Inside New Law That Could Lead to Nationwide Wholesaling Ban

Kathy:

Is wholesaling about to become illegal? Some people think that a new law in South Carolina could pave the way to outlaw this type of real estate and transaction. This and more on today’s show. Hello and welcome to On The Market. I’m Kathy Fede and my co-host today is none other than James Dayner. Welcome, James.

James:

I’m so excited we get a run point today on the show.

Kathy:

I

James:

Know I’m even more excited about the topic. Wholesaling obviously has been a big business for the last four years and it’s changed a lot in the last four years and now there’s a bunch of regulation and how it’s going to go down. So I’m definitely excited. Longtime wholesaler, longtime broker, and things are about ready to change for us all.

Kathy:

I’m going to blame social media and just the internet in general because so many gurus and people are out there teaching wholesaling, so it’s become more public. And of course when it becomes more public it gets the eye of the regulators and that’s where we are today. So there is a new law out of South Carolina that’s cracking down on wholesaling. There’s been a lot of buzz on the BiggerPockets forums about this and our blog team even reported on it. So we decided to make it a show topic. We’re bringing on Gary Pickren, who’s an attorney and broker out of South Carolina to explain the situation for us today. We’re going to cover the discrepancy around how wholesaling is defined, what this new law is intended to do, if this will be implemented in other states long-term. And if you’d like to check out our blog on this topic, go to biggerpockets.com/wholesale blog.

James:

Let’s bring on Gary. Well, I’m excited to bring Gary on to learn more about wholesaling regulations. We all got to do it, so welcome Gary.

Gary:

Well James, thank you so much for having me. It’s a big deal to be on BiggerPockets. I tell you what, I was very thrilled when I got the email asking me to appear. This is one of the best podcasts in the nation, there’s no doubt about it.

Kathy:

Wow, we love hearing that. Thank you so much. Gary. As you know, this show is called On the Market, but today we’re going to be talking about things that are not on the market, specifically wholesaling. So if you would just for our audience, explain what wholesaling is for those who don’t know.

Gary:

Absolutely. And it gets defined differently in different states, so I’ll kind of talk about how South Carolina defines it. Of course, I want to give my quick caveat, I’m a South Carolina lawyer, I’m not giving your legal advice. Talk with your own lawyer. I’m also a South Carolina real estate commissioner, not appearing as a commissioner. And I do recuse myself from anything involving wholesaling because my biggest client that I represent is an investor. There’s a lot of people out there going, oh, well Gary hates wholesaling. I actually don’t. My biggest client, which I will probably lose as a result of our new law in South Carolina is a wholesaler. But with that being said in South Carolina, how we have defined it is basically the most basic way of looking at it. You have gone and got a property under contract for sale for real property and you are marketing and advertising that property for sale without taking ownership for it, you’re going to do it usually through an assignment and you’re doing it for some type of profit or commission. So there’s four elements to it when you look at it. It’s buying the property, not closing it, marketing and advertising it, assigning it, and then making a profit.

Kathy:

And why is there so much discrepancy around the definition? It sounds like it’s defined differently in different places.

Gary:

It just is. Real estate is defined all over the country differently. We use terms, for example, for real estate agents in South Carolina. We use terms about client and customer services that are different than other states. It’s just every state has its own law and has developed over time of how they look at things. And for some reason, wholesaling, which I think is pretty clear what it is. I don’t think the definition that South Carolina came up with is magical or different than what anybody thinks it is, but for some other reason, some odd reason people just haven’t been able to figure out how to best describe it. I think part of the reason might be is that there’s a lot of confusion that people think assigning a contract in and of itself is wholesaling. We know that’s not true. So if I was to write a contract and assign it to my wife, no one in the right mind thinks that’s wholesaling.

If I was to sign a contract in my personal name but assign it to my company name, no one in their right mind says that’s wholesaling. So when these legislators get together and start trying to write laws, they see a definition and then they say, yeah, but how about this? Is this not? And so they start trying to do these carve outs and add this language that makes absolutely no sense. And that’s exactly what happened in South Carolina. They started adding additional language which just muddied the water for everybody. And I think that happens all over the country. So

James:

Gary, for our listeners, can you explain what an assignment is? Because typically when you’re buying a house, there’s a buyer and seller and there’s a purchase and sale agreement. So how is an assignment agreement different than a traditional purchase and sale?

