Is Wholesaling Real Estate Legal In California? A 2024 Guide For Investors

As the most populous state in the country, California offers almost unlimited opportunities for people who want to pursue careers in the real estate industry.

Many become agents and brokers or enter into related fields such as real estate investing, mortgage and title insurance, real estate law, inspection experts, etc.

However, amidst these options, one often overlooked avenue is wholesaling. Still, many individuals have questions about the legality of wholesaling in California. At Real Estate Skills, we have the most updated information for 2024 to address the most critical question many aspiring wholesalers are asking: Is wholesaling real estate legal in California?

To answer this pertinent question, we'll dive into everything there is to know about California's laws surrounding wholesaling, starting with the following:

• What Do You Need To Know About Wholesaling In California?
• Is Wholesaling Real Estate Legal In California?
• What Are The Wholesaling Laws In California?
• Do You Need A License To Wholesale Real Estate In California?
• Is Co-Wholesaling Real Estate Legal In California?
• Is Reverse Wholesaling Real Estate Legal In California?
• California Real Estate Wholesale Contract
• Legal Tips For Wholesaling Real Estate In California
• Final Thoughts

*Before we begin our guide on wholesaling real estate in California, we invite you to view our video on How to Wholesale Real Estate in California (STEP-BY-STEP)!

Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, guide for beginners to start wholesaling real estate in California!

What Do You Need To Know About Wholesaling In California?

Before diving into wholesaling in California, aspiring investors should first understand the local real estate laws, which can vary significantly across different counties. It’s crucial to gather comprehensive market data to identify profitable opportunities and understand trends. Additionally, knowing various exit strategies, such as contract assignments or double closings, is essential for navigating this competitive landscape effectively. A thorough preparation in these areas will help ensure success in the dynamic California real estate market.

Here are two more important things to remember if you’re considering creating a wholesaling business in California. You can make a good living and maybe even a lot of money if you choose this career. However, you can get into a lot of trouble if you don't do it correctly.

The California Department of Real Estate (D.R.E.) has several laws protecting motivated sellers and the public's interest by actively overseeing licensure, regulation, education, and enforcement.

If you’re considering any activity related to real estate deals in the state, you must fully understand California's real estate laws. In particular, wholesaling real estate in California coincides with several laws, not the least of which may be navigated by structuring the deal in a specific way. The most common ways to structure a wholesaling deal are:

• Assignment Of A Contract
• The Double Closing

You can inject a certain amount of creativity and flexibility when putting deals together. Many often form partnerships to turbocharge the wholesale process, including their financing, lender capabilities, escrow, legal advice, real estate market, industry knowledge, or other related talents to complete more deals.

You can also check out our video on How To Fill Out Wholesale Real Estate Contracts!

According to the California Association of Realtors, California offers many opportunities for savvy wholesalers. Therefore, it may be time to stop asking, "Is wholesaling real estate legal in California," and start figuring out how to wholesale your first deal; all it takes is one to alter the course of your entire career.

Read Also: How To Get MLS Access In California

Is Wholesaling Real Estate Legal In California?

It is legal to wholesale real estate in California, but if you’re not careful, you could also violate state laws along the way.

As an unlicensed wholesaler, you can only find properties and match them to buyers, collecting a fee for your service. The key is that you’re only assigning the rights of a contract to a real estate investor. It is important to note that California wholesalers are not acquiring the property itself; they merely acquire the right to buy it. Once they have the right to buy the house, they turn around and sell their right to buy the subject property to another investor. In their simplest form, wholesalers act as a bridge, connecting sellers to buyers, which is perfectly legal as long as they aren't doing anything that requires a real estate license.

When you’re a licensed Realtor and have contracted with a seller via a listing agreement, you market the property to attract buyers and collect a commission when the property is sold. As a wholesaler, you market the rights to the contract with a seller, allowing you to assign purchase rights to a buyer.

As a wholesaler, you cannot market the property itself, only the contract. Assigning a contract is the lowest barrier to entry for new wholesalers because it costs you virtually nothing (many times including no required earnest money), other than a few small legal fees, to complete a deal.

That said, some exceptions may require investors to perform a double close. You buy and sell the property as quickly as possible with a double close, resulting in two separate closing transactions. This strategy coincides with more upfront capital, risk, and fees, but it can often serve as a great backup plan when the seller isn't comfortable assigning a contract to another buyer.

