Is Wholesaling Real Estate Legal In Wisconsin?May 04, 2021
Real estate wholesaling is often an individual's first entry into real estate investing. This strategy offers a viable option to sell a property without having to purchase the property first. Real estate wholesalers in Wisconsin search for properties priced below market value (which may be available for a host of reasons), and they choose to flip the real estate for a profit without the need to renovate or the need for large sums of money.
But is wholesaling real estate legal in Wisconsin?
The short answer is yes – the strategy of wholesaling real estate deals in Wisconsin is legal if the transaction complies with Wisconsin law.
Real estate wholesaling is often referred to as flipping paper for a profit. Real estate wholesalers acquire the rights to buy a home – by signing a contract with a seller. A real estate wholesaler, who holds equitable title, can then sell/assign (for a profit, hopefully) their contractual rights to another buyer – who is often called the end buyer.
Source – Reuters Practical Law
A real estate wholesaler is the principal buyer in a real estate transaction who chooses to sell their interest in an executed contract to another buyer.
- What Do You Need To Know About Wholesaling In Wisconsin?
- Is Wholesaling Real Estate Legal In Wisconsin?
- What Are The Wholesaling Laws In Wisconsin?
- Do You Need A Real Estate License To Wholesale In Wisconsin?
- Is Co-Wholesaling Real Estate Legal In Wisconsin?
- Is Reverse Wholesaling Real Estate Legal In Wisconsin?
- Wisconsin Wholesale Real Estate Contract
- Final Thoughts
What Do You Need To Know About Wholesaling In Wisconsin?
Wisconsin is the United States' 23rd largest state, in terms of overall area, with more than 65,000,000 square miles of land. Wisconsin borders two great lakes – Lake Superior to its North and Lake Michigan to its east.
More than 5.8 million people lived in Wisconsin in 2020.
Source – Statista.com
Wisconsin's laws regarding real estate (Wisconsin Stat. § 452 – Real Estate Practice) cover a wide range of essential legal issues that include these areas –
- Home Ownership
- Home Remodeling & Construction
- Property Sales
- Licensing (Wisconsin Stat. § 452.12)
- Disclosure Requirements.
- Advertising (Wisconsin Stat. 452.136)
- Leasing and Rentals
- Adverse Possession
- Homestead Protections, to name a few.
The Wisconsin State Law Library, which was developed to serve Wisconsin's Supreme Court and the state, offers online access to the relevant agencies and legislation for real estate matters in Wisconsin.
The five largest cities in Wisconsin are as follows –
The primary state agency responsible for administering and monitoring real estate licensing and activity in the state is the Department of Safety and Professional Services.
- The State of Wisconsin's Department of Safety & Professional Services (DSPS)
The DSPS in Wisconsin is tasked with the responsibility of regulating and overseeing real estate activities and practices in the Badger State.
These are the larger trade and professional organizations in the state dedicated to the real estate profession. Each of these associations is a member of the National Association of REALTORS (NAR) –
- The Wisconsin REALTORS Association (WRA)
Headquartered in Madison, Wisconsin, the Wisconsin REALTORS WRA is recognized as Wisconsin's leading authority on real estate law and real estate license law. Founded more than 100 years ago, the WRA is one of Wisconsin's professional trade organizations that offers comprehensive real estate and licensing services, including continuing education and a legal hotline (by phone or email) for their members.
- The Greater Milwaukee Association of REALTORS (GMAR)
Founded in the early 1890s, the GMAR has more than 3,800 real estate professionals as members. The Greater Milwaukee Association of REALTORS focuses its efforts on supporting real estate professionals through its MLS services, its enforcement of the Code of Ethics, and advocacy in government affairs. The GMAR serves the southeastern portion of Wisconsin, including Milwaukee, Racine County, and Kenosha.
- The REALTORS Association of Northwestern Wisconsin (RANWW)
The RANWW is headquartered in Eau Claire and holds the distinction of serving the largest geographic region in Wisconsin. Originally established in 1921, RANWW covers the areas of Eau Claire, Dunn, Pepin, Sawyer, Chippewa, Washburn, and Rusk counties, plus a number of areas in Bayfield County.
- The REALTORS Association of Northeast Wisconsin (RANW)
The RANW is headquartered in Appleton and serves the greater northeastern region of Wisconsin and serves the areas of Green Bay, Fond du Luc, Oshkosh, and Fox Valley, among others. The RANW has a membership that exceeds 2,500 real estate professionals.
- The Western Wisconsin REALTORS Association (WWRA)
The WWRA is located in Hudson, Wisconsin, and was established to serve members of the real estate profession.
Is Wholesaling Real Estate Legal In Wisconsin?
Yes, it is legal to wholesale real estate in Wisconsin if you remain within the legal boundaries of Wisconsin state law.
The key to legally wholesaling real estate in Wisconsin is to accomplish your objective – of selling/assigning your rights to purchase a piece of real estate to another buyer (or other real estate investors) without performing the actions of someone who must be licensed as a real estate broker in Wisconsin.
To avoid wholesaling illegally in Wisconsin, it is essential for potential wholesalers to understand the actions that require a real estate broker's license in the state as a strategy to avoid breaking the law by brokering without the required real estate license.