Gary:

So what we have typically is a contract between A and B, A B and the seller B, B and the buyer. And in the contract there’s a provision that says the buyer’s name or their assigned meaning that they have the right in that contract to assign it to somebody else who would step in their shoes as the buyer and take that contract on and become the buyer. And so what happens when you assign a contract is I assign it to C who then basically steps in my shoes as the buyer be. And so all of the terms in the contract stay the same purchase price, everything stays the same. Nothing changes in a true assignment, I’m just taking my contract and assigning it over to you, James, now it’s your contract and then I get paid because you pay me an assignment fee.

Kathy:

Has this been a gray area? I mean you’ve got the National Association of Realtors, right? And why they’ve been in the news a lot lately and they have so many regulations around buying and selling homes. Where do they stand? Where do realtors stand on wholesaling and can you be licensed and do it?

Gary:

So there’s two factions of it. One is there’s a faction of realtors who look at real estate as a multifacet business. I should be in real estate helping buyers and sellers buy and sell properties. I should also be investing, I should be doing VR bos, I should be doing rentals, I should do wholesaling, I should do fix and flips. So there’s a big section of real estate agents who believe that there’s also a section of real estate agents who believe that wholesalers are taking money from them. They look at it as basically acting as a real estate agent without a license. And what they say is if you go to a B and it’s a hundred thousand dollars contract and then you assign it to somebody for 120 or for 20,000, you’ve made essentially a real estate commission That’s a commission. I as a real estate who’s licensed and governed by the state of South Carolina, I should have gotten that commission.

So that’s the other facet of it. What we do know, and particularly right now, real estate since the beginning of time is an ever-changing practice. I’ve been practicing law for 30 years. Things that we did 30 years ago you would never do today. I mean we did closings without getting driver’s license. It was an insult to ask your client to prove who they are now, you would never ever do that. You’re getting witnesses IDs now. You wanted to make sure everybody’s there. Back in the day, people would actually do closings and take your personal check. No one takes a personal check at a closing anymore. But real estate has just evolved over the years and as we’ve experienced issues like the 2009 downfall of the economy because of real estate, regulators come in, try to tighten things up, and right now the thing on their mind right now is wholesaling.

It is exploding as an industry. And so once something explodes as an industry, everybody wants to look and see does it need to be regulated? And in light of what’s happened with the Sit Burnett case, that’s the big real estate commission case where the realtors association got hit for what, $418 million and has to change how they run the MLS. Nothing set in stone anymore. I mean, where in our lifetime do we ever think that a real estate agent getting paid through the listing was going to be a problem, but somehow it is now. So it is always changing and regulators are always looking to regulate. That’s the problem.

Kathy:

We do have to take a quick break, but does this new law make wholesaling illegal in South Carolina? Will this be implemented in other states, this and more when we return?

James:

Welcome back to the show. Let’s get back into it. I think it’s important that anybody in the wholesaling space or real estate space understands how it’s defined in each state. Because as a broker and a wholesaler, I look at those are two different businesses. As a broker, I sell houses and as a wholesaler I sell commercial paper and I’m selling options on contracts. And it because I’m not advertising a house, I’m selling a contract, you can buy this contract, which this contract owns the rights to close on this property here. And that’s from our experience how we’ve dealt with it over the last 20 years of having dual hats At that point, they’re separate entities, separate employees, separate marketing channels, and also how we advertise ’em is completely different. With this law changing, it’s starting to change the definition or it’s starting to make it look different. From how I read it, it was that you’re really offering services at that point because you’re selling the house is really how they’re defining it. Is that how it’s always been looked at in South Carolina or how was it looked at five years ago? Like you said, it’s always changing and as an investor you got to stay with the changes. But five years ago, how did South Carolina look at that? I feel like the states are starting to look at these differently than they did, especially after the real estate crash.

