Is Wholesaling Real Estate Legal In Ohio?

Real estate wholesalers employ an investment strategy in which they enter a purchase contract as a buyer but then seek to find another buyer – an end buyer to which they can then assign their rights (known as equitable interest) provided under the original contract with the use of an assignment of contract. Because successful real estate investors who use this strategy may have several properties working simultaneously, they are referred to as 'wholesalers.'

Real estate wholesaling differs from the more well-known real estate investment strategy of house-flipping. The difference lies in the fact that many real estate wholesalers can turn a profit without ever taking title to the property, which effectively reduces potential risks (and significant liabilities) created by the tasks required to fix up a property – even if the renovations are somewhat insignificant.

Often real estate wholesaling professionals will enter a contract that is assignable (as defined by the contract's written terms) and then pursue a strategy that includes either rezoning or adding other value-added enhancements. With an increased value, this newly rezoned property can then be assigned to a new end buyer and sold for a profit.

In addition, a real estate wholesale deal can generate profits without the need to lay out any significant cash (other than the earnest money deposit).  For new investors, the art of real estate wholesaling is a smart way to meet network with new and experienced real estate investors as they negotiate their first deal and to ultimately establish a cash buyers list.

But to wholesale properties legally in Ohio, it is important to understand the local customs, the laws, and the nuances of the real estate markets across the state. These are clarified in the narrative that follows:

• What Do You Need To Know About Wholesaling In Ohio?
• Is Wholesaling Real Estate Legal In Ohio?
• What Are The Wholesaling Laws In Ohio?
• Do You Need A Real Estate License To Wholesale In Ohio?
• How Do I Legally Wholesale In Ohio?
• Is Co-Wholesaling Real Estate Legal In Ohio?
• Is Reverse Wholesaling Real Estate Legal In Ohio?
• Ohio Wholesale Real Estate Contract
• Final Thoughts

What Do You Need To Know About Wholesaling In Ohio?

The state of Ohio became the 17^th state in 1803. Ohio's nickname as the Buckeye State is an ode to the buckeye trees in Ohio. The population in Ohio is about 11,700,000. 

Source: Macro Trends

The five Ohio cities with the highest populations include:

Source: Ohio Demographics

The following list represents the largest trade and/or professional organizations in the state of Ohio for real estate professionals. Each of these real estate-related associations is a member organization of the National Association of REALTORS (NAR) –

• The Ohio Association of REALTORS (OAR)

Founded in 1910, the Ohio Association of REALTORS now holds the distinction of being the largest professional trade organization in Ohio, with more than 35,000 members strong. The OAR was established around the same time that the NAR introduced its Code of Ethics.  The Ohio Association of REALTORS offers more than 100 educational programs and lobbies for much real estate-related legislation on many state and federal fronts.

●      The Columbus REALTORS (CR)

The Columbus REALTORS association was founded in 1908 and now serves approximately 8,000 real estate professionals in the greater Columbus area. The Columbus REALTORS offers a variety of professional development and resources for real estate licensee members. Additionally, this professional organization offers designations, networking events, and continuing education options, to name a few.

• The Cincinnati Area Board of REALTORS (CABR)

The CABR was established and incorporated in the 19^th Century – in 1890. The Cincinnati REALTORS Board seeks to advocate and be a voice in promoting the interests of professional REALTORS and shaping the local real estate industry. The CABR is also a resource for those who wish to relocate to the greater Cincinnati vicinity.

• The Akron Cleveland Association of REALTORS (ACAR)

The ACAR is a professional organization that was founded in 1912 and merged with the Cleveland area Boards about 100 years later. The Akron Cleveland Association of REALTORS serves the Akron area real estate industry by providing government advocacy, professional standards, and efficiency of operational systems for members.

• The Northwest Ohio REALTORS Association (NWO)

The Northwest Ohio REALTORS Association was formed when two local real estate boards merged in 2019. The NWO has more than 1,750 members that serve the real estate needs in the greater Toledo metro area that includes the counties of Mercer, Fulton, Henry, Hancock, Lucas, Wood, and Williams, among others.

