is wholesaling real estate legal in south carolina

Is Wholesaling Real Estate Legal In South Carolina? Updated For House Bill 4754

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South Carolina offers plenty of opportunities for local real estate investors to capitalize on, but many are unsure if wholesaling is legal in the state, especially with the recent announcement of House Bill 4754 passed earlier this year. This bill introduces some new laws and regulations to help govern the real estate sector, which begs the question: Is wholesaling real estate legal in South Carolina?

We've developed this guide to confirm that wholesaling real estate is indeed legal in South Carolina and to explain the specifics of South Carolina wholesale real estate laws. By understanding the nuances of wholesaling in South Carolina, investors can navigate the market confidently and take advantage of the numerous opportunities available. Let's dive in, starting with the following:

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*Before we begin our guide on whether wholesaling real estate in South Carolina 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!

South Carolina Wholesale Real Estate Laws

On May 29, 2024, the South Carolina General Assembly passed House Bill 4754 (H4754), which was signed into law, significantly impacting the state's real estate industry. This bill introduces Article 9 to Chapter 57, Title 40 of the South Carolina Code of Laws, updating the regulatory framework for real estate professionals. The primary aim of these updates is to enhance the oversight and protection of both buyers and sellers involved in real estate transactions.

For investors, H4754 brings several important changes. One of the key provisions in the South Carolina wholesaling law explicitly prohibits real estate brokerage firms and their subagents from engaging in, representing, or assisting others in the practice of South Carolina wholesaling, as defined by the new regulations. This prohibition is designed to curb unethical practices and ensure greater transparency and fairness in real estate dealings.

The bill also redefines "wholesaling," specifying that it involves having a contractual interest in purchasing residential real estate and marketing it for sale to another buyer before taking legal ownership. This definition clarifies that advertising or marketing real estate owned by another entity for compensation requires a brokerage license.

The changes to these South Carolina wholesale real estate laws mean that investors must adapt their strategies to comply with the updated legal landscape. While traditional wholesaling practices have shifted, alternative methods such as forming preexisting partnerships with buyers or using installment contracts can provide viable pathways for investment while ensuring compliance with the law. These strategies help investors navigate the evolving regulatory environment while protecting the interests of all parties involved in real estate transactions.

What Do You Need To Know About Wholesaling In South Carolina?

You need to know a few key points before considering wholesaling real estate in South Carolina.

First, wholesaling is legal, but you must follow certain statutes to comply with state law. They aren't complicated, but if you don't follow all of the South Carolina wholesale real estate laws (especially those introduced in House Bill 4754), you could face fines and penalties that could cause you big problems.

When you wholesale properties in South Carolina, you must also be transparent; this means disclosing your intentions as a wholesaler, much like a buyer who provides you with disclosures and contingency agreements required for both parties.

Realtor associations throughout South Carolina can be excellent places for wholesalers to make valuable contacts and gain critical knowledge about local market conditions. Consider contacting these larger regional associations when attempting to answer the question, "Is wholesaling real estate legal in South Carolina?":

State agencies can also provide an abundance of economic data. The South Carolina Department of Commerce is an excellent place to start. Here, you’ll get a bird's eye view of the state’s leading indicators.

Individual cities are also very helpful when you’re ready to drill down to a specific market.

Consider some key statistics about the state's five largest cities. According to Wikipedia, Charleston, Columbia, North Charleston, Mount Pleasant, and Rockfill are the five largest cities.

Read Also: The Pros & Cons Of Wholesaling Real Estate: An Investor's Guide

Wholesaling real estate in South Carolina is legal if investors abide by the rules and regulations set forth by the state’s specific laws governing real estate transactions. That said, South Carolina wholesale real estate laws are constantly changing, effectively allowing the South Carolina Real Estate Commission to regulate the real estate industry and protect the public's interest when involved in real estate transactions—case in point: the latest amendments to the South Carolina Code of Laws.

On May 29, 2024, House Bill 4754 (H4754) from the South Carolina General Assembly was signed into law. This bill adds Article 9 to Chapter 57, Title 40 of the South Carolina Code of Laws, updating regulatory measures for real estate professionals in the state.

On the surface, the latest amendments appear to prohibit the act of wholesaling. Per the amendment, particularly Section 40-57-350 in the South Carolina Code of Laws, it is explicitly stated that “a real estate brokerage firm and its subagents are prohibited from engaging in, representing others in, or assisting others in the practice of wholesaling.”