Gary:

Yeah, that’s a great question because five years ago no one looked at it and that’s what’s happened. I’m a real estate commissioner and back in, let’s see what the date was, November 21st, 2021 when it all changed, we had a hearing that came before the Real Estate Commission. It wasn’t even a wholesaler, it was a real estate agent. The real estate agent had been grieved because of a wholesale transaction that they were involved in. And what the complaint was, and this is typically how it happens, is you have usually it’s usually female, an elderly person and usually a minority is what happens here in these situations. They come and they bring a complaint, which automatically makes the commissioners think, we got to look and see if somebody who is underprivileged as being taken advantage of. And so what happened in this situation was the real estate agent listed the property for sale for the wholesaler.

And in South Carolina, our wall is very clear that you may not list a property for sale without having a listing agreement signed by the property owner. So even though the case was not coming as a wholesale case up until that point, up until November of 2021, no one was saying anything about wholesaling. We weren’t talking about it at our real estate commission meetings. It was nothing. And then when that case came up, what the commission ruled was that in South Carolina, in order to market property, the agent has to have a signed listing agreement from the property owner. The wholesaler is not a property owner, they have a contractual right and that is it. And so they said, no, you cannot do this as a real estate agent. So essentially what they did is they said, agents, you’re out of it. So some agents then we had another case right after that comes back and says, well, how about if I get a listing?

Well, you can’t because you already have the property under contract and you can’t go get dual contracts. So in November of 2021, the wholesale world changed in South Carolina essentially, in my opinion, it was almost outlawed at that point because they were saying, you can’t market an advertise property you don’t own. And so even though we didn’t have a statute on it, the way that it was being interpreted was that way. And I’ll finish with this as a real estate commissioner, one of the thing that we do is we attend semi-annual and annual meetings. And the last two years I went to the meetings for, it’s called a, it’s the American Real Estate Association of Legal Officers or whatever. I don’t remember what it’s all for, but they talk about topics that are important in the industry in all 50 states, including Canada as well as Puerto Rico and some of the territories. For two years, one of the hot topics has been wholesaling and how do we stop it? That is what commissioners all over the country when they get together, they complain about wholesaling, we got to stop it, we got to do something to it. So that is what you’ve basically witnessed since 2021 is this shift from, I’ve never even really talked about it in a legal aspect to all of a sudden now every time you go to a hearing or a meeting, it’s being brought up. So it’s that quick.

James:

I think part of it, the reason there’s so much regulation is wholesaling has changed As a wholesaler, I started in this business 2005. That’s how I got in the business, working for an investment company knocking on doors, they would buy a contract and it wasn’t really marketing a property for sale because I got paid a fee. It was paid on a spread and that was it. And over time, what we have seen is all of a sudden wholesalers get contracts, they’re on the market, which is not how the business has ran. I think it’s honestly greed a little bit has changed it, right? They’re trying to see how much they can get. And the kind of funny thing about that is most brokers don’t understand what that transaction is, and most buyers don’t understand what that transaction is. And they also don’t understand that you can’t finance those deals traditionally like you could a house, right?

If it’s listed for sale in the MLS and a buyer wants to put down 3% down as a first time home buyer, they have to pay that assignment fee out of pocket too, which can be more than the down payment for the house. In addition to the broker fees get kind of chopped up weird. And I think that’s what’s really caused this domino effect is brokers going, what’s going on here? Buyers are saying, what’s going on? Because we actually buy a lot of these on market because people don’t understand them and we end up calling the listing broker. The listing broker, the wholesaler hires is a little bit unexperienced because they’re doing it for a very cheap rate. They can’t quite explain it right. And the confusion is really what’s causing all these law changes for us in the northwest MLS, it’s your marketing is selling a contract.