DIvision of Real Estate and Professional Licensing

The ODREPL - the Ohio Division of Real Estate and Professional Licensing is contained within the state's Department of Commerce. This agency is responsible for administering and maintaining real estate licenses as well as each real estate brokerage, for more than 45,000 professionals across the Buckeye state. 

The Division of Real Estate & Professional Licensing carries out the rules enacted by the Ohio Real Estate Commission. Among its responsibilities are: 

• Managing the applications and renewals of all real estate licenses.
• Assessing the quality of available continuing education coursework.
• Ensuring that licensees have met the minimum educational requirements, among others.

The Ohio Real Estate Commission (OREC)

The OREC – the Ohio Real Estate Commission's powers & duties are delineated in Ohio Revised Code 4735.03. The Real Estate Commission is responsible for a variety of real estate-related activities that include the creation of ethics, the management of real estate education/research, the update of licensees regarding changes to Ohio/federal law, and the management of the real estate recovery fund (Ohio Revised Code 4735.12), among others.

Is Wholesaling Real Estate Legal In Ohio?

The qualified answer is yes.

However, the final determinant is contingent upon the specific language in the purchase agreement or contract of sale. The primary goal of a real estate wholesaler is to avoid any actions that have been defined as those of a real estate broker or salesperson – a real estate professional for which a license is required.

A real estate wholesaler must determine if the contract of sale explicitly prohibits an assignment – BEFORE signing the legally enforceable document. A purchase agreement that allows for an assignment of the contract's rights and obligations - may be assigned to another or end buyer without the expressed consent of the seller.

However, it is essential to note that any assignment of contract that materially changes the delineated responsibilities of any party to the contract will effectively invalidate the assignment.   (UCC § 2-210 (2) – Assignment of Rights)

In Ohio, the bottom line is that real estate wholesalers must avoid, at every step, the following:

• Choosing to behave in a manner that is defined by Ohio law as that of a licensed real estate broker. (Section 4735.01(B)) According to Ohio Revised Code Section 4735.02, no individual (or identified legal entity) shall act as a licensed real estate professional unless first being duly licensed.
• Marketing the property, they have a right to buy as if they were a property owner or licensed real estate professional. As a reminder, in Ohio, a real estate broker must be licensed to – advertise or hold themselves out in the real estate business – which includes selling, buying, leasing, exchanging, or renting.

A real estate wholesaler in Ohio must remember that they are selling their rights (and obligations) as delineated by the legal contract of sale they have executed, not the real property. It is illegal for Ohio real estate wholesalers to act for another individual – for compensation, rather than acting for themselves, as a seller of a viable asset – their legal interest in the purchase agreement. 

Ohio rules regarding real estate are very clear. Real estate can only be marketed/advertised for sale with the expressed knowledge and consent of the property owner. According to Ohio Law & Administrative rules Section 4735.16 (5), a real estate licensee who advertises in a manner that is not according to Ohio Law will find their advertisement acts as prima-facie evidence (sufficient to establish fact until disproved) according to Ohio Law 4735.18 (A, 17,21).

More specifically, the real estate wholesaler may find they have violated license law in Ohio if:

• They have advertised a property without the owner or owner's agent's consent.
• They have published advertising (of any kind) that was inaccurate/misleading or misrepresented anything about the property.

The sanctions for noncompliance are delineated in Section 4735.181:

Source: Ohio Laws & Administrative Rules Section 4735.181

What Are The Wholesaling Laws In Ohio?

There are no specific rules or laws on the books in Ohio that reference wholesaling specifically. The reality is that real estate wholesalers who wish to operate legally in Ohio state must simply avoid acting in any manner that would be required for a real estate broker to be licensed.