The most important consideration is that the wholesaler must NOT have entered into a Wisconsin real estate contract with the only intention of selling the contract (and never intending on closing on the purchase) because this action would constitute the actions of a real estate broker under Wisconsin Law, and thus be considered illegal according to Wisconsin real estate law. [See Wisconsin Statute § 452.03]
To wholesale real estate legally in Wisconsin, you must have a complete understanding of what you can and cannot do with regard to real estate activities. Staying within the defined legal boundaries in Wisconsin makes real estate wholesaling entirely legal and often profitable to those who wholesale Wisconsin real estate.
What Are The Real Estate Wholesaling Laws In Wisconsin?
There is no specific legislation on Wisconsin's books that refers to real estate wholesaling; however, Wisconsin's existing legislation has several laws relating to real estate transactions for which real estate wholesalers should have a full understanding to remain compliant with Wisconsin real estate law.
To wholesale real estate in Wisconsin, you must avoid, through your actions as a non-licensed individual, from acting like a licensed real estate broker, which requires a license by state law. As such, it is important to understand how the state of Wisconsin defines a broker.
A Wisconsin Broker is defined under Wisconsin Statute § 452.01 (2,3) and noted below –
Wisconsin real estate law further defines the role of a real estate broker by identifying those actions that are NOT included in the real estate broker's defined role in Wisconsin.
The Wisconsin Real Estate Examining Board (REEB) or the relevant district may have the authority to investigate and ultimately sue anyone performing real estate activities in Wisconsin that require a broker's license to remain within the state's legal boundaries.
The penalties associated with breaking Wisconsin real estate licensing law are defined by Wisconsin Stat. § 452.17 - Penalties, and noted below –
- If you engage in the real estate business (or hold yourself out, even temporarily) as a broker or salesperson without a valid real estate license under Wisconsin law, you may be fined a maximum of $1,000 or imprisoned for no more than six months, or both.
Do You Need A Real Estate License To Wholesale In Wisconsin?
No – a real estate wholesaler in Wisconsin does not need a real estate license to accomplish their objectives – if their actions do not constitute the activities of a real estate licensee in Wisconsin.
The real estate wholesaler must be the transaction's principal buyer, with the ability to sell their equitable interest in the purchase contract to another buyer prior to closing. It is quite helpful to become knowledgeable regarding the nuances of buying and selling real estate in Wisconsin, but there is no formal assessment required if you stay within Wisconsin's legal lanes.
Many real estate investors who successfully wholesale real estate in Wisconsin choose to obtain their real estate license as this improves their understanding of real estate – from a business and legal perspective, and offers access to a Multiple Listing Service, which can be a great source of real estate leads and opportunities to network with other professionals in the business.
Selling a Property Without a License In Wisconsin
In Wisconsin, only those licensed by the Department of Safety and Professional Services as a real estate agent may collect an earned commission (or anything else of value in lieu of money) from a number of real estate-related activities if they do not hold an interest in the subject property.
Wisconsin Statute § 425.01 (2b) clarifies this legal point as follows –
- A real estate license will not be required for those individuals who may sell or exchange their interest in a property, time-share (etc.) if the individual does NOT establish a defined pattern of sales. This would include most homeowners who wish to sell a property from time to time.
- Wisconsin law defines as presumptive evidence for a pattern of sales or exchanges as one of the following –
- At least five sales/exchanges over a one-year period.
- Ten sales/exchanges over a five-year period.
- Additionally, this law applies even if the person involved owns the property or businesses related to the real estate activities.
If a licensee does act on their own behalf in the purchase/sales of real property, they may not collect an earned commission unless all transaction parties provide written consent - Wisconsin Admin. Code § REEB 24.05(2).
Additionally, Wisconsin Admin. Code § REEB 24.05(5) requires a Wisconsin licensee to disclose their license status, along with how they intend to act in the transaction at the earliest of these events –
- The property's first showing,
- Your first contact with the other party or their agent, or,
- Any other form of negotiation.
Head's Up - Wisconsin Stat. § 452.03 notes that no one may engage in the business of real estate as an occupation – or advertise as a licensed real estate salesperson or broker without a valid real estate license issued by the DSPS.
Is Co-Wholesaling Real Estate Legal In Wisconsin?
Co-wholesaling, as its name implies, refers to one or more real estate wholesalers working together to close the wholesale deal as a team. A co-wholesaling partnership can be an ongoing relationship between real estate investors or a one-time joint venture (discussed below) that benefits each party involved.
When entering into a business deal or legal contract, it is prudent to vet any potential business partner thoroughly to ensure you proactively protect your interests in the deal. It is often smart to seek a consultation with a seasoned real estate attorney who has significant knowledge and experience in the local real estate market.
Co-wholesaling, similar to its sister strategy of wholesaling properties, is a legal maneuver if the actions of the real estate wholesalers remain within the legal confines determined by Wisconsin state law.
It is noted that real estate wholesalers walk a fine line with regard to avoiding the actions of a broker, which requires a license in Wisconsin. To ensure you stay within Wisconsin real estate law, be sure to –
- Have a strong familiarity with Wisconsin and local real estate laws, including required disclosures and disclaimers.
