RAL seeks to support and enhance the careers of real estate professionals and advocate for property ownership in the greater Lincoln area. Members of the REALTORS Association of Lincoln ascribe to the Code of Ethics set forth by the National Association of REALTORS.

• The Grand Island Board of REALTORS (GIBOR)

Located in Grand Island, the GIBOR is a professional organization that supports real estate professionals with advocacy efforts and resources. Members are required to maintain professional and ethical standards to better serve the Grand Island community.

• The Lincoln County Board of REALTORS (LCBOR)

Established in the 1940s, the LCBOR seeks to promote the real estate profession and homeownership in the greater Lincoln Country vicinity. The Lincoln County Board of REALTORS, located in North Platte, offers resources, education, and networking opportunities, among others.

The Nebraska Real Estate Commission (NREC)

The Nebraska Real Estate Commission was developed by state lawmakers to regulate (and license) real estate salespersons and brokers in Nebraska.  The laws that govern the NREC are primarily available in the Nebraska Real Estate License Act (Section 81-885 to 81-885.56) and the commission’s guidelines. 

Nebraska’s agency law & relevant regulations are available in Chapter 76, article 24 of the Nebraska Statutes, and Title 301 of the Nebraska Administrative Code.

Real estate for this statute is defined as follows –

(1) Real Estate means and includes condominiums and leaseholds, as well as any other interest or estate in land, whether corporeal, freehold, or nonfreehold, and whether the real estate is situated in this state or elsewhere;

Nebraska state law is quite clear about its requirement for a real estate license –

81-885.02. Broker, associate broker, real estate salesperson; license required; exemption.

After September 2, 1973, it shall be unlawful for any person, directly or indirectly, to engage in or conduct, or to advertise or hold himself or herself out as engaging or conducting the business, or acting in the capacity, of a real estate broker, associate broker, or real estate salesperson within this state without first obtaining a license as such broker, associate broker, or salesperson, as provided in the Nebraska Real Estate License Act, unless he or she is exempted from obtaining a license under section 81-885.04.

Nebraska’s Real Estate Commission issues these two types of real estate agent licenses –

A Real Estate Salesperson

(6) Salesperson means any person, other than an associate broker, who is employed by a broker to participate in any activity described in subdivision (2) of this section;

A Real Estate Broker

A Nebraska real estate broker can be an Associate Broker -

(3) Associate broker means a person who has a broker's license and who is employed by another broker to participate in any activity described in subdivision (2) of this section;

Or a Designated Broker -

The following list details the exceptions to Nebraska’s license law - 

Nonresident Broker’s License

According to 81-885.17, these are the rules for nonresident brokers –

The Nebraska Real Estate Commission offers this guidance for prospective licensees.

Nebraska Real Estate Market Metrics

The real estate market for 2020 in Nebraska was 35% more competitive than the national real estate market average. Nebraska’s competitive market in 2020 can be seen by these remarkable metrics -

• Nearly 39% of homes sold above list price
• An average supply in 2020 of homes that is equal to only 1.1 months.

These are the Nebraska cities that have shown the most appreciation since 2000, with the darker areas representing the most robust appreciation during the past two decades -

The recent growth of Nebraska is also quite impressive, as follows –

The median home price in 2020 for Nebraska was $175,945, which, compared to the median sales price (Q3 2021), was $404,700 – making Nebraska quite affordable in terms of real estate investing with a median home price that is less than ½ of the national average.

Is Wholesaling Real Estate Legal In Nebraska?

In a word, yes.

Wholesaling real estate in Nebraska is lawful if the real estate wholesaler’s actions remain the limits set forth by Nebraska’s license and real estate law.

The wholesaler must remember that they are required to sell the only asset they own – the right to purchase the property, which is starkly different than marketing/selling real estate. The latter requires a Nebraska real estate license, whereas the former does not.

The language in a real estate contract is, by default, typically assignable. But note, a seller or their representative may revise the contract’s language and either disallow assignments or, at the very least, require the seller’s written consent.

With due diligence and careful executive, wholesaling real estate in Nebraska is legal and often profitable.

What Are The Wholesaling Laws In Nebraska?

There are no specific Nebraska laws set forth for real estate wholesaling.  The state is clear in that a real estate license is required as follows –

The activities that require a Nebraska real estate license are also noted under 81-885.01. Terms, defined. of the Nebraska Real Estate License Act and Rules and Regulations. This also includes salespersons licensed in the state.

However, NS 81-885.03, these are the potential penalties for violating the Nebraska Real Estate License Act.

In addition, in accordance with NRS 76-2,122, Nebraska requires real estate closing agents to be licensed by one or more regulatory entities, although they are not required to be licensed attorneys -  

However, these real estate deals are exempt from the above mandate –

Note that Item C (above) references the processes that define a ‘double close’ exit strategy, although its language appears to ensure the monies dependent on one transaction can/does NOT impact a future transaction. 

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

No, real estate wholesalers in Nebraska do not need a real estate license if their actions in completing wholesale deals do not violate Nebraska license law. The following suggestions will help real estate wholesalers steer clear of legality issues in the Cornhusker State - 

• Actions and intentions should be transparent
• Choose to act with integrity
• Manage the seller’s or homeowners expectations to allow them to make educated decisions
• Don’t market/sell the contracted property
• Do market/sell your equitable right to purchase real property

Wholesale Real Estate Contract Nebraska

Real estate contracts define the terms of real estate transactions. If prepared and executed correctly, a purchase contract is legally enforceable, where each party may sue for damages for the failed performance of the other party to the contract.

Download Free Wholesale Real Estate Contracts Here (PDF)

A contract of sale includes, in part, the following information,

• Its legal description
• The earnest money provided
• Personal items that are included in the sale
• The financial terms that must be met, including the date when the lender's conditions, if any, must be met

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Assignment Contract

An assignment contract is a legal document that allows a contracted purchaser to transfer the rights awarded by the contract (and the Principle of Equitable Conversion) to another buyer which is usually a cash buyer. The wholesaler is the Assignor, and the new end buyer is the Assignee. Nebraska law is silent with regard to explicit guidelines for using an assignment of contract.

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Double Closing In Nebraska

The most direct way to avoid committing a violation of Nebraska’s license law is to choose to exit the transaction using the double close exit strategy. A double closing, as one would guess, is made up of two closings – which may occur back-to-back or during the next business days.

In the first closing, the wholesaler is the contracted purchaser. However, the wholesaler becomes the seller in the second transaction. The price differential between the two contracts defines the wholesaler’s gross revenue – aka the assignment fee.

However, the additional protection offered by the Double Close Exit Strategy has a price because there are two sets of closing costs. Most agree that these additional expenses are worth the price of protection, considering the significance of the consequences.

Final Thoughts

A wholesaler is simply a middleman operating in a free and open economy. Instead of selling lemonade, cars, or clothing, the real estate wholesaler sells their marketable equitable title to another interested buyer.  Potential investments are often found online using the tools of the digital real estate marketplace - Zillow and Redfin and a wide variety of foreclosure websites & podcasts.

A real estate wholesaling investment strategy is a smart way for a new wholesaler to learn the basics of real estate investing without the need for massive amounts of investment capital.  In addition, real estate wholesaling tends to be less risky when compared to typical flippers strategy because there are no fees for permits or potential construction delays, etc.

Like all investing, though, real estate investors must approach the wholesaling business with the right education, great prudence, transparency, and diligence to make sure their chosen actions do not violate Nebraska license law. A well-written contract is one of the ways to ensure you protect yourself from potential legal issues, but wholesalers should seek legal advice for those situations which are complex or unfamiliar.