Again, you’re still selling an option on a contract, you’re not selling the house. But as the marketing has changed, and that’s really what the big difference is right now, it used to be more of like an inside deal off market, and the marketing has now changed. Do you think how you market a contract will have anything to do differently with how these laws could change? So if I’m at wholesaling in South Carolina and I’m just selling it to a buddy, I’m not advertising it, will that fall under that law or would that be different? Because you’re really just doing, it’s a friend to friend transaction at that point. There’s no public advertising. So

Gary:

That’s the $64,000 question here that everybody’s trying to figure out the answer to. And the problem you have is that the wording was written and then at the last minute, a senator comes in because he’s trying to make sure he understands and he throws in language. That just completely confuses the whole thing. To go back to your very first point, I think the problem has been with wholesaling is twofold. One is a transparency issue, and that’s really where these commissions, when you listen to the commission talks is that the seller doesn’t know what’s going on. And that’s what happens when they come to the real estate commission. The story is, I’m a little old lady, I sold my house to James here and now I can’t get ’em on the phone. He won’t return my phone calls. I don’t know anything about it. Then all of a sudden this lady named Kathy shows up to my house and tells me I’m having to sell it to her.

And then to make matters worse, my family’s laughing at me because James made $40,000 and I’ve never talked to him again. That’s what happens. And that’s why the commissions get upset. I’m not saying it’s wrong, guys. I’m a fan of investors and I think investing is an absolute necessary part of real estate. I’m just telling you that’s where you see those problems. And so what’s happens is they come in, they write these laws, they don’t do a good job of it. And the whole argument, and this is where I think we all kind of miss the point here, the point in South Carolina what they’re mad about, what they don’t like is transparency. And they don’t like the fact you’re marketing an advertising property you don’t own and you don’t have a real estate license. And so everybody wants to play semantics with it. Now go, I don’t market property. I market a contract. You’re marketing property, you are,

Kathy:

Yeah, I will give the unpopular opinion and I’ll be the one who gets the angry messages afterwards. But I have never understood as a licensed real estate agent how NAR didn’t go after this. They’re such a powerful force and organization and so regulated, right? As real estate agents we’re so regulated and the documents are so clear and disclosure is everything and transparency, and then there’s this whole world that kind of gets to do it without that. So it has been surprising to me that there hasn’t been more regulation. So let’s go back to this situation in South Carolina and what does it mean? Does it mean that wholesalers in South Carolina can’t do it anymore or they have to do it differently? What needs to happen moving forward?

Gary:

I’ll give you the very, very unpopular decision or answer that has made me the most infamous person in the state of South Carolina and the marketplace. This is what the problem is in South Carolina. So they define wholesaling as we talked about earlier, which I think everybody kind of agrees with what the interpretation of it they then add to the statute and we’re talking 40, 50, 7, 30, they put this sentence, wholesaling does not refer to the assigning or offering to assign a contractual right to purchase residential real estate. So a lot of wholesalers latch onto that and say, see, we can still wholesale because all I do is assign a contract. No, what this is saying is wholesaling is not me assigning my contract to my wife. Wholesaling is me not assigning the contract to my company. That’s not wholesaling. That’s not saying that this definition we just gave you of wholesaling doesn’t really apply because they just defined what wholesaling was.

So it doesn’t make sense after they define it. And it’s very important to understand this law here, 40 57 is the real estate agent law. Okay? It’s the law that governs real estate brokers, agents, and property managers. So in order to make this statute apply to wholesaling, what they had to do is say, in order to wholesale, you have to have a real estate license as an agent. Then they come back in after they say that here it says it falls under the definition of brokerage and requires a license. After they do that, then twice they go in and they say, pursuant to the aforementioned duties owed to a client, real estate brokerage firm and its subagents are prohibited from and get a load of this engaging in representing others or assisting others in the practice of wholesaling. So without any doubt, real estate agents are out of the game.

Real estate agent can’t be a wholesaler. Real estate agent can’t help you. They can’t market, they can’t give you CMAs, they can’t do anything for you. So now how does it affect wholesalers in general? So we know you have to have a license to be a wholesaler, and then they say you can’t do wholesaling. So right there eliminates you. I think now where they’re getting and hanging their hat on, and I think they’re wrong here. It’s on 1 35 E one, it says the advertising and marketing real property is to be distinguished from the advertising and marketing of a contractual position in a sales agreement to purchase real estate. Just what James says, I don’t market property, I market contracts. We’re good. Right? The problem is you can’t just read one sentence and stop. You got to read the next two next sentence, an advertisement that markets a contractual position to acquire real property from a person with either equitable or legal title.

