Is Wholesaling Real Estate Legal In Washington DC?

Real estate wholesaling is a short-term investment strategy. Procedurally, wholesaling in Washington DC involves a few but necessary steps –

• Locate a property that meets your wholesale investment’s criteria. From Zillow to foreclosures, wholesalers can work with multi-unit commercial real estate, rental properties, or residential real estate options, including owner-occupied or investment properties. Motivated sellers, with a strong need to sell their property, provide excellent real estate wholesale opportunities in the real estate industry.
• Negotiate a purchase with the seller, which concludes with the execution of a real estate purchase agreement and the provision of an earnest money deposit given as your intent of good faith.
• Before closing and taking title to the property, you legally assign your “right to purchase” the property (under the terms delineated in the contract) to another end buyer using the legal instrument known as “an assignment of contract.” Wholesalers tend to work with a group of like-minded professionals, which is why it makes good business sense to build a curated buyers list as you engage in the wholesaling business.
• The sales price differentials are defined as the wholesaler’s earned profit or assignment fee.

Real estate wholesaling hinges on the contracted buyer’s ability to market and/or sell their “equitable interest,” awarded by the legal concept known as the Principle of Equitable Conversion. Note that the signed real estate contract does not grant the buyer title.

While this issue may seem like a distinction without a difference, this would be a foolhardy analysis. Wholesaling real estate requires that the investor be vigilant and careful. It begins by marketing/selling the only asset you have to sell - a legal claim to your equitable interest in the subject property denoted in the contract. 

Current Housing Market & Real Estate Industry Metrics For Washington DC

Venturing into the real estate realm requires a basic understanding of the market you plan to work in. The DC real estate market has seen some incredible gains, as did most of the nation since the pandemic began.

More specifically, the median sales price for all home types in Washington, DC, was $669,000 in December 2021, which was about a 5% increase year over year.

Even more astounding is the real estate metric in DC that denotes the sale-to-list price, which in December 2021 was 101%. This means that single-family homes in the DC vicinity sold above the listing price (or estimated market value), for the most part, for the entirety of 2021. 

• What Do You Need To Know About Wholesaling Houses In Washington DC?
• Is Wholesaling Real Estate Legal In Washington DC?
• What Are The Wholesaling Laws In Washington DC?
• Do You Need A License To Wholesale In Washington DC?
• Final Thoughts

What Do You Need To Know About Wholesaling Houses In Washington DC?

Washington DC is the nation’s capital and the only federally designated district in the United States. DC was known as the ‘District of Columbia’ until the 1870s when the federal government made the district a permanent home. 

Washington DC is recognized as a global political city as it is the seat of the United States federal government as well as many important internationally-based organizations.

The city is divided into quadrants, with a central confluence at the Capitol Building. It sits along the shores of the Potomac River and shares its borders with Virginia and Maryland.

Washington DC is a cultural mecca, with museums, landmarks, and significant historical places that attract millions of visitors each year. Although only approximately 68 square miles, there were nearly 719,000 residents (2020), making DC the 20^th most populous US city.

Washington, DC is also part of the larger Washington-Arlington-Alexandria (DC-VA-MD-WV) metro area with approximately 6.4 million residents. Many government employees commute to Washington, DC from surrounding communities across Virginia and Maryland borders. The Washington-Arlington-Alexandria metro area is the home of some of the most affluent and educated people.

Each spring, the Cherry Trees in Washington DC (a gift from Japan in 1912) bloom to life during the city’s Cherry Blossom Festival. This yearly tradition has grown to symbolize the beauty of the nation’s capital city.

The most prominent real estate trade & professional organizations in Washington, DC are shown below. Real estate agents in nearby Virginia and Maryland are often involved in real estate wholesale deals in the nation’s capital due to its proximity.  Many real estate professionals maintain dual real estate licenses, which allow them to work their real estate deals across jurisdictions in each local real estate business or market.

Each of the following associations is a member of one of the country’s largest professional organizations - The National Association of REALTORS (NAR) –

• The District of Columbia (DC) Association Of REALTORS (DCAR)

The DC Association of REALTORS is a nonprofit organization that is the voice for real estate in the nation’s capital. With more than 3,300 realtor members, DCAR seeks to protect & promote the interests of DCAR members and homeowners in Washington DC. DCAR also monitors important legislation related to real estate ownership and interests.

• The Greater Capital Area Association Of REALTORS (GCAAR)

With more than 10,000 members, the GCAAR is one of the largest professional real estate organizations in the country. The GCAAR was founded in 1998 and includes real estate brokers and agents who are from Washington DC and Montgomery County in Maryland.

• The Prince George’s County Association Of REALTORS (PGAR)

With more than 3,000 members, the PGCAR serves the real estate community throughout DC and Prince George County. The PGCAR offers resources to professionals and property owners and acts as the voice for real estate in the Prince George County & DC area.

