Is Wholesaling Real Estate Legal In New Jersey?

The real estate wholesaling business simply refers to an investment technique.  A real estate wholesaler or investor enters into a purchase agreement (or contract of sale) that establishes for the buyer/wholesaler certain rights/obligations under the Doctrine of Equitable Interest or Equitable Conversion, but then chooses to sell these established rights to someone else, an end buyer, before the sale closes.

The difference between the original sale price for the investment property and the higher price paid by another buyer, often a cash buyer, is the earned assignment fee.

In other words, the buyer takes ‘equitable title’ or becomes the ‘equitable owner’ when the contract is fully executed. The time referenced in this regard is defined as the time between these two homebuying events -

1. The execution of a contract of sale for real property, when earnest money is given pending a closing.
2. The delivery of the deed and marketable title to the buyer upon full payment as detailed in the contract.

This defined time is when the ownership of the property hits a bit of a gray-legal area- the seller has possession (and use) of the residence or rental property, while the buyer has a contractual right to own the property, given the completion of the required performance detailed in the contract.

At this time, real property is said to have dual ownership – legal ownership and equitable ownership divvied up between the seller and the buyer, set forth by legal statute.

The wholesaler’s ultimate goal is to enter into a purchase agreement for a home that is priced below market value. An off-priced home (which can be found a number of ways, including Zillow and Redfin, can become available when sellers are financially challenged or have another reason for their motivation to sell quickly - perhaps they are facing foreclosure. 

The real estate wholesaling investment strategy is a great way to learn to evaluate potential homes while building a network of lenders and an end buyers list for future deals.  It also offers these important benefits -

• Minimal capital expenditures to complete the wholesale transaction
• Risk reduction compared to flippers – i.e., permits, and latent defects, etc.
• Wholesale deals close faster than fix and flip deals, simply by the nature of the investment model

The narrative that follows details the relevant issues that will be helpful to new investors wholesaling in New Jersey.

• What Do You Need To Know About Wholesaling Houses In New Jersey?
• Is Wholesaling Real Estate Legal In New Jersey?
• What Are The Wholesaling Laws In New Jersey?
• Do You Need A License For Wholesaling In New Jersey?
• Are Real Estate Contracts Assignable In NJ?
• Final Thoughts

What Do You Need To Know About Wholesaling Houses In New Jersey?

New Jersey, also known as the Garden State, is located along the middle-Atlantic coastal region – with about 125 miles of coastline. It is bordered to the east by New York City (and the Atlantic Ocean), to the north by New York state, to the west by Pennsylvania, and to the south by Delaware.

The overall land area of New Jersey is more than 8.7 million square miles – making it the fourth-smallest state. At its widest point, New Jersey is 70 miles, and its length is 166 miles – from Cape May at its most southern point to the intersection of New Jersey, Pennsylvania, and New York.

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Most of the population in New Jersey is included in one of the country’s two largest metropolitan areas – Northern & Central New Jersey are considered part of the greater New York City metro area. To the south, central and southern New Jersey is located across the Delaware River from the City of Brotherly Love – Philadelphia. The population of New Jersey is –

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New Jersey is home to the most millionaires per capita and the second wealthiest state with regard to median household income – the income point where half the residents in the state earn more, & the other half earn less. New Jersey’s five largest cities include –

For those who understand the tri-state area in the Northeastern U.S., the largest cities in New Jersey (Newark & Jersey City) are located only a few miles (as the crow flies) from the heart of Manhattan and are essentially considered bedroom communities for NYC commuters. The only city that makes the list of the top five most populated cities in NJ is in the southern part of the state -in Lakewood Township.

There are fourteen real estate associations in New Jersey. These are the larger associations that are also members of the National Association of REALTORS (NAR) –

• New Jersey REALTORS (NJR)

The NJR (once known as the NJ Association of REALTORS) is a real estate trade organization that represents more than 55,000 members across the Garden State. There are more than 14 individual local real estate boards organized under the NJR umbrella. NJR is a powerful voice in the protection of property rights and real estate professionals.