And here’s the key, and it’s not an or and does not imply, suggest or purport to sell, advertise or market. The underlying property is permissible. So my question to everyone out there who says, Hey, I market a contract position. How do you sell a contract without implying or purport to sell the underlying real property? Now, I’m not the smartest man in the world. I’ll have public school education from Spartanburg, but how in the world can you possibly sell a contract without somehow telling somebody else that it’s tied to this property? And so that’s why I believe there’s absolutely no way you can wholesale. Now there’s a couple of other lawyers who say, no, that doesn’t mean I don’t know what else it means then. And I’d love to see if y’all think it means something else, but I don’t know how you can sell a contract without implying, suggesting or purporting to sell the underlying real property. What we’re doing, and all it takes is a lawyer suing. That’s what it is. There’s a civil action you can file. Think of it this real quick. A plaintiff is a lawyer, has his poor little seller up there who got a victim, they call it. That’s what they’ll call you a victim of a wholesaler. And when they put the other person up there, they’ll say, what did you buy? Well, I bought a contract, but what was the contract for? Well, for real estate property. So it was for underlying real property, right? Yeah.

Kathy:

It just takes a couple of evil wholesalers did to bring the whole thing down. Yeah. We have to take a final break to hear a word from our sponsors. And while we’re away, make sure to search for BiggerPockets on the market in your favorite podcast app and hit that follow button so you never miss an episode of our show.

James:

Welcome back to On The Market. The one thing about these laws, they’re always passed, right? We had a distressed homeowner law got passed in Washington back in 2009. And the one problem that how I read it is there’s a lot of gray area in what’s the definition of marketing a property? Brokers cannot market off market in a lot of states we can’t or we can’t have a pocket listing or in certain states, I know in California you can have pocket listing, but you can’t really publicly advertise it, but you can work it with your network and your buyers. And so I think one thing that if I was a wholesaler in South Carolina, I was like, what’s the definition of marketing a contract? Is that listing on the MLS? Is that going through a large database or if it’s a personal friend and family, is that allowed at that point?

And I think people are going to look at that. What is the definition of marketing? And then also if wholesaling, if they do define it that way and they do classify it as selling property, how do you get around that? Because there’s a large wholesaling outfit. I know all they do is double closes. They will not do an assignment deal because they want to keep it clean. And a double close is when the wholesaler or the investor gets a contract on the property, they market it, they sell it, but then they close on it and then turn around and sell it to the next buyer the next day. Is that something that is going to be allowed? Because technically you’re just selling your own property at that point.

Gary:

A lot to unpack there. So let’s talk about what marketing is, what people don’t understand when they go on these chat, and I love these chat rooms, you get a lot of good information, but there’s a lot of what we call keyboard lawyers, people who go in there and act like their lawyers and they know how to read the statute and all that. And so they’re smarter than everybody. The real estate commission, whether they like it or not, is the regulatory board that has the authority to interpret and enforce the statute. So I’ve seen a lot of people going out there, well, the real estate commission can’t do anything about it. Who are they? Well, they’re the board who interprets it and enforces it. Okay, so first of all, you have to look at what the commission says. Two things I would say about the commission, and again, I’ve recused myself, which means I don’t participate in these hearings, but two things is they’ve defined marketing and advertising in multiple cases is basically doing anything to try to sell the property, posting it on social media, putting it in a private Facebook group.

We actually sanctioned a girl one time because she had, there was like 10 people in a Facebook live and she goes, Hey, if anybody who’s interested in buying this property, you ought take a look at it. She was not the listing agent. She got hammered for that. So basically taking any actions or steps, I believe that the real estate commission is going to come out with a position statement soon, which we’ll define what marketing and advertising is. What I understand from what I’m hearing is that marketing with a picture of the property, a legal description of the property, anything is going to be considered marketing the property. How I can see this work and really to get to the heart of why this language got screwed up is I do think they have the same problem that James you mentioned is what about that transaction when I’m trying to assign it to my own company or I’m trying to do that, how do we make sure that that’s not wholesaling?

