Over the past few days, the BiggerPockets forum has been abuzz with talk of a new law that has just passed the House and Senate and, when made official by the Governor, will make wholesaling illegal in South Carolina. For many investors who have been wholesaling for a long time and might feel they have encountered these roadblocks before and strategized contractual workarounds, this time, things are different. Here’s why.
What Is Wholesaling?
Conventionally, wholesaling real estate means putting a property “under contract” under market value—that is, signing a sales agreement with a seller and assigning it to another buyer without ever owning the property. Thus, the initial buyer has acted as an intermediary, profiting from the margin between the initial contracted price and the final sales price.
Why Problems Arise With Wholesaling
There can be problems with this arrangement when the first buyer either fails to disclose his intentions clearly to the seller or adds an extremely high assignment fee without the initial seller’s knowledge. Failing to bring a buyer swiftly to the table and prolonging the sale by tying up the property, or not including a deposit in the contract, can also cause problems. If the wholesaler can’t produce a proof of funds letter adequately showing that the wholesaler is capable of closing, it can also become an issue.
These issues can trigger the seller’s ire, resulting in possible legal ramifications. Further muddying the waters is that each state has its own laws concerning wholesaling, so it is generally not a one-size-fits-all practice.
Knowing and adhering to your state’s laws is crucial. If there’s a rule of thumb in wholesaling, it’s to be as transparent as possible. Disclosing everything and having the seller sign off on it was customarily the legal safety net for most wholesalers.
What the South Carolina Law Says
Here’s what the bill states regarding wholesaling in…