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

Have you ever wondered, "Is wholesaling real estate legal in Tennessee?" If you're intrigued by the idea of entering the real estate market through wholesaling, you're not alone. Many aspiring investors are drawn to this method as a lower-risk, high-reward strategy. Due to high demand, we've developed this guide to dive into the legalities of real estate wholesaling in Tennessee, providing you with the clarity needed to make informed decisions. In doing so, we'll cover everything there is to know about legally wholesaling real estate in Tennessee, starting with the following:

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

*Before we begin our guide on whether wholesaling real estate is legal in Tennessee, 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 Is Real Estate Wholesaling?

Real estate wholesaling is a strategy where an individual, known as a wholesaler, contracts to purchase a property and then sells the contract to another buyer at a higher price before the deal closes. This approach allows the wholesaler to profit from the margin between the contracted and sale prices without ever owning the property. Wholesaling is particularly attractive as it requires minimal capital upfront and does not necessitate long-term property management.

There are three primary types of wholesaling strategies, each tailored for specific investment scenarios:

• Assignment Of Contract: This is the simplest form of wholesaling. The wholesaler signs a contract with a seller and then assigns that same contract to an end buyer for a fee. The original contract terms remain unchanged, and the wholesaler profits from the assignment fee.
• Double Closing: Also known as a "simultaneous closing," this strategy involves the wholesaler closing on the property and then reselling it to the end buyer in a second closing, often on the same day. This method requires temporary funding to complete the first purchase but keeps the initial buying price hidden from the second buyer.
• Wholetailing: A blend of wholesaling and retailing, wholetailing involves purchasing a property that requires minimal fixing, then quickly reselling it on the retail market at a slightly higher price for a profit

Learning how to wholesale real estate in Tennessee is an excellent strategy for new investors because it allows them to gain experience in real estate transactions with limited risk and lower financial barriers compared to other investment strategies. It provides a unique opportunity to understand market dynamics, build a network, and develop negotiation skills, all of which are crucial for anyone looking to advance in the real estate industry.

Read Also: How To Flip Houses In Tennessee: Step By Step

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

Before diving into real estate wholesaling in Tennessee, new investors need to familiarize themselves with the local laws governing this practice. Understanding state-specific regulations, such as contract assignments and disclosure requirements, is crucial. Additionally, investors should grasp the different wholesaling strategies available: assignment of contract, double closing, and wholetailing. Each has its own benefits and applicable scenarios depending on market conditions and investment goals.

Understanding market dynamics in Tennessee is also vital. Local market conditions, such as pricing trends, demand fluctuations, and the average time properties stay on the market, significantly impact the success of wholesaling activities.

According to data from RedFin, Tennessee presents an intriguing opportunity for wholesalers. The median sales price of homes stands at $378,900. Although the number of homes sold has decreased by 10.1% year over year, this can signal a cooling market where buyers might be more cautious, creating opportunities for wholesalers to offer attractive deals. Additionally, the average days on market has increased to 63 days, up six days from the previous year, and there is a three-month supply of homes available. These indicators suggest that sellers might be more open to negotiating terms, potentially leading to below-market price acquisitions for savvy wholesalers.

For those looking for a specific answer to the question, "Is wholesaling real estate legal in Tennessee?" local Realtor organizations can provide valuable insights and up-to-date information to help new investors make informed decisions and strategize effectively. Engaging with these organizations can be an excellent way to stay informed about ongoing changes and opportunities within the local market.

These are the state's larger trade and professional organizations dedicated to the real estate profession. Each of these associations is a member of the National Association of Realtors (NAR):

• The Tennessee Association of Realtors: With more than 31,000 members throughout Tennessee, the Tennessee Association of REALTORS provides its members with some of the most impressive benefits for real estate professionals. Members have access to networking opportunities, professional development/educational offerings, plus a robust legislative voice – at the state and federal levels.
• The Greater Nashville Realtors (GNR): Founded in 1891, the GNR serves real estate professionals in and around the greater Nashville area. The GNR offers members the tools required to become successful realtors, including professional development/education options, a legislative voice to speak at all levels of government, networking events/opportunities, and a mandatory Code of Ethics.
• Memphis Area Association of Realtors (MAAR): Recognized among the state’s largest real estate trade organizations, the MAAR has served the community with over 4,000 real estate professionals representing numerous specialties. Founded more than 100 years ago (1910), the MAAR maintains the area’s MLS, with more than 9,000 listings at any one time.
• Knoxville Area Association of Realtors (KAAR): Established in 1912, the KAAR serves more than 3,500 real estate professionals in all sectors, including residential, management, commercial properties, and appraisal services. It covers a twelve-county area and offers licensees numerous benefits, from professional development to a legal hotline.
• Bristol-TN-VA Association of Realtors (BTVAR): The BTVAR was established in the late 1940s to serve the real estate interests of the communities in Northeast Tennessee and Southwest Virginia.

Housed within the Tennessee Department of Commerce and Insurance is the Tennessee Real Estate Commission (TREC).