A double close requires working capital to complete a purchase of an investment property before selling it to an end buyer. While the upfront monetary outlay can be considerable, this is balanced because you don’t need to disclose the profits you’ll make by facilitating the deal.

By contrast, assigning a contract requires you to reveal the amount of your fee to the buyer, but not necessarily the seller, as part of the negotiation process.

Some California wholesalers are concerned about fees vs. commissions and staying on the right side of the law, so they choose to minimize risks by getting a California real estate license.

What Are The Wholesaling Laws In California?

We have already mentioned some of California's legal requirements for wholesale real estate. The Business and Professions Code (B.P.C.) outlines additional specific laws detailing oversight of real estate law in California. Here are some sections California wholesalers should familiarize themselves with:

• Section 10016: According to the California Business and Professions Code, the term "real estate salesperson" refers to someone "licensed as a salesperson under Chapter 3 of this part and who, for a compensation or in expectation of a compensation, is retained by a real estate broker to do one or more of the acts set forth in Sections 10131, 10131.1, 10131.2, 10131.3, 10131.4, and 10131.6."
• Section 10130: Per Article 1 Scope of Regulation [10130 - 10149], "It is unlawful for any person to engage in the business of, act in the capacity of, advertise as, or assume to act as a real estate broker or a real estate salesperson within this state without first obtaining a real estate license from the department, or to engage in the business of, act in the capacity of, advertise as, or assume to act as a mortgage loan originator within this state without having obtained a license endorsement."
• Section 10139: According to Section 10139, If someone acts as a real estate broker, salesperson, or mortgage loan originator without the proper license or falsely advertises themselves as such, they could face a fine up to $20,000, six months in jail, or both. A corporation committing this offense could be fined up to $60,000. Any fines collected above $10,000 from individuals or above $50,000 from corporations in areas with a Real Estate Fraud Prosecution Trust Fund will be deposited into that fund.

Is wholesaling real estate legal in California? The answer is yes if you abide by the laws outlined above. These laws place limitations on what various entities can or cannot do in the course of a real estate transaction. While they don’t specifically address wholesaling, the broad nature of these laws also impacts it.

*For in-depth training on real estate investing, Real Estate Skills offers extensive courses to get you ready to make your first investment. Attend our FREE training and gain insider knowledge, expert strategies, and essential skills to make the most of every real estate opportunity that comes your way!

Do You Need A License To Wholesale Real Estate In California?

No, you don’t need a real estate license to buy wholesale property in California.

However, most people agree that getting a license is not bad if you want to transact wholesale deals. As a licensed agent, you won’t need to worry about the contract assignment limitations or restrictions on how you can market a property we discussed earlier. That said, if you are a licensed agent, you must disclose that you are a licensed agent when you enter into a contract.

If you don’t disclose that you are an agent or have an agency relationship with a brokerage, you could be subject to civil penalties that could result in extensive damage awards. As always, transparency is the best policy.

Read Also: How To Become A Real Estate Agent In California (5 Steps)

Is Co-Wholesaling Real Estate Legal In California?

Co-wholesaling real estate is legal in California. If for nothing else, this exit strategy follows the same laws as traditional wholesaling, which is also legal in California. Co-wholesaling real property means creating a joint venture with another entity to get a piece of real estate under contract or working with a flipper to complete the sale through an assignment of contract or double close.

To maintain full transparency, it is critical to remember that each party in the co-wholesaling venture must disclose the nature and real estate investment relationships of the other.

Read Also: What Is Co-Wholesaling & How To Do It?

Is Reverse Wholesaling Real Estate Legal In California?

Reverse wholesaling is legal in California because it follows the same rules and regulations as traditional wholesaling. As the name implies, reverse wholesaling involves a wholesaler developing a cash buyer's list, lining up a qualified buyer, and then securing properties under contract to complete a transaction.

This process is legal in California, and as long as you follow all current laws and regulations regarding real estate transactions, you should encounter no problems.

Read Also: How To Wholesale Real Estate In California: Step-By-Step

California Real Estate Wholesale Contract

California's most common form of real estate purchase contract is the California Association of Realtors' Residential Purchase Agreement (C.A.R. Form R.P.A.). The R.P.A. includes all the essential provisions, disclosures, and disclaimers to create a binding contract. If you’re interested in learning more about R.P.A.s and other related forms, we suggest you visit the California Association of Realtors' updated guide; in it, you'll find the solution to "Is wholesaling real estate legal in California," and given a deep dive on the industry's most important forms.