And I think that’s what they were trying to do with this additional language. And I think what Scott Tally, who was a senator who tried to put this language in with the realtor association help by the way, was that he was concerned that if I have five or six houses at our rehab and I’m just overextended, how do I sell that? Get rid of that six property. Now how do I get rid of that? And so I should be able to go out and do that. So what I think we’re looking at here is that there are two ways you could thread this needle. I think there’s two ways to thread the needle in South Carolina. One, if I’m truly a company that goes out and locks property up and then I’m going to put it on my database, just a picture of the contract, and wholesalers can come in there and look at it and go, I want that contract.

And I’m not marketing advertising. I’m just saying these are the contracts. Maybe you might be able to get away with that. I think the other way is if Kathy is known to me to be an investor and I need a property and I reach out and I’ll call Kathy, Hey, do you have anything you’re not interested in holding anymore? I’d like to grab it. Yeah, I got a contract. I’ll sign it over to you. Okay, maybe we can get away with that. The problem with that is that you still got to get a closing attorney to close it because in South Carolina, we’re an attorney state lawyers have to do the transactions. I don’t know how a lawyer can do the transaction because as lawyers, whether we like it or not, we are the police force of the real estate transaction. If we see forgeries fraud, illegal stuff happening, we have an absolute duty under state and federal law to step forward, raise our hand and say, this transaction’s wrong.

How do we as a lawyer, when we are presented with a contract and an assignment, not raise that big red flag and go, wait a minute, this looks like wholesaling. Even if Kathy is the most trustworthy human being in the world, I’ve only known you for a few minutes, but I think you are very trustworthy. Thank you. Even if she swears to me, I did not market or advertise this, how do I know that she didn’t until a lawsuit happens and discovery happens, and lo and behold, there’s an email between her and James that says, Hey, I got this property. It’s four bedroom, two bath if you want to buy it, I’m now screwed. We know that the plaintiff’s lawyers, when they sue people are going to go for pockets. They’re going to sue the lawyer, they’re going to sue the wholesaler, and so the lawyer’s going to wind up being the one who holds the back.

I don’t think that’s why I continue to say all these workarounds are great. They can figure it all out, play semantics with it, but it doesn’t work. The lawyer wants to go out there and risk their law license over a real estate closing, have at it. The double close is also going to be a problem in my opinion, because you can’t market and advertise. Remember the two keys to this thing is they don’t want you to market and advertise property you don’t own. How are you doing a double close without marketing and advertise that property? So if I get two contracts in from A to B and B2C, and they’re like, we’re going to close this one at 10 and this one at 11, how did you possibly find that buyer without marketing and advertising that property? So I was on the phone with a great lawyer down in Charleston, South Carolina yesterday, Mark Weeks.

And so he asked me this question, how would you do a double close? And I’m like, I don’t know. I said, I’m not opposed to doing them. I want to do ’em. I don’t know how. I certainly can’t do ’em at 11 o’clock and 12 o’clock or 10 11. Can I wait a day? Can we wait seven days? How do we know where is that timeframe that makes me as a lawyer pass that giggle test as we call it, that somebody looking at, it’s not going to be like, yeah, right. How do we pass that giggle test that okay, they took title, then they sold it, then they market it and advertised it. They didn’t do it before. It is going to make the whole thing very difficult. And even yesterday I had a transaction where I represented my seller, my big client non wholesaling deal, but he sends an invoice to the buyer’s attorney saying, cut a check for $15,000 and here’s the invoice to this other company. And he’s stupidly put flipping as the management fee, management fee flipping. So immediately the lawyer says, we can’t wholesale in South County anymore. I’m not doing it. I go back to my client, what is this? Well, I just own two companies. This company did the work, this company does the investing. I’m the sole owner. This isn’t flipping. So I had to go explain that to the lawyer to make him comfortable enough to do the closing. So it’s already happening. It’s already stopping.

James:

So if someone wants to double close, they’re really going to have to hold the expense. They’re going to actually have to purchase it and almost do the whole tail and the whole tailing is where you’re buying it, cleaning it out, and then selling it, right? As these things are changing. This is major in South Carolina. We’ve seen other states like Illinois, Ohio, Oklahoma, Florida, Oregon’s starting to change things. They’re right next to us in Washington. Washington starting to talk about it. I mean, how do you think this is going to start to affect? Because once one state grabs it and really runs with it and it becomes a public case, does it start going nationwide? And do wholesalers really need to prep for this? Because I also think that NARS got some poll, even though they got their own issues, their lobbyists can get things done. How do you see this affecting the nation in the next two to five years? For wholesalers?