• North Central Jersey Association of REALTORS (NCJAR)

With multiple offices in north-central New Jersey, the NCJAR is the largest local REALTOR association, with a membership that nears 15,000 real estate professionals serving these counties – Essex, Morris, Sussex, Union, Passaic, and Bergen. In addition, the North Central Jersey Association of REALTORS is considered to be among the top five largest of any local real estate association in the nation.

• Greater Bergen REALTORS (GBR)

This real estate trade organization operates as a nonprofit professional organization that serves two counties along the northeastern part of New Jersey – across the Hudson River to New York City. More than 7,500 members belong to the GBR, on a mission to be the leading real estate advocate and voice for real estate in northern New Jersey.

• NEXUS Association of REALTORS (NAR)

The NAR serves Camden, Ocean, and Burlington counties in central New Jersey. The NAR seeks to promote ethical and professional activities through its advocacy efforts and through its members and the services they offer. The Nexus Association of REALTORS is a professional organization with a membership that exceeds 5,000 REALTORS.

• Metro Centre Association of REALTORS (MCAR)

Founded in 1933, the Metro Centre Association of REALTORS serves the real estate interests of property owners and professionals in and around the Middlesex County jurisdiction.

• CORE Association of REALTORS (CAR)

The Core Association of REALTORS is a real estate professional organization that is the voice of advocacy and resource for professionals and consumers in the Somerset, Mercer, and Hunterdon Counties. The CAR maintains two offices – one in Branchburg and the other in the state’s capital of Trenton.

The New Jersey Department of Banking & Insurance houses the New Jersey Real Estate Commission (NJREC), a division established in the 1920s to administer and enforce the real estate licensing laws in New Jersey – known officially as NJSA Title 45, Chapter 15 – New Jersey Real Estate License Act.

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Note, both buyers and sellers of real property in the Garden State typically hire an attorney to protect their interests, given the magnitude and consequences of these financial decisions. But New Jersey does NOT require a real estate attorney to close on a house or other property.

Is Wholesaling Real Estate Legal In New Jersey?

Yes, wholesaling real estate is legal in New Jersey.

Wholesaling real estate in New Jersey can be legally accomplished if the real estate wholesaler vigilantly ensures their actions and choices do not violate real estate license law. Note, that according to real estate law in New Jersey (RS 45:15-1), a license is required as follows -

With the real estate market on fire for the past year or so, wholesaling of real estate has become a hotly debated topic. Critics argue that the practice of wholesaling essentially creates a real estate transaction that requires a license. However, this adversarial position overlooks the very real and legal ability to sell one’s interests in a contract – even if the contract represents the sale of real property. [Refer to the Doctrine of Equitable Conversion]

When analyzed under a legal microscope, real estate wholesaling is widely considered legitimate unless laws or rules have been established in that particular jurisdiction that prohibits wholesaling, which is not the case in New Jersey.

But note, and this is critical - real estate wholesalers in New Jersey must take the necessary steps to ensure they remain current with New Jersey’s license law and to not act in a way that can be construed to require a real estate license.

PRO TIP: Real estate wholesalers are legally able to market/sell their ‘right to buy’ real property, but they cannot market the property itself.

What Are The Wholesaling Laws In New Jersey?

There are no specific laws in New Jersey with regard to wholesaling real estate. However, real estate licenses and activities are administered and enforced by  NJSA Title 45, Chapter 15 – New Jersey Real Estate License Act. 

First, note that, according to 45§15-2,

Any single act, transaction or sale shall constitute engaging in business within the meaning of this article.

 In other words, a violation of NJ license law can occur with a single action and does not need to be viewed as a pattern of engagement.

