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

Navigating the intricate terrain of real estate investment, particularly with regard to wholesaling, demands a comprehensive understanding of legal frameworks and regulatory nuances. Amidst the array of considerations that define the landscape of real estate transactions, prospective investors often scrutinize the legality of wholesaling within specific jurisdictions like New Jersey. "Is Wholesaling Real Estate Legal in New Jersey?" emerges as a pivotal question, shedding light on the significance of legal compliance and due diligence in the pursuit of investment opportunities.

Wholesaling, as a strategic approach to real estate investment, involves facilitating property transactions wherein the wholesaler acts as an intermediary, procuring properties from sellers and assigning these contracts to buyers for a profit. Through this guide, investors are equipped with insights into the legal landscape surrounding wholesaling in New Jersey, empowering them to navigate the complexities of real estate investment with prudence and confidence.

• What Is Real Estate Wholesaling?
• What Do You Need To Know About Wholesaling Houses In New Jersey?
• Is Wholesaling Real Estate Legal In New Jersey?
• What Are The Wholesaling Laws In New Jersey?
• Do You Need A License For Wholesaling In New Jersey?
• Are Real Estate Contracts Assignable In NJ?
• Final Thoughts

*Before we begin our guide on whether wholesaling real estate is legal in New Jersey, we invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)!

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

What Is Real Estate Wholesaling?

Real estate wholesaling is one of the most popular investment strategies the masses don't know about. A real estate wholesaler or investor enters into a purchase agreement (or contract of sale) that establishes for the buyer/wholesaler certain rights/obligations under the Doctrine of Equitable Interest or Equitable Conversion but then chooses to sell these established rights to someone else an end buyer before the sale closes.

The earned assignment fee is the difference between the original sale price for the investment property and the higher price paid by another buyer, often a cash buyer.

In other words, the buyer takes ‘equitable title’ or becomes the ‘equitable owner’ when the contract is fully executed. The time referenced in this regard is defined as the time between these two homebuying events -

1. The execution of a contract of sale for real property is when earnest money is given pending a closing.
2. The delivery of the deed and marketable title to the buyer upon full payment as detailed in the contract.

This defined time is when property ownership hits a bit of a gray legal area—the seller has possession (and use) of the residence or rental property. At the same time, the buyer has a contractual right to own the property, given the completion of the required performance detailed in the contract.

At this time, real property is said to have dual ownership – legal ownership and equitable ownership divvied up between the seller and the buyer, set forth by legal statute.

The wholesaler’s ultimate goal is to enter into a purchase agreement for a home priced below market value. An off-priced home (which can be found in several ways, including Zillow and Redfin, can become available when sellers are financially challenged or have another reason for their motivation to sell quickly; perhaps they are facing foreclosure.

The real estate wholesaling investment strategy is a great way to learn to evaluate potential homes while building a network of lenders and an end buyers list for future deals. It also offers these important benefits -

• Minimal capital expenditures to complete the wholesale transaction
• Risk reduction compared to flippers – i.e., permits, latent defects, etc.
• Wholesale deals close faster than fix and flip deals, simply by the nature of the investment model

The following narrative details the relevant issues that will be helpful to new investors wholesaling in New Jersey.

*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!

What Do You Need To Know About Wholesaling Houses In New Jersey?

Aspiring real estate investors in New Jersey, considering the wholesaling route, need to begin with a solid understanding of the state laws governing real estate transactions. It’s essential to know the legal landscape to ensure your wholesaling business operates within the law. Additionally, it’s crucial to identify which properties and scenarios are best suited for specific exit strategies, such as contract assignments, double closings, or wholetailing, depending on the deal's particulars and property condition.

Understanding local market dynamics is equally important. In New Jersey, the real estate market has seen some significant shifts; the median sales price has risen by 13.6% over the last year, reflecting a strong appreciation in property values. However, the number of homes sold has decreased by 16.3%, suggesting a tightening market with fewer transactions. Homes are selling faster, too, staying on the market for an average of 39 days, which is nine days less than the previous year, and there are only about two months of inventory available, indicating a seller's market.

These indicators suggest a competitive environment where timely and informed decisions can lead to successful wholesaling. For those wondering if wholesaling real estate is legal in New Jersey, rest assured, it is, as long as you adhere to the local regulations. For more detailed information and a definitive answer to the question, "Is wholesaling real estate legal in New Jersey," aspiring investors should consult New Jersey’s Realtor organizations, which offer resources and guidance tailored to the state's unique market conditions.

