Outlaw Wholesaling in NC? Thoughts About H797
This bill is in congress and under consideration. It would make it so that wholesalers would have to get a real estate license in order to wholesale properties.
It stipulates that you can only contact owners of residential property if you intend to buy it as your primary residence. It also prohibits the assignment of contracts without a real estate license.
Here’s the exact language:
Amends GS 93A-2 defining residential property wholesaling to include soliciting homeowners for purchase contracts of their property unless it will be used as the soliciting party’s residence, marketing or selling purchase contracts for residential property for consideration or selling or buying or negotiating purchase contracts or options for property, and makes residential property wholesaling a part of the real estate broker definition.
The stated intention is: “…intended to protect homeowners from unfair and deceptive practices in residential property wholesaling.”
The bill would give the Real Estate Commission the ability to make up rules at their discretion. That could get messy. From the bill:
“Allows the North Carolina Real Estate Commission to adopt rules to implement the act.”
H797 Wouldn’t Just Hit Wholesalers, There Would Be Collateral Damage
Wholesalers seem to be targeted with this bill, but that’s short sighted. It would affect many more people, not just wholesalers. There would be a ripple effect.
If no one can contact a seller regarding the sale of their property unless it’s listed with a broker, or unless they plan to live there this will also affect builders, flippers and sellers and all of the employees and subcontractors associated.
Other Groups Who H797 Would Affect if Passed:
Builders– Many builders get their properties through wholesalers or by contacting property owners directly. This could impact these small business owners’ bottom line. There is an infrastructure set up by wholesalers to connect sellers and builders that may not exist within the broker sphere. Brokers are primarily concerned with listing and selling move in ready primary residences.
Flippers– The same goes for flippers. Flippers use wholesalers to find deals. Again, there may be a few brokers who understand how to work with run down and vacant properties, but this is a wholesaler specialized skill. Eliminating wholesalers would likely create a gap in the market, affecting flippers and sellers.
Sellers– Many sellers do not want to list their property with an agent. They don’t want to pay a commission or wait months for their property to sell. Some have had negative experiences with agents. Wholesalers provide a service- a quick cash sale in most cases. Many wholesalers have an abundance of 5 star reviews from sellers they’ve helped
Ancillary workers- Wholesalers employ mobile notaries, photographers, property inspectors, soil scientists, surveyors, and other subcontractors on a regular basis. They would be affected. They would have to scramble to replenish their steady income streams.
Attorneys- There are many attorneys working with wholesalers to close deals. For example, we closed 40 assignment of contract deals last year. That’s about $50,000 in revenue for a closing attorney from one wholesaling company. There are 1000’s of wholesaling companies. This regulation could shut down law offices too. We had an attorney calling and emailing us in a panic after we switched closing attorneys. He was counting on 40-50k annually from our deals. This would happen to real estate attorneys across NC were the bill to be passed.
Realtors? A lot of realtors work hand in hand with wholesalers- finding buyers for wholesale deals and earning commisssions, and selling to wholesalers and investors. Yes, even some realtors would be negatively impacted.
Wholesalers- This bill would basically shut down 1000’s of small businesses. Many of these businesses have employees. Not every wholesaler will get licensed. Even if every wholesaler got licensed, their businesses would suffer because they’d have to apprentice with a broker for 24 months or more before they were able to apply for a broker’s license of their own. This would mean sharing a % of revenue with the managing broker, effectively reducing the income of the wholesaler’s business, which could affect employees too.
Not to mention the time and expense of getting licensed. There are dozens and dozens of hours of course work and study required to get a license (75 hours of course plus homework, study and exam prep time). To graduate to broker in charge (BIC) and get out from under the yoke of a BIC, there are additional 90 more continuing ed hours and costs of courses, plus BIC prep and another 12 hours and fees.
This amounts to a part time job for small business owners who are already working full time and maybe managing a family too.
66% Pass rate- THE NCREC licensing exam has a 66% pass rate. Even if all wholesalers took the test, not all would pass.
Conclusions
This bill sounds like it was cooked up by realtors, for realtors to reduce perceived competition.
Real estate agents and wholesalers are not mutually exclusive as some realtors seem to believe. They are actually complementary. Collaboration can lead to profit and success for all. It already has. We’ve done plenty of deals with realtors in my business.
The 75% attrition rate of realtors is not because of wholesalers. Real estate is hard work and not everyone is up to it. There is a similar fall out rate for people who decide to become wholesalers and real estate investors.
Maybe wholesaling is just forcing realtors to revisit the way they do things and to up their game.
The associated professionals should also be considered. This bill would not affect only wholesalers, but it would put a crimp in the hose of many other business people who have established relationships with wholesalers, providing them with regular income.
Wholesaling businesses have teams of people with households and families to support.
Rather than regulate it out of existence, let’s make sure wholesaling is transparent and ethical without shutting down small businesses and negatively impacting their business associates.
There is already a movement afoot in AZ to start a wholesaling association. Why not have a self regulating wholesaling organization in NC? Competition is good for business. It makes competing factions bring their best to the marketplace and weeds out those who under-perform and under-deliver.
Giving the real estate commission control over all real estate transactions would give them a monopoly, which can breed complacency and diminish the quality of service that the end user, the property seller, receives. This bill is intended to protect and serve homeowners, but it may be missing the target.