As a result, real estate investors across the state began to question whether or not they were still allowed to wholesale properties. To be clear, the answer is yes; it’s still legal to wholesale real estate South Carolina homeowners want to part ways with despite House Bill 4754 being signed into law. It is worth noting, however, that the method of acting as an intermediary between sellers and buyers has officially changed because of how the South Carolina Code of Laws defines wholesaling.

A key provision included in H4754 alters the definition of the term “wholesaling.” According to 40-57-30:

"Wholesaling" means having a contractual interest in purchasing residential real estate from a property owner, then marketing the property for sale to a different buyer prior to taking legal ownership of the property. Advertising or marketing real estate owned by another individual or entity with the expectation of compensation falls under the definition of "broker" and requires licensure. "Wholesaling" does not refer to the assigning or offering to assign a contractual right to purchase residential real estate.

There are a couple of important distinctions to make here. For starters, the act of assigning or offering to assign a contractual right to purchase residential real estate doesn’t fall under this definition. Therefore, it’s not the act of assignment that’s against the law; it’s the act of marketing the contract or property. Additionally, the new bill only prohibits wholesaling residential real estate, which is defined by the South Carolina Code of Laws as “real estate which is used primarily for personal, family, or household purposes and is improved by one to four dwelling units.” That means the traditional assignment of contract method is still a viable course of action for South Carolina wholesalers dealing in anything but residential property, like vacant land or commercial properties with more than four units.

How Can I Legally Wholesale Real Estate In South Carolina?

Instead of attempting to assign contracts, you can establish a legal partnership with buyers who are actively seeking properties before you start looking for homes to present them. This partnership isn't just a casual agreement; it's a formal contract where you, as the real estate investor, are specifically hired to find homes for the buyer to purchase. Think of it as offering a specialized service rather than selling the right to buy a property. This proactive approach ensures that you have a clear, legally binding relationship with your buyers in place before a subject property is located, making the entire process more efficient and compliant with South Carolina wholesale real estate laws.

Your role shifts to leveraging your market knowledge and expertise to find your partner's best deals. You’re not marketing the property itself; you’re promoting your service of finding these great deals. The buyer, in turn, pays you a fee for your efforts and expertise. This fee can be structured in various ways, such as a flat rate, a percentage of the property’s price, or whatever works best for both parties.

This approach has several benefits. First, it keeps you compliant with the new laws since you’re not engaging in activities that require a brokerage license. Second, it’s mutually beneficial: the buyer gets access to expertly vetted properties, and you get compensated for your skills and efforts. Plus, it’s versatile enough to apply to both residential and commercial real estate, giving you plenty of opportunities to profit.

Another practical strategy for navigating South Carolina's new real estate laws involves using a bond for title or installment contract. This method allows you to gain equitable interest in a property with minimal initial investment while maintaining compliance with state regulations.

Start by negotiating a bond for title or installment contract with the property owner. This agreement specifies that you'll make an initial installment payment—this can be a nominal amount. Once this payment is made, you obtain an equitable interest in the property. This interest grants you certain rights and the ability to control the property, even though the full purchase price is not yet paid. You agree to pay the remaining balance within a set timeframe, such as 30 days.

With equitable interest secured, you can then market the property to potential buyers. Your goal is to find an end buyer willing to pay more than the amount specified in your installment contract. Use your market expertise to showcase the property's value and attract interested buyers during the agreed timeframe.

You can proceed with a double closing when you've found a buyer; this involves two back-to-back transactions. First, you close the deal with the original owner, paying off the balance due on the installment contract. Immediately following this, you close the sale with the end buyer, who purchases the property at the higher price you've negotiated. This double closing allows you to profit from the difference between the two sale prices.

The installment method offers a way for investors to obtain a legal ownership interest in a property without having to front a significant amount of capital, subsequently allowing them to market to a new buyer and sell the property for a gain (overcoming the marketing without ownership issue highlighted by the new South Carolina wholesale real estate laws).

While the installment contract method allows investors to continue to act as intermediaries between buyers and sellers in return for a profit, it’s not without its complications. Issues can arise when dealing with properties that have existing mortgages, title discrepancies, encumbrances, unaddressed liens (such as unpaid taxes or mechanics liens), and more. All of these issues can introduce unnecessary obstacles that could ruin the deal. Therefore, while this method is possible, we recommend the first strategy we discussed: partnering with buyers to find properties for them. This method is straightforward and avoids the potential pitfalls of installment contracts, ensuring a smoother, more reliable transaction process for all parties involved. By forming preexisting partnerships with buyers, you can leverage your expertise without navigating the complexities of mortgages and title issues.