In Ohio, a real estate broker is defined as follows:

Source: Ohio Laws & Administrative Rules Section 4735.01 (A)

Section 4735.01(H) denotes that any one – person, or any other acceptable business entity (i.e., LLC, LLP, or Corporation, among others) – who for some form of compensation, acts (or offers to act) in any action that is within Ohio's defined real estate broker – is for all intents and purposes under this chapter acting in a manner that is defined as a real estate broker or salesperson. 

In Ohio, a real estate salesperson is defined as any individual that is associated with a licensed Ohio real estate broker to act in a transaction – for compensation or otherwise. (Section 4735.01(B))

For the purposes of this Ohio law, the definition of real estate includes the following:

• Leaseholds - every land interest or estate, whether freehold or non-freehold and,
• All improvements that are located on the land; however, it does not include the rights associated with cemetery interments. (Section 4735.01(9, B))

However, it is as important to understand what actions do NOT require a li a real estate license in Ohio if a real estate wholesaler is to remain the legal limits set forth by Ohio law:

• Any person, etc., who is acting with respect to their own real estate owned does not need a real estate license. (Section 4735.01 (H, a))
• Anyone acting as a trustee, receiver, executor, or guardian, etc., with a bona fide fiduciary obligation. (Section 4735.01 (H, b)) Bona Fide is defined as an action made with good faith and is not intended to circumvent Ohio's license law. (Section 4735.01 (Z))
• A public officer during their official responsibilities. (Section 4735.01 (H, c))
• A licensed lawyer during their professional responsibilities. (Section 4735.01 (H, d))
• A business broker negotiating the sale of business assets that do NOT include real estate interests. (Section 4735.01 (H, e))
• The sale of mobile homes/manufactured homes if the transaction does not include any action that impacts an interest in real estate. (Section 4735.01 (H, f)) – in addition, Manufactured Homes (Section 3781.06) or Mobile Homes (Section 4501.01).
• Any individual who engages in a commercial real estate transaction as defined by Section 4735.022. (Section 4735.01 (H, g))
• Gas & oil land professionals during their official responsibilities – if the actions do not include the sale/purchase of fee simple absolute interest in real estate, etc. (Section 435.01 (H, h & I))

Ohio law (Section 4735.02) denotes when a license is required, as follows:

• No person (or any acceptable business entity) may act as a real estate broker or salesperson with first being appropriately licensed.
• Real estate licenses are prohibited from practicing law or providing legal advice. A licensed real estate attorney is the only professional who is permitted to provide legal advice on contract law in Ohio.

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

The legality of wholesaling in Ohio is a function of avoiding the following. Ohio law states that an individual may only LEGALLY advertise real property for sale under two specific conditions:

1. The property owner may advertise their own property for sale. 
2. A licensed real estate agent in Ohio may advertise a property for sale for which they have a valid listing agreement with the property owner, the owner's expressed permission, and they are acting within Ohio license law.

The qualifications for earning a real estate broker's license in Ohio are delineated in Ohio Law & Administrative Rules Section 4735.07. The qualifications for earning a real estate salesperson's license in Ohio are found in Section 4735.09.

Other than these two above-noted instances, it is ILLEGAL to market a property for sale in the state of Ohio, which is why Ohio real estate wholesalers must market their rights to an executed contract, not the property itself – to remain within Ohio's legal boundaries. 

How Do I Legally Wholesale In Ohio?

Real estate wholesaling is legal in Ohio – explicitly without needing a real estate license if the wholesaler follows these suggestions:

• Always act as a principal to the transaction – this means that a wholesaler must act as the seller, the buyer, or the individual with an executed assignment to the sales agreement.
• As the property owner (which includes primary or rental properties), you may market the property. Without ownership, a real estate wholesaler cannot market the property. However, a real estate wholesaler can market that contract of sale or assign the contract.

Note: there is an essential difference between marketing/selling the rights/obligations of the contract compared to the marketing/selling of real property.

However, it is illegal in the state of Ohio:

• To make an offer on a home for sale that requires the bidder to find someone else to ultimately buy the property.
• To advertise real property for sale that is not owned by the advertiser or being marketed by an Ohio real estate licensee.
• To attempt to be compensated for simply referring another to buy a home from a wholesaler.

