is wholesaling real estate legal in pennsylvania

Is Wholesaling Real Estate Legal In Pennsylvania? A 2024 Guide For Investors

real estate investing strategies real estate markets wholesale real estate Apr 23, 2024

Real estate wholesaling is an investment technique in which a real estate investor enters into a legally enforceable contract to buy a home but then sells their right to purchase the property per the terms of the agreement and a legal concept known as the Doctrine of Equitable Conversion.

It is worth noting, however, that not everyone is familiar with the wholesale process. As a result, some naturally doubt the exit strategy, and many ask the same question: Is wholesaling real estate legal in Pennsylvania?

To clarify the process and answer some people's understandable questions, we have developed this guide to teach you everything there is to know about the legalities of wholesaling in the Keystone State. In answering the question, "Is wholesaling real estate in Pennsylvania legal," we'll cover the following:

*Before we begin our guide on whether wholesaling real estate in Pennsylvania is legal, we invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)!

Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, step-by-step guide for beginners to start wholesaling real estate!

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

According to the U.S. Census Bureau, Pennsylvania has approximately 12,961,683 residents, making it the fifth most populous state in the United States. The high population density necessitates the presence of several large trade and professional organizations. These entities play a crucial role in overseeing and regulating the local housing market, ensuring it meets the diverse needs of this sizable population. As a result, anyone asking, "Is wholesaling real estate legal in Pennsylvania?" should first inquire with one of the many organizations responsible for governing real estate practices.

Here's a list of the largest organizations dedicated to overseeing Pennsylvania's real estate market, all of which are members of the National Association of Realtors (N.A.R.):

  • The Pennsylvania Association of Realtors (P.A.R.): The P.A.R., located in Lemoyne, PA, is among the state’s largest real estate trade organizations. It has more than 35,000 members representing the residential and commercial real estate markets in the Keystone State. Pennsylvania Association of Realtors members subscribe to the N.A.R.’s Code of Ethics and Standards of Practice.
  • The Greater Philadelphia Association of Realtors (GPAR): The Greater Philadelphia Association of Realtors was established more than a century ago, in 1908, and has grown to be among the most influential trade organizations in the greater Philadelphia real market. Since its inception as the Philadelphia Real Estate Brokers Association, the GPAR has advocated for professionals and all real estate owners.
  • The Realtors Association of Metropolitan Pittsburgh (RAMP): RAMP was initially developed in 1911 as the Pittsburgh Real Estate Board, a decade before state licensing was required for real estate professionals and brokerages. With an initial membership of 30, RAMP now represents more than 2,500 real estate professionals in western Pennsylvania's residential and commercial markets, offering advocacy, education, professional ethics, and industry events.
  • The Greater Lehigh Valley Realtors Association (GLVRA): The Greater Lehigh Valley REALTORS Association is a professional real estate association representing real estate interests and professionals in the Lehigh, Carbon, and Northampton Counties. GLVRA was founded when two former associations merged in 1996 and now has more than 2,500 professional real estate members.
  • The Greater Erie Board of Realtors, Inc. (GEBR): Chartered nearly 100 years ago (1924) as the Real Estate Board of Erie, the GEBR serves the real estate community in the Erie County area (including Crawford County without Titusville) with more than 500 members.

The primary state agency responsible for administering and monitoring real estate licensing and activity in the state is the Real Estate Commission housed in the Pennsylvania Department of State’s (D.O.S.) Professional Licensing Division. The (D.O.S.) is responsible for the administration and maintenance in Pennsylvania. Consequently, the state's real estate commission is an excellent source of information for answering the question, "Is wholesaling real estate legal in Pennsylvania."

Ultimately, Pennsylvania’s real estate law (Pennsylvania Code § 35—State Real Estate Commission) covers a wide range of essential legal issues we'll discuss below. Therefore, if you ever need to cross-reference anything or double-check that wholesaling actions are legal, go straight to the source.

Yes, wholesaling real estate is legal in Pennsylvania as long as wholesalers adhere to specific guidelines. Wholesalers must avoid performing any actions that require a real estate license, such as representing buyers or sellers or marketing properties without ownership. Instead, they use the doctrine of equitable conversion, which allows them to secure a contractual right to purchase a property. This right can then legally be transferred to another buyer through an assignment of contract. Wholesalers must maintain transparency about their roles and intentions and ensure that all agreements clearly permit such an assignment to avoid legal complications. The laws that govern these matters are found in the Pennsylvania Real Estate Licensing and Registration Act.

So, is wholesaling real estate legal in Pennsylvania? Yes, this very real and viable loophole will allow real estate wholesalers to operate legally in the Commonwealth of Pennsylvania. To be clear, those with a license won't find as many obstacles as those without. Those without a license won't be able to do anything that requires a license. For example, non-licensed wholesalers can't market or sell a property; they can only transfer their right to buy a property if the contract they enter into states as much.