The District Of Columbia Real Estate Commission (DCREC)

The District of Columbia Real Estate Commission is the agency in DC tasked with protecting unsuspecting consumers. Under the D.C. Code § 42-1701, the DCREC accomplishes this mission by administering the licenses of real estate agents and upholding real estate license law.

The DC Board of Real Estate, established in 1998, adopted Title 17 – Chapter 2600 to protect the public from unscrupulous real estate players. Title 17 – Chapter 26 (Business, Occupations, & Professionals Real Estate Licenses) is the governing legislation for real estate in DC.

The DC Real Estate Commission issues professional licenses with a two-year expiration. A real estate broker’s license expires on August 31 in odd years, while a real estate salesperson’s license expires on February 28 in odd years.

The following are the biennial real estate licenses issued by the District of Columbia Real Estate Commission. The law in DC defines them as follows –

• Real Estate Salesperson (Section 17-2699)

• Associate Real Estate Broker (Section 17-2699)

• Real Estate Broker (Section 17-2699 or 47-2853.161)

The following licensing requirements apply to all DC real estate licenses – (Section 17-2610)

Section 17-2610. LICENSE REQUIREMENTS APPLICABLE TO ALL APPLICANTS

2610.1 All applicants shall be at least 18 years of age.

2610.2 Applicants shall not have been convicted of an offense that bears directly on the fitness of the applicant to be licensed.

2610.3 Prior to receiving a license, all applicants shall complete the requirements for licensure specified within this chapter.

2610.4 All applicants shall be a high school graduate or holder of a high school equivalency certificate.

2610.5 All applicants shall be able to read, write, and understand the English language.

2610.6 All applicants shall not have had a real estate broker's, real estate salesperson's, or property manager's license denied for any reason other than failure to pass an examination or examinations, in the District or elsewhere, for one year prior to the date on which the application is filed with the Board.

2610.7 An applicant shall not file an application for renewal if the Board has suspended the applicant's license and the suspension is in effect on the date that the applicant files the renewal application with the Board.

2610.8 All applicants shall not have had a real estate broker, real estate salesperson, or property manager license revoked for three years prior to the date on which the application is filed with the Board.

2610.9 The Board may refuse to issue or renew a license in a name that is as follows:

(a) Misleading or would constitute false advertising;

(b) Implies a partnership, association, or corporation where one does not exist;

(c) Includes the name of a salesperson;

(d) Is in violation of the law;

(e) Is a name that has been used by any person whose license has been suspended;

(f) Includes the name of a person not otherwise licensed; or

(g) Is a name that is deceptively similar to that used by another licensee.

DC Real Estate License Reciprocity

Municipal Regulations – Section 17-2611 (License By Waiver Or Reciprocity)

Real Estate Salesperson License Reciprocity Guidelines

The following represents the criteria for real estate license reciprocity for Washington DC real estate agents or salespeople –

DC Real Estate Broker License Reciprocity Guidelines

The following represents the criteria for real estate license reciprocity for Washington DC real estate brokers –

Is Wholesaling Real Estate Legal In Washington DC?

Yes, the practice of wholesaling in Washington DC is legal if done within the confines of jurisdictional law. When done incorrectly, wholesaling real estate in DC can be potentially interpreted as unlawful, which is why there are persistent myths that continue to debate the legality of the practice.

One of the ways to ensure you remain on the right side of DC law is to educate yourself regarding exit strategies for DC real estate wholesalers. Being caught without a buyer and unable to complete the real estate deal to meet the initial contract terms is typically where real estate wholesalers may find themselves in legal hot water.

An Assignment Of Contract

An assignment contract is a legal instrument a wholesaler (i.e., the assignor) uses to transfer their rights & obligations (as a contracted purchaser) under one purchase & sale agreement to another buyer. The final buyer (also known as the assignee) is often a cash buyer.

Generally speaking, contracts are, by default, assignable. Unless the contract's language prohibits an assignment use or requires written approval from the seller. Codified DC law § 28:2–210 notes -

In addition, Chapter 28-2-210(2A) -

(2A) The creation, attachment, perfection, or enforcement of a security interest in the seller’s interest under a contract is not a transfer that materially changes the duty of or increases materially the burden or risk imposed on the buyer or impairs materially the buyer’s chance of obtaining return performance within the purview of subsection (2) unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the seller. Even in that event, the creation, attachment, perfection, and enforcement of the security interest remain effective, but (a) the seller is liable to the buyer for damages caused by the delegation to the extent that the damages could not reasonably be prevented by the buyer; and (b) a court having jurisdiction may grant other appropriate relief, including cancellation of the contract for sale or an injunction against enforcement of the security interest or consummation of the enforcement.

And Chapter 28-2-210(4) -

The Double Closing

The double close exit strategy offers real estate wholesalers an excellent way to avoid even the appearance of impropriety. This exit strategy includes two closings – typically occurring back-to-back, although not always.

