Is Wholesaling Real Estate Legal In North Dakota?Dec 04, 2021
Real estate wholesaling has been splashed across investing headlines as the latest real estate investment strategy. But despite this media-induced hoopla, most seasoned investors know that this investment strategy is anything but new.
What has made real estate wholesaling a ‘hot topic’ is the fact that, as an investment strategy, wholesaling is an excellent fit for the placement of the current real estate cycle.
Understanding the cyclical nature of real estate investing helps real estate investors understand which strategy to deploy based on current market metrics and expectations. The real estate market is inexorably intertwined with the overall economy and is often impacted by domestic and global events – like Covid.
There are four phases to the real estate market’s cycle –
The current market, despite the pandemic, is currently located in Phase 2 – the Expansion Phase, the part of the cycle where prices peak – at the point where there is a balance between the demand and the supply of real estate.
Real Estate Wholesaling Defined
A real estate wholesaler follows the lead of any other middleman earning a living in the economy. A wholesaler seeks to buy a wholesale property that is being sold below its market value, likely due to motivated property owners who may be facing an illness or financial problems, like a foreclosure. The wholesaler’s objective is:
- To find another buyer
- Enter into a purchase contract
- Provide an earnest money deposit – and then
- Assign the new end buyer (usually from a list of potential buyers) the right to purchase the investment property using an assignment of contract. The difference is considered the wholesalers' gross profit or assignment fee
The legal principle that allows a wholesaler to assign their right to purchase is known as the Doctrine of Equitable Conversion. This legal concept that differentiates legal & equitable ownership is as follows -
Equitable Conversion assigns the ‘equitable title’ of the subject property to the buyer while, at the same time, the legal title remains with the homeowners. Note, however, that a wholesaler can ONLY sell their legal rights outlined in an executed contract signed by both parties. This is critically different from marketing or selling the property.
New real estate investors find that real estate wholesaling offers a smart way to enter the marketplace without a need for a whole lot of capital. To boot, real estate wholesaling provides investors with the opportunity to learn the nuances in the market while building a buyers list and lender network.
Ready to learn how to wholesale real estate in North Dakota?
- What Do You Need To Know About Wholesaling Houses In North Dakota?
- Is Wholesaling Real Estate Legal In North Dakota?
- What Are The Wholesaling Laws In North Dakota?
- Do You Need A License To Wholesale Real Estate In North Dakota?
- Final Thoughts
What Do You Need To Know About Wholesaling Houses In North Dakota?
North Dakota, located in the upper Midwest, became the 39th state to enter the union in 1889. The state is named for the Indigenous Dakota & Lakota Sioux communities. North Dakota, also known as the Peace Garden State, covers nearly 71,000 square miles, making it the nineteenth largest state in terms of area and about twice the size of Ohio and a bit smaller than Michigan.
It is also considered the most rural of the US states, with more than 90% of its land used as farmlands.
North Dakota borders Minnesota, Montana, and South Dakota and two Canadian provinces to its north. North Dakota’s highest elevation is White Butte at 3,506 feet above sea level, located in the state's southwestern corner.
The state’s lowest point is located at its border with Manitoba, at the Red River of the North.
The state’s total population rose more than 15% between the 2010 and 2020 census, to 779,094 – the nation’s fourth-least populous state. The fever-pitch growth during this time was the region’s highest growth rate. To offer some perspective, it is noted that Florida has 21+ million residents, South Carolina has 5+ million residents, and New York City has more than 10 times the population with 8.8+ million residents.
The five largest cities in North Dakota are –
Fargo, located along the state’s border with Minnesota, is its largest city. Bismarck is North Dakota’s state capital and second-largest city, located along the Missouri River.
The State Capitol Building located in the state’s capital, Bismarck, is the tallest in North Dakota.
The following includes a list of the larger real estate professional organizations in North Dakota. Each of these associations is a member of the National Association of REALTORS (NAR) –
Established more than 75 years ago, the NDAR is the voice for real estate in North Dakota. Through support, resources, and advocacy platforms, the North Dakota Association of REALTORS’ mission is to create the best possible for real estate professionals and property owners today and in the future.
Founded in the early 1920s, the Fargo Moorhead Area Association of REALTORS serves professional real estate agents, brokers, and property owners in the greater Fargo Moorhead (and surrounding) community. The FMAA serves approximately 1,000 members and partners with more than 250 businesses.
Located in Dickinson, North Dakota, the Badlands Board of REALTORS seeks to serve real estate professionals and consumers in Western North Dakota and beyond. The BBR is a member of the NAR and the North Dakota Association of REALTORS.
The GFAAR was developed to meet the professional needs of real estate agents and brokers in and around the Greater Grand Fork area. The GFAAR serves communities in North Dakota as well as nearby Minnesota, situated to the east in a statistical area known as the Grand Cities.
Located in the ninth-largest city in North Dakota, the JBOR has long served Jamestown, Valley City, and its surrounding neighbors. The Jamestown Board of REALTORS’s primary mission is to further the interests of all property owners by supporting successful real estate practices.