The key to staying within the legal limits (except Philadelphia) is assigning the rights/obligations obtained by the purchase contract terms to another end buyer—without overstepping the boundaries of the actions and behaviors of what would require a real estate license in Pennsylvania. According to § 35.201, anyone without a license would be overstepping their legal boundaries if:

  • They negotiate or help someone find and obtain real estate for purchasing, leasing, or acquiring interest.
  • They negotiate "the listing, sale, purchase, exchange, lease, timeshare and similarly designated interests, financing or option for real estate."
  • They manage real estate.
  • They call themselves a real estate consultant, counselor, or house finders.
  • They promote the sale, exchange, purchase, or rental of real estate.
  • They run a comparative market analysis.

For more on this statute, please refer to the Pennsylvania Code, specifically § 35.201 in Subchapter B: General Provisions.

To wholesale real estate within the law in Pennsylvania, you must have a complete understanding of what defines the role of a licensed broker. Wholesaling in Pennsylvania can be quite profitable to investors who understand how to stay within the bounds of Pennsylvania law.

Additionally, § 35.202 (Exclusion from Act) denotes those not required to comply with Pennsylvania and license laws.

What Are The Wholesaling Laws In Pennsylvania?

Conceptually, the term real estate wholesaling does not have a precise or consistent legal definition, and all too often, one’s perception of wholesaling has stark differences, depending on who you ask. The ambiguity is a primary reason many are left asking the same question: Is wholesaling real estate legal in Pennsylvania?

To legally wholesale properties in Pennsylvania, an investor must avoid acting in a manner that would meet the Pennsylvania definition of a real estate broker, as described above and in § 35.201.

There is no specific legislation in Pennsylvania governing wholesalers except within Philadelphia's legal boundaries. Below, we'll explain what makes Philadelphia unique.

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Philadelphia’s Rules For Real Estate Wholesaling

According to the City of Philadelphia:

"You need a Residential Property Wholesaler License if your business is to buy residential properties solely for resale or to get owners to sell their residential properties so that you or someone else can buy and resell them. This includes multi-family and mixed-use buildings."

According to § 9-5201, the exact definition of a Residential Property Wholesaler is as follows:

"Any person or entity who is in the business of purchasing or soliciting for purchase Residential Properties, not to use as their residence. A Residential Property Wholesaler shall not include any City or other public official or employee who acts as a Residential Property Wholesaler in the course of their official duties; any person or entity who is in the business of purchasing residential properties and substantially improving those properties for the purpose of resale; or the following licensed professionals when acting within the scope of their licensed practice area: (1) attorneys licensed to practice law in Pennsylvania, and (2) persons licensed by the Pennsylvania Real Estate Commission under the Pennsylvania Real Estate Licensing and Registration Act."

However, a real estate wholesaler’s license is not required under these scenarios:

  • A public employee/official that is performing official business.
  • A Pennsylvania licensed attorney or a licensed real estate professional acting within the confines of the scope of the P.A. license.
  • A buyer who has the intention of renting the property.
  • An investor who purchases a property with the intention of making improvements to increase its value.

The city provides an online real estate wholesaler application, plus requires the following disclosure requirements (outlined in Philadelphia § 9-5205) to remain compliant with the Residential Property Wholesaler License Limits & Conditions:

  • Homeowners must sign the disclosure as evidence they were given the disclosure as required.
  • Wholesalers are required to disclose to homeowners (at least three days before the offer is present) how to access resources to help determine the property’s fair market value, including the city’s Property Assessment Office’s website and any private tools that may be suggested by the Administrative Agency. Disclaimers are not permitted.
  • Wholesalers are required to inform homeowners of their option to
    • Seek help by employing a licensed real estate agent
    • Seek legal counsel
    • Seek any other options deemed appropriate

Additionally, the wholesaler must provide evidence (through a Certificate of Insurance) for general liability, with a $1,000,000 minimum for each occurrence. Also, this includes multi-family & mixed-use buildings.

The consequences and penalties of violating this Philadelphia real estate wholesaling law are significant.

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

You do not need a real estate license to wholesale real estate in Pennsylvania. However, Philadelphia has its own exceptions.

Real estate wholesalers can successfully navigate a wholesale real estate deal in Pennsylvania without a license; however, many wholesalers recognize there may be advantages to obtaining a license in the Keystone State. You are encouraged to seek legal advice (from a licensed attorney in a Pennsylvania law firm) to help you weigh the benefits and costs.

The primary state agency responsible for administering and monitoring real estate licensing and activity in the state is the Real Estate Commission housed in the Pennsylvania Department of State’s (D.O.S.) Professional Licensing Division. The (D.O.S.) is responsible for the administration and maintenance of Pennsylvania's working real estate professionals.