Gary:

I’d like to, we record this and come back in five years, and I think I’ll be proven right? I think it’s going to sweep the country. And what we have found when we go to a is that some states have taken some steps, like Arizona passed the disclosure, that little disclosure form that, which really didn’t do a whole lot. But you see states like Illinois that has, I think it’s a $20,000 fine for wholesaling. Oregon is insane. I mean, what’s going on there with all investing, wholesaling, sub twos, installments, everything. There’s so many regulations, Texas, I mean you start looking at some of the regulations for installment contracts and wholesaling and all that. It is crazy. So what I have found is when you talk to people at these meetings, they say, we want to do something we just don’t know what to do. Then they say, well, what is South Carolina doing?

And then you say, well, South Carolina says in order to market or sell the property, you have to have a license. And if you don’t have a license, you’re getting a cease and desist order. Aha. That’s what we’re going to do. So I think what you’re going to see is that these states are going to see South Carolina passing this law and I that other states are going to jump on the bandwagon and follow right along. So a year ago, I started warning people in the industry, this is going to happen. I went to Collective Genius. I went to all of these organizations and say, this is happening. It’s coming. And that’s why we came up with the installment method. And everybody’s like, nah, whatever. We’ll deal with it when it comes. That’s why they always say, we’ll deal with it when it comes. Well, the problem with that is once the governor signed the law, it became effective immediately. Wow. You know how many people had wholesale deals pending that can’t close?

Kathy:

Oh my goodness.

Gary:

I mean, I had six or seven wholesale deals pending that we were like, sorry, we can’t close it now.

Kathy:

So if you’re already in contract, didn’t matter. Well then I’m just curious about other ways people call it. What about an option to buy with a double closing at the end?

Gary:

Yeah, that’s essentially the installment contract. So the installment contract is also called a bond for title, a land contract, an option contract. The basic nature of that deal is the investor goes to the seller says, I want to buy your property for X dollars. I’m going to give you a down payment of equity, so I’m going to make a payment so that now I become an owner of the property, and then we’re going to sign this document that’s going to be recorded at the courthouse for everyone’s protection. And it’s going to say, in this period of time, I will pay you the difference.

James:

I think just one thing to think about, and Gary’s touched on this a lot throughout this conversation, is the market is always evolving. Regulations are always revolving, and a lot of wholesalers and investors, they start freaking out. But I’ve been wholesaling for 20 years. I’ve been a broker for 15 years, and we’ve been flipping houses for 15 to 16 years. And what I can say is it’s not just the regulatories that are changing. The business has changed, and that’s why the regulatories are changing. It’s not like it used to be where you would just as a wholesaler, I used to make five to 10 grand a house at most. And now there’s these fees that are 5000, 250. I paid a $350,000 assignment fee before on a deal and it was a monster. And you know what? The guy put in work and he did extra services.

So it worked, but it’s not about always taking as a bad thing. Even as a wholesaler, I’m going, okay, well, regulation should be passed because it’s just to protect everybody in the transaction, the seller, but also the buyers, right? As they’re looking at these deals, buying something that’s not right or buying the wrong interpretation of that contract. And for all the wholesalers listening, I know what you’re thinking. I remember that happened to me in 2008, distressed homeowner law passed. I was freaking out and I go, wait, no, I just need to change my business. So it works. It’s not always a bad thing. And even as a wholesaler, if this comes to Washington, that’s okay. It’s really about evaluating your process, making sure you work with the right legal team to get your contracts put together correctly, and then follow the regulation. And how can you still do what you do? Like reverse wholesaling, that’s a great thing to do. You can work for one buyer and just go, Hey, this investment company wants to buy your house and they’ll pay you a fee. You’re not advertising a house at that point. You’re just finding properties for one specific person.