In California, an R.P.A. contract is not assignable. If you want to enter into an agreement to assign a contracted property, you must have the R.P.A. amended. An amended contract isn’t necessary using the double-close method of wholesaling properties.

An assignment of agreement addendum (C.A.R. Form AOAA) must be completed to facilitate a contract assignment. A wholesaler can assign the agreement to another person only if they get approval from the Seller. Here's what that looks like:

Legal Tips For Wholesaling Real Estate In California

Is wholesaling real estate legal in California? Yes, if you abide by the laws regulating the practice. As a result, we have compiled a list of helpful tips to ensure you are legally wholesaling in California. Here are some important legal issues to be mindful of when wholesaling real estate in California:

Contingency Clauses

Contingency clauses further define a deal’s legality, protecting buyers and wholesalers from entering into bad deals that can cost a lot of money.

These clauses are “if/then” legal language written into real estate purchase agreements, giving either party the right to withdraw from the deal if certain conditions are not met.

The most common contingency clauses in California are:

• Inspection Contingency: A home inspection may reveal unseen problems such as termites, mold, lead paint, asbestos, electrical, foundation, plumbing problems, or other issues.
• Appraisal Contingency: Appraisals estimate the property’s value and are based on several factors. When combined, location, condition, market economics, and other elements may reveal a house worth much less than anticipated.
• Title Contingency: The title records the property’s ownership history. Reviewing the title ensures that the seller legally owns the property and has the right to sell it.

Disclosures

To ensure integrity, all real estate transactions, including wholesaling deals, must be conducted with complete transparency. Failure to disclose critical information often leads to litigation.

In California, just as buyers must disclose whether they are wholesalers or have a real estate license, sellers are also required by law to disclose all material facts about a property.

Transfer Disclosure Statement (T.D.S.) (§ 1102.4) is an overview document that describes the condition of the property in fairly high-level terms. The following real estate disclosures usually accompany it:

• Community Facilities District (CFD) (§ 1102.6b(b)): For properties being sold in a Mello-Roos district
• Environmental Hazards Guide for Homeowners, Buyers, Landlords, and Tenants (§ 2079.7)
• Fire Detector Compliance Statement (§ 13113.8(b))
• Homeowner’s Guide to Earthquake Safety (§ 8897.1)
• Lead-Based Paint Disclosure (42 U.S. Code § 4852d): For any home constructed earlier than 1978
• Local Option (§ 1102.6a): Some cities and counties require a secondary disclosure form
• Megan’s Law(§ 2079.10a(a)(3))
• Methamphetamine (§ 25400.28): For a property that has been contaminated by the hazardous chemicals used to create methamphetamine
• Military Ordnance (§ 1102.15): Selling a property that is located in the vicinity of a military base/facility
• Natural Hazard Disclosure Statement(NHDS) (§ 1103): Potential natural hazards must be disclosed, including:
  • Delineated Earthquake Fault Zone (§ 2621.9)
  • Potential Flooding Area (§ 8589.4)
  • Seismic Hazard Zone (§ 2694)
  • Special Flood Hazard Area (§ 8589.3)
  • Very High Fire Hazard Severity Zone (§ 51183.5)
  • Wildland Fire Zone (§ 4136)
• New Home Insulation (16 C.F.R. § 460.16): Only applicable for “new home sellers”
• Notice of Your “Supplemental” Property Tax Bill (§ 1102.6c)
• Structural Pest Control Report (§ 1099)
• Title Insurance Advisory Notice (§ 1057.6)

Marketing & Advertising

Is wholesaling real estate legal in California? It is legal to wholesale California properties, but you must be careful about how you market the contract. We can’t stress this enough because this is where many people go astray. If you assign a contract as a wholesaler, you can only market the contract’s rights for the property you represent. You can't market the property itself.

The way around this is to get your real estate license, and then you can market the property itself as long as you have a signed listing agreement in place. 

Final Thoughts

The answer to "Is wholesaling real estate legal in California?" isn't as complicated as many assume. Wholesaling real estate in California is legal and does not require a license. It presents a lucrative opportunity for individuals who understand the applicable laws, such as contracts, disclosures, and marketing activities. With determination and the proper knowledge, you can position yourself for success in California's thriving real estate market. Access our free training today to take the first step towards becoming a successful wholesaler.

Access our FREE training to learn more about wholesaling in California and unlock your potential in the real estate industry.

*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.