And, as noted in New Jersey Statute 45§15-1 -

Referenced in this statute in New Jersey Revised Statute (NJRS) 45§15-3, which is the state’s real estate broker definition -

However, it is also important to know who is not required to be licensed in NJ, according to state law.  – which primarily includes the owners of real property, lawyers, receiverships, executors or administrators, etc. NJRS 45§15-4 -

Note that New Jersey’s real estate and license laws are quite strict, with potential violations delineated by NJRS 45:15-17, as follows –

The violations noted by the law are extensive, although nothing explicitly addresses wholesaling (NJRS 45:15-17 (a – t). The first violation’s penalty is $5,000, with a second violation of no more than $10,000, a third violation has this consequence - 

Finally, in accordance with New Jersey’s common law, buyers are protected against sellers who fail to disclose relevant facts or pertinent information about the property for sale.

Sellers are required to disclose known defects to a buyer, and in this case, the assignee. Deliberate concealment of a “material defects” constitutes grounds for the recission of the contract, plus potential monetary damages for the purchaser. Seller liability also includes remaining silent on known facts. [See Correa v. Maggiore, 196 N.J. Super. 273, 281 (Super. Ct. App. Div. 1984)]

As such, you are required to disclose known, latent, & material defects, if there are any, to the buyer or assignee. These mandatory disclosures should be put in writing (the contract will do) so the buyer understands the condition of the home, and you have written proof of the required disclosure. 

Do You Need A License For Wholesaling In New Jersey?

No; however, real estate wholesalers in New Jersey must ensure their actions do not include those actions defined by New Jersey law that require a real estate license.

Note that real estate investors who employ a wholesaling strategy in New Jersey often choose to become a licensed real estate agent or real estate broker, or, at the very least, establish professional relationships with other real estate licensees & professionals in the area in which they work, while building a list of viable potential cash buyers.

FYI - New Jersey doesn’t offer real estate licensing reciprocity with any other state.

In addition, real estate wholesalers in New Jersey would benefit from following this advice –

• Stay transparent – make sure the contract of sale is clear.
• Manage the seller’s expectations by being honest.
• Don’t market/sell the property – a wholesaler must only market/sell their right to purchase real property.
• Consider consulting an attorney to ensure you have maximum legal protection.

Real estate wholesalers can complete the deal using one of these primary exit strategies –

• An assignment of contract – typically has the lowest closing costs
• The execution of the Double Closing strategy
• Wholetailing - closing on the property, then listing it on the multiple listing service (MLS)

Read Also: How To Find Off-Market Properties In New Jersey: The 4 Best Sources

Are Real Estate Contracts Assignable In NJ?

The purchase agreement or contract of sale is legally enforceable and considered the real estate transaction’s most important document.  In New Jersey, real estate contracts of sale provided by Realtors are NOT assignable –unless one obtains the seller’s consent. However, with the seller’s consent, real estate wholesaling is completely legal in New Jersey.

As a real estate investor, it’s important to become familiar with the New Jersey Association of REALTORS Standard Form of Real Estate Contract.  On page 2 of this standard contract used by real estate professionals in the Garden State is Item 14 – The No Assignment Clause.

A purchase agreement is considered a bilateral contract.  This essentially means that each party (i.e., the seller or the buyer) must meet performance requirements as written in the contract.

FREE Downloadable Wholesale Real Estate Contracts (Click Here)

At a minimum, a real estate contract of sale should include this information –

• The sale price of the real property.
• The terms of the buyer’s credit – i.e., cash?
• The legal description for the real property.
• The anticipated date of possession.
• The Warranties of title for the transaction.
• Property tax provisions, among others.

Final Thoughts

Real estate investing as a wholesale strategy is a great technique if the wholesaler stays within the state’s legal boundaries. 

However, like any real estate investment, a real estate wholesaler must be diligent in protecting their interests without violating New Jersey’s real estate licensing laws. 

A well-defined purchase agreement, coupled with legal advice, offers the most effective defense that allows real estate wholesalers to avoid legal issues if you plan to wholesale real estate.

*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