When all is said and done, the new amendments are designed to protect buyers and sellers from malicious activities, and we wholeheartedly support this goal. Buyer and seller protection is paramount. Consequently, we've developed the next evolution of “wholesaling” to ensure investors comply with the law while safeguarding homeowners. Investors can operate ethically and effectively within South Carolina's real estate market by utilizing strategies like forming preexisting partnerships and employing installment contracts.

*For in-depth training on real estate investing, Real Estate Skills offers extensive courses to get you ready to make your first investment! Attend our FREE training and gain insider knowledge, expert strategies, and essential skills to make the most of every real estate opportunity that comes your way!

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Do You Need A Real Estate License For Wholesaling In South Carolina?

You do not need a real estate license to wholesale real estate South Carolina homeowners want to sell, but it's good to know a few things about licensing requirements and wholesaling within the state's borders.

Most states use "for another" language in their licensing laws, meaning several activities require a license if you do them "for another."

However, South Carolina does not use this provision to set forth specific exemptions.

South Carolina real estate law states, in part:

"This chapter does not apply to…the sale, lease, or rental of real estate by an unlicensed owner of real estate who owns any interest in the real estate if the interest being sold, leased, or rented is identical to the owner's legal interest."

However, you must have an interest in the property before you sell it. Instead of a license, you can have a contract in place, giving you the right to purchase the property; this exempts you from licensing regulations.

A few states limit real estate activities, even if you are acting on a property in which you have an interest.

Maryland, Michigan, Minnesota, South Dakota, and Wisconsin limit the number and frequency of real estate transactions before you need a real estate license. For example, in Michigan, you're limited to four transactions annually before you must have a license.

You can't market a property without a license if you want to assign a contract. You can only market the rights to assign the contract. Understand this critical difference to stay on the right side of the law.

Many wholesalers get real estate licenses to avoid potential conflicts or constraints. The South Carolina Real Estate Commission website details the requirements to become a Realtor.

What Are The Wholesaling Laws In South Carolina?

Wholesaling real estate in South Carolina

The South Carolina Code of Laws covers real estate laws. The 10-member South Carolina Real Estate Commission, under the auspices of the Department of Labor, Licensing, and Regulation, oversees the pertinent codes.

You can find laws governing South Carolina Real Estate Licensing in Chapter 57 of Title 40 of the state's statutes. Similarly, laws governing real estate education are found in Chapter 105.

Read Also: How To Find Off-Market Properties In South Carolina: The 3 Best Sources

Real Estate Settlement Procedures Act (RESPA)

Wholesalers must also be aware of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2607 (2005). This act prohibits kickbacks and unearned fees, including any fee, kickback, or anything of value given to or received by anyone in any business incident to or part of a settlement service.

Violating RESPA can result in criminal penalties of up to $10,000 and one year in confinement. Private lawsuits can result in a civil penalty of up to three times the amount paid for the service.

According to the statute:

"Settlement services" includes any service provided in connection with a real estate settlement including, but not limited to, title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, services rendered by a real estate agent or a broker, the origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of loans), and the handling of the processing and closing of settlement. "Thing of value" includes any payment, advance, funds, loan, service, or other consideration."

Other Legal Issues

Is wholesaling legal in South Carolina? Yes, it is. However, when in doubt, it's always best to do additional research on the legalities of wholesaling or consult a real estate attorney to ensure you fully comply with all South Carolina real estate laws, especially if you are a new wholesaler.

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

Final Thoughts

Is wholesaling real estate legal in South Carolina? Yes, it is, as long as wholesalers strictly adhere to local state laws and avoid engaging in activities prohibited by the South Carolina Code of Laws. In particular, amendments made to Chapter 57, Title 40 have recently altered the way investors must proceed. Nonetheless, with the methods above, investors can still act as intermediaries between buyers and sellers in exchange for collecting a fee for their services.

Now that you know wholesaling real estate is legal in South Carolina, take the next step and enroll in Real Estate Skills' free training program. Our program is designed to help investors navigate the new South Carolina wholesale real estate laws and capitalize on all the market opportunities. Gain the expertise and confidence you need to succeed in this evolving landscape. Don't miss out—sign up today and start your journey towards real estate investing success!

*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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