It is helpful for Ohio real estate wholesalers to become knowledgeable about the state's laws, but the state has no formal requirements for real estate wholesalers other than choosing to avoid violating Ohio license law. 

Many investors who wish to succeed in Ohio as real estate wholesalers find that it is prudent to earn their real estate license as this improves their understanding of Ohio's laws and opens access to many important resources. 

Is Co-Wholesaling Real Estate Legal In Ohio?

Co-wholesaling is a type of real estate investment strategy where a real estate wholesaler teams up with another to finish a real estate investment transaction – together, as a team.  

Co-wholesaling resembles wholesaling and is also legally permitted if real estate wholesalers remain within the legal boundaries set forth by Ohio law. As noted above, Ohio real estate wholesalers must vigilantly avoid acting in a manner that can be perceived as someone required to hold a real estate license in Ohio.

To ensure a real estate wholesaler stays within Ohio's legal requirements, it is important to:

• Become familiar with real estate laws in Ohio, including required disclosures and disclaimers.
• Be sure to use industry-sanctioned forms and documents.
• Use a joint venture agreement – a legal document, formal partnership agreement that helps to clarify each wholesaler's obligations in writing.

Is Reverse Wholesaling Real Estate Legal In Ohio?

Reverse wholesaling is also a legitimate and legal real estate investment strategy if the contract allows for assignments, and they work together to stay within the legal limits established by Ohio lawmakers. 

The fundamental difference between reverse wholesaling & traditional wholesaling is that, as its name implies, reverse wholesaling simply reverses the order in which the transaction's steps are accomplished. So, a reverse wholesaler first finds the final end buyer and then seeks to find a property that will meet the end buyer's bottom-line requirements.

There are a few viable exit strategies for reverse real estate wholesalers. They are as follows:

• Execute a Buy/Sell Strategy or Wholetailing
• Execute a Double Close – a double closing requires the wholesaler to close first on the purchase and then sell the property on the same day to the end buyer. It is noted that the double closing requires the payment of closing costs, whereas the buy/sell strategy does not.

The reverse wholesaling strategy generates a variety of benefits for Ohio real estate wholesalers, as follows:

• It allows for the facilitation and building of long-term relationships with private money lenders, ultimately streamlining the funding portion of the wholesale transaction.
• Builds long-term relationships with cash buyers and other investors with a serious interest in purchasing real estate in Ohio.

Ohio Wholesale Real Estate Contract

A contract of sale is a legal document that delineates the purchase or sale's term, depending on the party who is signing.  A contract legally defines each party's right to buy/sell real property to another individual. A contract of sale is a complex document that requires specific information that includes - 

• The legal description and address of the real property in question.
• The amount of earnest money provided when the contract is signed by the buyer.
• An inventory of personal items that may be included in the property's sale.
• The financial terms, including the price, down payment, and mortgage amount.
• Specific contingency dates relative to inspections and mortgage approvals, among others.

Download Free Wholesale Real Estate Contracts Here (PDF)

Source: Development.ohio.gov 

Source: Judicial Title

From a general perspective, a contract of sale is considered assignable, that is, unless the purchase agreement's language specifically prohibits the use of an assignment or requires the approval of the seller.

Related:  Wholesale Real Estate Contract: The (Ultimate Guide)

An assignment of contract is another legal document that has the power to transfer the rights & the obligations of a purchaser (who is also called the assignor) under a purchase agreement to another buyer (who is also called the assignee). Very often, the final buyer is a cash buyer who then compensates the real estate wholesaler for their work in managing the real estate transaction.

Ohio law is silent about working with assignments of contracts in real estate.

Final Thoughts

Real estate investing has the potential of being quite lucrative, but there are no guarantees. Therefore, to achieve success, a real estate wholesaler must understand the local laws and how a real estate assignment of contract works.

Investors must remain transparent when wholesaling real estate if they are to stay with the legal confines of Ohio law. A well-written contract of sale is the first step to meeting this investment objective.