• The first closing references the original contract, which transfers title to the wholesaler as the buyer.
• The second closing transfers ownership from the wholesaler to the new end buyer. These actions fall well within license law. 

A double closing offers real estate wholesalers a safer exit because there can be no question that the wholesaler was the owner/principal of the property when the title was transferred to the new buyer.  This protection has a cost (which many would argue is well worth it) as there are two sets of closing costs.  

Wholetailing

Wholetailing is a combination of real estate investing strategies that include the concepts of wholesaling and flipping.

When wholetailing, the investor actually purchases the property rather than assigning their right to buy. The wholetailer typically modifies/updates the property just enough to list the property for sale as an owner at an increased price, reflecting the property’s enhancements. Flippers seek to complete significant renovations.

Wholetailing also opens the pool of potential buyers because wholetailers can and often sell to retail home buyers.

What Are The Wholesaling Laws In Washington DC?

Real estate law, wholesaling or otherwise, exists for one fundamental reason - to ensure the public is protected from unethical and non-transparent practices.

DC law is quite clear about licensing requirements (Section 17-2624.1 - 2) –

The key to remaining within DC’s legal boundaries is to avoid the actions that would or could be interpreted as that which requires a real estate broker or sales agent’s license - 

Source

The District of Columbia’s Real Estate Commission offers three real estate sales-type (non-property management) licenses.

• A Real Estate Salesperson License (Section 17-2699) – whom a licensed broker must supervise
• An Associate Real Estate Broker License (Section 17-2699) – a licensed broker who chooses to work as a salesperson, not a principal broker of a brokerage.
• A Real Estate Broker License (Section 17-2699 or 47-2853.161)

However, Washington DC Law provides these licensee exemptions (Section 17-2624.3) -

2624.3 Persons acting in the following capacities are exempt from the licensing requirements of this chapter:

(a) Receivers, referees, administrators, executors, guardians, conservators, trustees, or other persons appointed or acting under the judgment or order of any court while acting in that capacity, or attorneys-at-law in the ordinary practice of their profession;

(b) Any person who, as an owner or lessor of real estate, performs any of the acts specified in this subsection, where the acts are performed in the regular course of, or incident to, the management of real estate, business and the investments therein owned by that person;

(c) Any trustee or auctioneer acting under authority of a power of sale in a mortgage, deed of trust, or similar instrument securing the payment of a bona fide debt;

(d) Except for title companies, any bank, trust company, building and loan or savings and loan association, or insurance company, having a fiduciary interest such as a receiver, referee, administrator, executor, guardian, conservator or trustee, when the bank, trust company, building and loan or savings and loan association, or insurance company is so engaged;

(e) Any person who is employed by a licensed real estate broker or property manager in a solely stenographic or clerical capacity and who does not perform, offer, agree, or attempt to perform, any of the activities licensed by the Board;

(f) Any officer or employee of the federal or District government while performing his or her official duties, or any person, or employee thereof, who is employed on a contractual or other basis, by the federal or District government to make appraisals of real estate for real property tax or other government purposes;

(g) Any person who, for a fee, commission, or other valuable consideration, identifies for another person, or provides any other information about, any rental unit available for rent; or

(h) Any qualifying nonprofit housing organization as defined by D.C. Official Code § 47-3505(a).

Do You Need A License To Wholesale In Washington DC?

No, a real estate wholesaler does not need a real estate license in Washington DC if their professional choices and wholesaling actions do not violate DC license law, which mandates a real estate license. 

In addition, consider these prudent ideas when real estate wholesaling in Washington, DC –

• Transparency is Key – the contract should delineate the terms clearly & concisely. 
• Act with Integrity & Honesty – it is best to manage the expectations of all parties involved, including a potential lender, title company, and seller. Providing relevant and important information allows these other parties to make educated decisions.
• Market and Sell your Right to Purchase the Property – DO NOT Sell/Market real property without a license.
• Consult a Real Estate Attorney - when committing to terms defined by legally enforceable documents that you are unsure about it is recommended to consult a real estate attorney to ensure you are not overstepping your legal bounds.

The closing, also known as settlement, can occur in many places, depending on the state and state laws. The closing is when paperwork is executed, and ownership (or title) is transferred to the new owner.

Final Thoughts

Wholesaling real estate in Washington, DC is NOT illegal if you abide by real estate law set forth by local legislators.

Many real estate investors – with and without experience, have generated significant profits by working strictly with wholesale properties. In some instances, real estate wholesalers offer motivated sellers a viable path to what might have been a problematic sale otherwise.

The bottom-line – wholesale real estate professionals must understand they have a legal right to sell their equitable interest as defined by a real estate contract of sale. They do not have the legal authority to sell real property in DC without meeting the licensing board's requirements.  Understanding this distinction will help avoid missteps that may lead to undesirable consequences.

*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