Gary:

I will tell you this, this is the biggest opportunity in the history of wholesaling. Why is it? Because when you have a disruption in the marketplace, it is now your opportunity to kick ass. If everybody’s doing wholesaling exactly the same way, exactly the same method, how do I stand out? Because if all three of us are presenting to the same seller, the only difference between any of us is will you give a thousand dollars more or will James or will I, right? That’s all it comes down to. Who gives the most money? But when we now have a disruption in our marketplace, I can be at the forefront of that disruption. I can come up with a new way of doing things that nobody else has done. And while the rest of the wholesalers are over here whining and crying and moaning and groaning and quitting, I mean, a lot of ’em are saying, I just won’t do it in South Carolina.

I’ll go to North Carolina. Fine leave. I can now dominate. Because if I have half the number of wholesalers to fight with and I have the program now, that’s the best way of doing it. I be the one who wins. I mean, as a Kathy, as a real estate agent, you remember, you’re probably not old enough to remember this, but when the internet came in into real estate, all the realtors complained, oh, it’s going to ruin our business. We’re going to go away. Just like the travel agent, what was the internet? It was the greatest thing that ever happened to real estate because now we can market to masses, a set of just people in magazines. So I’m a huge believer that if we would quit complaining and trying to figure out these semantics of the terms and why we can or why we can’t, and just say, okay, it’s a huge disruption. I’m going to be the person who takes that disruption and I’m going to run with it and I do things professionally, what it’s going to do is get rid of these wholesalers that are giving everybody else a bad name.

Kathy:

That’s exactly what I was going to say. I was going to say that I’m all for the regulation for the little old lady who has no idea what’s happening to her in her home. So I’m 100% for it. If you’re not okay with certain regulation, maybe it’s because you’re not playing fair. That would be my guess. So

Gary:

Mic drop,

Kathy:

Just do it. Right. And there’s plenty of real estate ages making lots of money, and they’re just doing it above board. Right. I’m curious though, with protections, it’s usually, again, for that person, it is protecting the individual. So I’m guessing this doesn’t so much apply to commercial property. It doesn’t seem like regulation is out there to protect the investor. So is that true? Do these laws still apply to apartments or storage or anything? That’s not the individual?

Gary:

I don’t think it does because when they define wholesaling, they defined it as meaning having a contractual interest in purchasing residential real estate. Okay.

Kathy:

Yeah. They use

Gary:

The word residential in South Carolina. So my position is it doesn’t include commercial. It also doesn’t include vacant land. And you want to know why. In my opinion, that’s the case. Because isn’t this what developers and builders do all the time? I mean, so we can’t make it where our builders and developers can’t develop property for us. So I mean, that’s what they do. They put property under contract, assign it to another builder, another developer, and they move on. Well,

James:

Gary, thank you for coming out. This has been very enlightening. I think it’s really, really important for our audience and everybody out there to understand the regulations and really read in detail of what the specifics are. I think we got to have you back on at some point as these rules keep changing, there’s a tidal wave of a change. We got to stay on it. So we really appreciate you coming on. And I may have not agreed with everything we talked about,

Gary:

But it’s fine. I think one lawyers are,

James:

We’re all on the same page that we want positive change in real estate no matter what.

Gary:

Right? And if I could just end by saying this, I believe that investing is an absolutely necessary part of real estate. Price does not always win. Kathy knows, as a real estate agent, the highest bid does not always win. It’s why we have CarMax. If I wanted to make maximum dollars, I would never sell my car to CarMax. I would sell it myself, but I don’t want people at my house. I don’t want to have to test drive it with people. I don’t want to worry about financing. So we know that there’s a big segment of our industry people who don’t want to sell through a real estate agent. They don’t want people in their house. And that’s why investing is absolutely important. My firm’s always been big in supporting investors, continue to do so. I didn’t change the law. I didn’t want the law changed, but it is what it is. We’re going to just work our way through it. And I think this is a perfect opportunity for people to really hone that craft in be the best they can be and beat everybody else out. That’s all you got to do.

Kathy:

Love it. Alright, Gary, well thank you so much for joining us here on the market. It’s been really educational.

Gary:

Thank you so much.

James:

Thanks, Gary.

Dave:

On The Market was created by me, Dave Meyer and Kaylin Bennett. The show is produced by Kaylin Bennett, with editing by Exodus Media. Copywriting is by Calico content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.