- Be certain to use industry-approved disclosure agreements.
- Use a joint venture agreement – which reduces the obligations to writing within a contract between those who wish to do business together without formalizing a partnership as a newly defined legal entity.
Is Reverse Wholesaling Real Estate Legal In Wisconsin?
Yes, like traditional wholesaling and co-wholesaling, reverse wholesaling is legal in Wisconsin if the parties to the contract stay with Wisconsin's defined legal limits.
The primary difference between traditional real estate wholesaling and reverse wholesaling is that reverse wholesaling reverses or changes the order of the steps required to complete a real estate wholesale transaction. Reverse wholesalers first find the end buyer and then the property to meet that buyer's need.
A reverse wholesaler then completes the transaction using one of three primary exit strategies –
Using the reverse wholesaling strategy offers several benefits, as follows –
- Builds long-term relationships with lenders in the private money market, which ultimately improves and streamlines the lending process when wholesaling investment properties.
- Builds long-term relationships with cash buyers and investors who are ready to move.
In fact, many buyers and wholesalers work together are multiple deals as they begin to get to know each other's skills and abilities and develop a professional relationship that helps to reach your real estate investing goals.
Wisconsin Wholesale Real Estate Contract
If you are considering buying or selling wholesale properties in Wisconsin, there are several important forms that will be used to complete the real estate transaction.
1.) The Wisconsin Residential Purchase and Sale Agreement (a nine-page contract) or the Commercial Real Estate Purchase Agreement (a fourteen-page contract) -
The WB-11 Residential Offer To Purchase contract is an agreement that's approved by the Wisconsin Real Estate Examining Board. Last updated in 2020, it's referred to as the WB-11 and is commonly used by Realtors in Wisconsin.
Contracts are legally enforceable documents that define the terms of the deal and engages your right to buy/sell real property to another individual. A purchase agreement or contract of sale will include –
- A legal description of the property.
- The amount of earnest money that has been given by the buyer to be held by the broker.
- The personal items (i.e., furniture or appliances, for example) to be included in the transfer.
- The financial terms to complete the property sale which include the property's purchase price and the intended method of payment to purchase the real estate, among other items.
If a wholesaler is not comfortable or confident in completing this legally enforceable agreement, it is prudent to consult with a seasoned real estate attorney to help draft the agreement to ensure that you, as a party to the contract, are fully protected under the law.
Generally speaking, a contract is assignable – by default- unless the contract's language specifically prohibits the use of an assignment within the agreement.
2.) An Assignment of Contract - An assignment contract is a legal document that transfers the rights and obligations of a purchaser (known as the assignor) under one purchase agreement to another buyer (known as the assignee). Generally speaking, the assignee acts as the cash buyer who closes the deal and then and compensates you, the assignor, for managing and putting the real estate deal together. Wisconsin law remains silent regarding the specific use of forms for contract assignments.
Required Disclosures in Wisconsin
To remain compliant with Wisconsin real estate law, real estate wholesales must meet these disclosure requirements –
- A Lead-Based Paint Disclosure – all sellers must provide this to a buyer for residential properties that were built before 1978. The disclosure must identify to the buyer any history of lead-based paint toxicity in the property.
- A Real Estate Condition Report – any individual who transfers property in Wisconsin must provide within ten days of the acceptance of an offer to purchase a real estate condition report. The statements made by the seller are not defined warranties but simply statements of what the seller has noticed or has knowledge of. This requirement also includes a time-share, land, or condominium sale/exchange unless the real property transfer meets the exemption definitions in Wisconsin Stat. § 77.25.
Any buyer who doesn't receive the property condition report in the required allotted ten (10) day period – for either mandated disclosure/report, has the right to rescind (Wisconsin Stat.709.05) the contract if the seller was required to provide this report in accordance with the relevant law. (Wisconsin Stat. § 709.02)
Additionally, Wisconsin Stat. § 709.035 requires owners, prior to the formal acceptance of an offer to purchase, to submit a revised condition report if a seller receives information or data that would require them to revise the original report – within ten days of acceptance.
- The Real Estate Condition Report's Condominium Addendum (Wisconsin Stat. Ch 703 – Condominiums) - if a property condition report is required for the transfer of a condominium unit, an addendum must be used that provides additional relevant information regarding the condominium, which may include, in part –
- The Name of the Condominium Project.
- The Unit Number
- Relevant Condo fees, to name a few.
Real estate wholesaling is one of the smartest and best techniques to break into real estate investing. Wholesaling real estate permits an investor to mitigate existing risks by reducing the need to tie up capital for any length of time.
Like all real estate, investors must approach wholesaling with prudence, transparency, and vigilance to ensure the transaction remains within the boundaries of Wisconsin law. A well-defined purchase and sale agreement, coupled with the provision of required disclosures, will offer the best insurance to comply with Wisconsin law and avoid any legality issues.
Milwaukee, Green Bay, and Madison, plus a host of smaller communities throughout the state of Wisconsin, offer real estate investors a plethora of potential wholesaling opportunities.
*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.