The North Dakota Real Estate Commission (NDREC)
The North Dakota REC is the state agency tasked with the responsibility of managing North Dakota’s real estate agents, license processes, real estate brokerages, and activities. The commissions’ function and history are noted in Section 70-01-01-01 -1 -
Its authority is referenced in ND State Real Estate Commission 43-23-02 –
North Dakota, real estate law is clear as to when a real estate license is required –
For this North Dakota statute, real estate is defined as follows (43-23-06.1-8) –
The North Dakota Real Estate Commission grants the following real estate licenses, which expire on the last day of each year. According to 43-23-06.1-7 – a licensee is defined as follows -
A Real Estate Salesperson (43-23-06.1-11)
Or an Associate Real Estate Broker or (Designated) Real Estate Broker, with an associate broker working under the supervision of the brokerage’s designated real estate broker (43-23-06.1-9) –
In addition, North Dakota law requires salespersons to work under the supervision of a designated broker (43-23-12(2)) -
Further, North Dakota law indicates that these circumstances are considered exemptions from state law (43-23-07) –
North Dakota’s Rules Regarding Nonresident Brokers & Reciprocity (43-23-10)
More specifically, North Dakota has written reciprocity agreements with –
North Dakota’s Current Real Estate Market
According to Zillow.com, North Dakota’s median home value in 2021 was $255,418, which translates to a 7.4% appreciation rate over the past year. The following graph represents the appreciation of homes in the state for the past decade –
In addition, the map below reveals the appreciation rates in the state, with the darker green areas representing the strongest growth since 2000.
The average home price for a new home in 2021 has now reached beyond $400,000, according to Statista.com, which makes home prices in North Dakota some of the most affordable in the nation.
Exit Strategies For Real Estate Wholesalers in North Dakota
Wholesalers can have several viable exit strategies when working in North Dakota.
- A wholesaler can execute Buy & Resell Exit Investment Strategy
- A wholesaler can implement Buy & Assign Exit Investment Strategy
- They can execute a Double Closing - a closing technique in which the real estate wholesaler is a part of multiple closings for the same property – usually on the same day and often back-to-back. However, the double close ensures a wholesaler is the owner of the property when selling! But note, double closing tends to be more expensive due to the closing costs associated with each transaction.
Is Wholesaling Real Estate Legal In North Dakota?
The qualified answer is yes; wholesaling real estate in North Dakota is considered a legal real estate investment strategy. However, the final determinant of this strategy’s legality will be contingent upon the specific language written in the real estate contract.
A real estate wholesaler should confirm that the real estate contract or purchase agreement does not specifically prohibit the use of an assignment of contract – BEFORE signing the legally enforceable document. It is noted that a contract may be modified to require that any assignments be approved by the seller – in writing!
A real estate wholesaler's fundamental objective is to avoid the choice of behaviors/actions that North Dakota legislatures have defined as that which requires a North Dakota real estate license. These are discussed in the next section.
What Are The Wholesaling Laws In North Dakota?
North Dakota’s real estate license law is found in NDCC Chapter 43-23 – The State Real Estate Commission. According to 43-23-06.1-9, these actions in North Dakota require a real estate license to comply with license law -
a. Lists, offers, attempts, or agrees to list real estate or any interest in that real estate, or any improvements affixed on that real estate for sale, exchange, or lease.
b. Sells, exchanges, purchases, or leases real estate or any interest in that real estate, or any improvements affixed on that real estate.
c. Offers to sell, exchange, purchase, or lease real estate or any interest in that real estate, or any improvements affixed on that real estate.
d. Negotiates or offers, attempts, or agrees to negotiate the sale, exchange, purchase, or leasing of real estate or any interest in that real estate, or any improvements affixed on that real estate.
e. Buys, sells, offers to buy or sell, or otherwise deals in options on real estate or any interest in that real estate, or any improvements on that real estate.
f. Who is a licensee under this chapter and performs any of the acts set out in this subsection while acting in the licensee's own behalf.
g. Advertises or holds out as being engaged in the business of buying, selling, exchanging, or leasing of real estate or any interest in that real estate, or any improvements on that real estate.
h. Assists or directs in the procuring of prospects, calculated to result in the sale, exchange, or leasing of real estate or any interest in that real estate, or any improvements on that real estate.
But note, that a real estate license is not required in these incidences [See 43-23-07] -
Violations Of North Dakota License Law
According to NDCC 43-23-17 –
The NDCC 26.1-20-5 notes that all title evidence be examined by a licensed attorney –
North Dakota Is An Attorney Close State
In addition, it is noted that North Dakota is one of the state’s considered an attorney close state, which means that buyers in a purchase and sale transaction are required to hire a real estate attorney (and obtain legal advice) to handle the closing.
As such, North Dakota wholesalers will be required to use a licensed attorney when working in North Dakota. And while this adds to the cost of doing business, it also ensures the real estate wholesaler stays within the legal limits. It will also provide a wholesaler with a great source of essential information.
Do You Need A License To Wholesale Real Estate In North Dakota?
Real estate wholesalers in North Dakota are not required to hold a state-issued license if their actions do not rise to the level that requires a license dictated by state law.
As a reminder, a wholesaler in North Dakota is awarded equitable rights through the execution of a legally enforceable contract of sale. These equitable rights (or equitable interest) is the asset a wholesaler can lawfully sell, which differs from selling the actual real property.
Wholesalers will benefit from becoming familiar with North Dakota’s real estate and license laws to help them understand which certain actions violate legal lines. But there are no laws or formal procedures required to wholesale real estate in North Dakota – if the wholesaler remains within the state’s legal boundaries.
Many investors wholesaling real estate in North Dakota may decide to earn their real estate license as it may help understand the legal boundaries and offer great business, market, and legal insights.
Real estate wholesaling has become a popular, hotly debated investment strategy in today’s current real estate environment. This is because with proper education, the wholesaling technique is a great fit for the current real estate cycle and offers newer investors a viable entry into the real estate market – without the need for significant capital investments or long-term investment goals.
Investors must approach real estate wholesaling, like any investment strategy, must be implemented with great prudence and transparency if the wholesale deal is to be managed within North Dakota state law.
A well-defined real estate contract, transparency, the provision of required disclosures is the route that offers the best assurance that the wholesaler is not violating North Dakota’s license law.
*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