The state law setting forth the authority of the Real Estate Commission can be found in § 1260-01, from the Tennessee Secretary of State—see table of contents for § 1260-01 through 1260-21.

The Tennessee Real Estate Broker License Act of 1973 is the primary legislation in the state. It has been designed to protect consumers, homeowners, and the general public from irresponsible/unscrupulous individuals in the real estate industry. (Bus. Brokerage Centre v. Dixon, 874. W.2d 1, 3 (Tenn. 1994))

Is Wholesaling Real Estate Legal In Tennessee?

Yes, wholesaling real estate in Tennessee is legal, but it requires careful adherence to specific guidelines to ensure compliance with state laws. The key for wholesalers is to conduct their business without performing duties that would typically require a real estate license.

For effective and lawful wholesaling, it is crucial for individuals to gain a thorough understanding of the local real estate market, familiarize themselves with relevant laws, and know what actions could potentially necessitate a real estate license. This knowledge helps wholesalers navigate transactions smoothly and legally.

In practice, when a wholesaler signs a contract with a property owner, they acquire what is known as equitable ownership. Equitable ownership grants the wholesaler certain rights, including the ability to market the right to buy the home. More importantly, it provides the legal basis to assign or sell the contract to an end buyer. However, it's critical that during this process, the wholesaler avoids engaging in activities that are reserved for licensed real estate professionals, such as conducting property showings or advising on property values unless they hold a license.

The essence of wholesaling is more aligned with marketing strategies than the direct buying and selling of real property. Understanding the nuances of property valuations, adhering to established laws, and following customary real estate practices are vital to preventing legal issues and operating successfully within Tennessee’s regulatory framework. This approach not only helps maintain legal integrity but also enhances the wholesaler’s credibility and effectiveness in the market.

Considerations For Wholesaling Real Estate In Tennessee

Consider these when asking, "Is wholesaling real estate legal in Tennessee?":

• According to the Tennessee Realtors Association, "any residential or commercial purchase agreement is assignable unless otherwise stipulated within the contract. The purchase agreement issued by the Tennessee Realtors is assignable unless a contract provision has been added that speaks to the contrary." To be clear, if the assignee does not close, the original buyer must close and complete the transaction.

• Signing a contract without any intention to close sets up an illegal situation known as ‘fraud by inducement.’ Fraud in the inducement is also known as contract fraud. It happens when one contract party enters the contract using deceit to persuade the other to make decisions against their interests.

In other words, one party must have been proactively misled (meaning the other party was aware of their actions) about facts used to make relevant decisions. Fraud by Inducement negates one of the contract’s validity requirements (the meeting of the minds mandate).

From this perspective, wholesaling is considered legal, and it is important to remain on top of current and changing laws that impact the Tennessee real estate market.

What Are The Wholesaling Laws In Tennessee?

The Tennessee Code Title 62 – Professions, Businesses, and Trades – Chapter 13 includes the rules that oversee the activities of real estate licensees in Tennessee. Title 62 Chapter 13 is also known as the Tennessee Real Estate Broker License Act of 1973.

To legally wholesale real estate in Tennessee, wholesalers must ensure their actions do not require a real estate license, as noted by law.

Within the Tennessee Real Estate Broker License Act (TREBLA), under Tenn. Code § 62-13-102, a broker is defined as follows:

• (A) "Broker" means any person who, for a fee, commission, finders fee or any other valuable consideration or with the intent or expectation of receiving a fee, commission, finders fee or any other valuable consideration from another, solicits, negotiates or attempts to solicit or negotiate the listing, sale, purchase, exchange, lease or option to buy, sell, rent or exchange for any real estate or of the improvements on the real estate or any time-share interval as defined in the Tennessee Time-Share Act, compiled in title 66, chapter 32, part 1, collects rents or attempts to collect rents, auctions or offers to auction or who advertises or holds out as engaged in any of the foregoing.
• (B) "Broker" also includes any person employed by or on behalf of the owner or owners of lots or other parcels of real estate, at a salary, fee, commission or any other valuable consideration, to sell the real estate or any part of the real estate, in lots or parcels or other disposition of the real estate. It also includes any person who engages in the business of charging an advance fee or contracting for collection of a fee in connection with any contract whereby the person undertakes primarily to promote the sale of real estate either through its listing in a publication issued primarily for that purpose or for referral of information concerning the real estate to brokers, or both.

For clarification purposes, Tenn. Code § 62-13-102 also specifies the definition of real estate.

It is also essential to understand those exemptions related to Tennessee’s real estate laws in the section of the Tenn. Code § 62-13-104.

With regard to real estate wholesalers in Tennessee, the most relevant provision is that a real estate owner does NOT need a license when selling or renting their seller-owned property. (Refer to Section 62-13-104- a-1-a)

The penalties for violating Tennessee’s license law are noted in Tenn. Code § 62-13-110.