In addition, Pennsylvania offers reciprocity for licensed real estate brokers and salespeople in these states:

  • Arkansas
  • Louisiana
  • New York
  • Georgia
  • Maryland
  • Massachusetts

This means active real estate license holders in any of the above states may obtain a Pennsylvania real estate license within 3-6 weeks without the need for additional course requirements or examinations.

license to wholesale in pennsylvania

Is Co-Wholesaling Real Estate Legal In Pennsylvania?

Co-wholesaling refers to real estate wholesaling as a team effort and is, therefore, legal if the participant investors stay within Pennsylvania’s legal limits.

The co-wholesaling transaction can be a one-time deal or be one of many in an ongoing joint venture through an executed joint venture agreement. A joint venture partner must be vetted to ensure you proactively protect your legal interests until the wholesale deal closes.

A co-wholesaling partnership is often a great way to close a real estate wholesale deal quickly because the existing relationship usually involves two talents: a wholesaler who finds the property and another with a list of qualified end buyers.

Co-wholesaling is a legal practice if appropriately executed (or outside the City of Philadelphia).

Is Reverse Wholesaling Real Estate Legal In Pennsylvania?

The concept of reverse wholesaling is also a legal real estate strategy if, like co-wholesaling:

  • Investors do not perform or act in a way that would require a real estate license
  • The reverse wholesaling is outside Philadelphia city limits.

The primary difference between traditional and reverse wholesaling is the order in which the transaction steps are typically reversed. So instead of finding a property and looking for a buyer who may want to buy it, a real estate wholesaler first has an end buyer and then looks for a property that meets their needs.

reverse wholesaling real estate legal Pennsylvania

There are several viable exit strategies for Pennsylvania’s reverse real estate wholesalers:

  • They can execute a buy-&-sell exit strategy
  • They can execute a double closing, which refers to the process where the wholesaler buys and sells the same property on the same day—maybe even back-to-back closings. But remember, a double close can be more expensive, as two closings mean two sets of closing fees.

The reverse wholesaling strategy generates a variety of benefits for real estate wholesalers in Pennsylvania (not in Philly) from Lancaster to Harrisburg to Pittsburgh, as follows:

  • It allows for the facilitation and building of long-term relationships with financial partners, 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 Pennsylvania.

Read Also: How To Wholesale Real Estate In Pennsylvania: Step-By-Step

Pennsylvania Wholesale Real Estate Contract

A legal real estate contract is a binding agreement that delineates the terms each party has agreed to perform (see bilateral contract). In a real estate transaction, the seller and the buyer would execute a legally enforceable contract in which each is required to perform according to the agreed-upon terms outlined in writing between the parties.

The contract and its specific language are the documents that provide a real estate wholesaler with the right to sell/assign their rights to another individual. A contract of sale is effective when both parties have signed (known as a fully executed contract), acknowledging their acceptance of the terms defined in the agreement. Here's an example of a residential purchase agreement for Pennsylvania.

Although beyond the scope of this narrative, it is important to note that there may be additional transfer taxes due in Pennsylvania with regard to the assignment of contracts. The Department of Revenue issued a Realty Transfer Tax Bulletin (2008-01), which aligned with the Rule in (61 PA.Code 91.170). The implication is that a wholesaler may be subject to double taxation when a contract is assigned to a business entity (before closing). In reality, both the assignment and the deed are considered two separate and distinct transactions.

The other important document used to complete a real estate wholesale transaction is the Assignment Contract, which legally transfers the assignor’s rights/obligations (i.e., the real estate wholesaler) to another buyer—the Assignee. The Pennsylvania Statutes Title 13 Commercial Code § 2210 (b) - Assignment of Rights notes:

all rights of seller/buyer can be assigned except in these instances:

  • The assignment would materially change the duty of the other party
  • The assignment would increase the risk/burden imposed on the other party
  • The assignment would materially change the duty of other party
  • The assignment would materially impair the chance of earning the expected performance

wholesale real estate contract pdf

Final Thoughts

Understanding the question, "Is wholesaling real estate legal in Pennsylvania?" is crucial for anyone looking to enter the field. The answer is yes, but it comes with stipulations: wholesalers must not perform any activities that require a real estate license, such as acting as a broker. By adhering to legal requirements such as obtaining an equitable interest in a property and appropriately assigning contracts, you can ensure your wholesaling practices are above board.

Now that you know wholesaling real estate is legal in Pennsylvania, it's an opportune moment to learn the detailed methodologies that will enable you to succeed in this venture. You can confidently pursue wholesaling as a profitable real estate strategy with legal clarity and the right knowledge.

*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

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