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How New Laws Are Impacting The Wholesaling Industry (And What To Do About It)

In November, the city of Philadelphia passed a new bill to “establish fair rules and expectations for wholesalers buying and selling homes in our communities.”

The intention of this bill is to protect consumers from wholesalers who “exploit under-informed property owners.”

The legislation’s lead sponsor, Allen Domb, said, “All homeowners deserve market value for their homes and everyone deserves to work with the knowledge they need in order to make the right decision about their financial future.”

Of course, you and I understand how valuable wholesalers are to the market — they provide consumers with a fast and easy way to get cash for their home and they allow buyers to more easily develop new properties and improve communities.

But a small pool of wholesalers that run scammy and unethical businesses are giving the industry a bad wrap. At the same time, the wholesaling industry has grown at a fast rate over the last decade. So, whether we like it or not, it’s not surprising that legislation is now being introduced in various states to govern wholesalers and protect consumers.

In the case of Philadelphia, the new bill has a few requirements as we understand it…

  • Wholesalers must get licensed.
  • Wholesalers must disclose companies that they hold shares in.
  • Wholesalers must do a background check. If they’ve been convicted of fraud within the last 6 years, they are disqualified.
  • Wholesalers must show proof of insurance.
  • Wholesalers must give sellers a “bill of rights” at least 3 days before concluding the purchase (this essentially tells sellers their rights and shows them how to determine the market value of their property.
  • The city will start a “do not solicit” list that will allow consumers to opt-out from getting contacted by wholesalers.

Additionally, Illinois passed a bill that requires a real estate license in order to do any type of house flipping (and there’s a $25,000 fine for breaking it).

And Oklahoma passed legislation that limits the ability of wholesalers to market properties that they don’t actually own.

Even if you’re not in one of these states, new wholesaling legislation is spreading fast to states and cities around the nation. It’s unlikely that your market will be entirely excluded.

So what should you do about it?

Here are a few thoughts!

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1. Join The Cause

These new laws might seem like a bad omen, but wholesaling isn’t going anywhere anytime soon.

In fact, this is a very natural part of what happens when an industry explodes as wholesaling has; laws and regulations are introduced to protect consumers.

What these laws are going to do is increase the barrier to entry. Not everyone will be able to easily become a wholesaler. They’ll likely be required to get some sort of license and have processes and practices that ensure homeowners are well-informed.

The best thing you can do is join the cause. Support the new laws and regulations and try to get a seat at the table in your local community. Get a headstart on what’s coming, embrace it, and you’ll be far better off when it does come.

2. Wholesale Ethically

This one is straight-forward but it’s still important to mention.

Now is a great time to make sure that you’re wholesaling practices aren’t “walking the line” ethically. Take stock of your current practices and implement new practices to make sure that you’re being honest with homeowners, informing them of their rights, and operating in an ethical manner.

If you are, then new laws and legislation are unlikely to have as big of an impact on your business.

3. Consider Double Closing

What Is A Double Closing? (Ultimate Guide) | Real Estate Skills

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Double closing makes it so that you actually own the properties you peddle, even if only for a few minutes, before transferring them to another cash buyer.

This might be a process that will help you avoid some of the new regulations that get introduced — but it’s entirely possible that, in time, lawmakers will catch on to this as well.

Still, it’s worth trying and considering.

You can use what’s called “transactional funding” to transfer the title to yourself (there will be some fees) if you don’t have cash, and then turn around and “sell” that property to your cash buyer.

But enough from us.

How are YOU preparing for the future of wholesaling? Let us know in the comments!

Learn How Call Porter Can Help Your REI Biz Grow in 2021!