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

In Tennessee, you do not need a real estate license to wholesale properties as long as you avoid actions that typically require licensing, such as conducting property showings or advising on real estate transactions. However, many investors choose to obtain their licenses to sidestep potentially complex scenarios and leverage the benefits that come with being a licensed agent. Having a real estate license allows access to MLS listings, networks, and other resources that can enhance business operations and market insight, providing a significant advantage in the real estate industry.

Read Also: Tennessee Real Estate Schools Online: Wholesaling, Flipping & Licensing

Recent Tennessee Legislation Which May Impact Real Estate Wholesalers

According to the Tennessee REALTORS legal counsel, a 2021 ruling from the Knoxville Court of Appeals (Toryiana Lousia SOTA et al. v. Presidential Properties, LLC, et al.) may significantly impact real estate wholesaling rules in Tennessee moving forward.

In this legal case, an individual had entered into contracts on properties and advertised/offered these properties for sale on his website with a written disclaimer indicating they were not a licensed real estate agent, but before they had closed and taken legal title to the property. Both the trial and appellate court concluded that the activity violated the RE Broker’s License Act in Tennessee. Effectively, the appeals court in Knoxville held that selling property that the seller does not own in exchange for ‘valuable consideration’ requires a real estate broker’s license in the state of Tennessee.

The main lesson here is to avoid publicly advertising property that you do not own unless you have a real estate license and the seller’s consent.

Until this issue is ironed out in Tennessee legal circles, real estate wholesalers should keep a watchful eye on all relevant news that may lead to a revision to Tennessee law that impacts the methods and legality of Tennessee real estate wholesaling.

Illinois recently passed legislation that requires a real estate license for anyone who wholesales (real estate or land contracts) more than one property over twelve months.

Is Co-Wholesaling Real Estate Legal In Tennessee?

Yes, co-wholesaling is legal in Tennessee. Co-wholesaling is legal in Tennessee because it involves two or more wholesalers collaborating to bring together a buyer and a seller, sharing responsibilities and profits without requiring a real estate license, as long as they adhere to state-specific regulations. This partnership allows co-wholesalers to expand their network and resources, effectively enhancing their ability to facilitate transactions within the legal framework of the state.

Real estate wholesalers walk a fine (moving) line, which makes it tricky to avoid the actions required by those who hold a real estate license; this is especially true if you neglect to stay current with license law in Tennessee. Consider these helpful suggestions:

• Become familiar with Tennessee real estate law.
• Use industry-acceptable disclosures and forms.

Is Reverse Wholesaling Real Estate Legal In Tennessee?

Yes, reverse wholesaling is legal in Tennessee. This strategy involves identifying potential buyers before finding a property to match their needs, effectively reversing the traditional wholesaling process. The legality stems from the fact that wholesalers are not required to hold a real estate license as long as they strictly negotiate contracts without engaging in activities reserved for licensed professionals. This method allows wholesalers to minimize risk and streamline transactions by ensuring a buyer is in place before committing to a property.

Tennessee Wholesale Contract

Real estate wholesalers in Tennessee should ensure that the specifics and provisions of their wholesale contracts are as unambiguous as possible to avoid issues throughout the real estate investment. Because the contract of sale in a wholesale transaction centrally controls the wholesale deal, it is a critical component of the investor’s wholesaling strategy, especially when it comes time to close. Consider including these relevant items:

• The Parties involved
• A Description of the Property (including the address and legal description)
• The Purchase Price & Financial Terms
• Earnest Money Requirements
• Fixtures/Property Included In Purchase
• Property Condition (a general description at the time of sale)
• Inspection Contingencies, if applicable
• Lead paint Disclosure
• The Type of Deed (clarifies how the title is passed)
• The Parties Responsible for Closing Costs, etc.

Real estate wholesalers are encouraged to utilize (and customize) forms approved for use by the state's largest trade organization. To mitigate risk, a wholesaler is advised to seek legal advice from an experienced real estate attorney who specializes in legally managing wholesale properties and real estate transactions.

The Assignment Of Contract

An assignment contract is a legal document that can transfer both the rights and the obligations of the contracted purchaser (who is now known as the assignor) under one contract of sale to another buyer (who is now known as the assignee). The assignee (or the final or end buyer) is very often a cash buyer who completes the purchase and compensates the assignor/wholesaler with an assignment fee for managing the wholesale transaction.

Generally speaking, a contract or sale/purchase agreement is assignable – by default- unless the contract's language expressly disallows an assignment or the contract requires approval from the seller. According to the TN REALTORS, purchase agreements for any real estate deals – including wholesale transactions, are assignable unless otherwise detailed within the contract.

Remember, if the assignee (or end buyer) – does not close, the wholesaler (who was the original buyer) must complete the transaction.

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

Final Thoughts

The answer to "Is wholesaling real estate legal in Tennessee?" is a definitive yes, provided that investors comply with state laws, especially those that prohibit unlicensed individuals from performing activities that require a real estate agent's license. Now that you understand the legal landscape of wholesaling in Tennessee, consider enrolling in Real Estate Skills' free training. This program is designed to help you capitalize on today's real estate opportunities, equipping you with the necessary skills and knowledge to thrive in the industry.

*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