There are fourteen real estate associations in New Jersey. These are the larger associations that are also members of the National Association of Realtors (NAR):

• New Jersey Realtors (NJR): The NJR (once known as the NJ Association of REALTORS) is a real estate trade organization representing more than 55,000 members across the Garden State. More than 14 individual local real estate boards are organized under the NJR umbrella. NJR is a powerful voice in protecting property rights and real estate professionals.
• North Central Jersey Association of Realtors (NCJAR): With multiple offices in north-central New Jersey, the NCJAR is the largest local REALTOR association, with a membership that nears 15,000 real estate professionals serving these counties – Essex, Morris, Sussex, Union, Passaic, and Bergen. In addition, the North Central Jersey Association of REALTORS is considered to be among the top five largest of any local real estate association in the nation.
• Greater Bergen Realtors (GBR): This real estate trade organization operates as a nonprofit professional organization that serves two counties along the northeastern part of New Jersey—across the Hudson River to New York City. More than 7,500 members belong to the GBR, which is on a mission to be the leading real estate advocate and voice for real estate in northern New Jersey.
• NEXUS Association of Realtors (NAR): The NAR serves Camden, Ocean, and Burlington counties in central New Jersey. The NAR seeks to promote ethical and professional activities through its advocacy efforts and through its members and the services they offer. The Nexus Association of REALTORS is a professional organization with a membership that exceeds 5,000 REALTORS.
• Metro Centre Association of Realtors (MCAR): Founded in 1933, the Metro Centre Association of REALTORS serves property owners' and professionals' real estate interests in and around the Middlesex County jurisdiction.
• CORE Association of Realtors (CAR): The Core Association of REALTORS is a real estate professional organization that advocates for and provides resources for professionals and consumers in Somerset, Mercer, and Hunterdon Counties. The CAR maintains two offices: one in Branchburg and the other in Trenton, the state capital.

The New Jersey Department of Banking & Insurance houses the New Jersey Real Estate Commission (NJREC), a division established in the 1920s to administer and enforce the real estate licensing laws in New Jersey, officially known as NJSA Title 45, Chapter 15—New Jersey Real Estate License Act.

Note that, given the magnitude and consequences of these financial decisions, both buyers and sellers of real property in the Garden State typically hire an attorney to protect their interests. However, New Jersey does NOT require a real estate attorney to close on a house or other property.

Read Also: The Pros & Cons Of Wholesaling Real Estate: An Investor's Guide

Is Wholesaling Real Estate Legal In New Jersey?

Yes, wholesaling real estate is legal in New Jersey. Wholesaling real estate in New Jersey can be legally accomplished if the wholesaler ensures their actions and choices do not violate real estate license law. According to real estate law in New Jersey (RS 45:15-1), a license is required for a person who is directly and indirectly "in the business of a real estate broker-salesperson or salesperson, temporarily or otherwise, and no person shall advertise or represent himself as being authorized to act as a real estate broker, broker-salesperson, or salesperson, or to engage in any other activities described in R.S 45:15-3."

Wholesaling has become a hotly debated topic. Critics argue that the practice of wholesaling essentially creates a real estate transaction that requires a license. However, this adversarial position overlooks the very real and legal ability to sell one’s interests in a contract – even if the contract represents the sale of real property. [Refer to the Doctrine of Equitable Conversion]

When analyzed under a legal microscope, real estate wholesaling is widely considered legitimate unless laws or rules have been established in that particular jurisdiction that prohibits wholesaling, which is not the case in New Jersey.

But note—and this is critical—real estate wholesalers in New Jersey must take the necessary steps to ensure they remain current with New Jersey’s license law and do not act in a way that can be construed to require a real estate license.

Real estate wholesalers can legally market/sell their ‘right to buy’ real property, but they cannot market the property itself.

What Are The Wholesaling Laws In New Jersey?

There are no specific laws in New Jersey with regard to wholesaling real estate. However, real estate licenses and activities are administered and enforced by NJSA Title 45, Chapter 15 – New Jersey Real Estate License Act.

First, note that, according to 45§15-2, any single act, transaction or sale shall constitute engaging in business within the meaning of this article.

In other words, a violation of NJ license law can occur with a single action and does not need to be viewed as a pattern of engagement.

And, as noted in New Jersey Statute 45§15-1, no person shall engage directly and indirectly in the business of a real estate broker, broker-salesperson, or salesperson, temporarily or otherwise, and no person shall advertise or represent himself as being authorized to act as a real estate broker, broker-salesperson, or salesperson, or to engage in any other activities described in R.S 45:15-3 without being licensed to do so as hereinafter provided.

Referenced in this statute in New Jersey Revised Statute (NJRS) 45§15-3, which is the state’s real estate broker who is defined to be a person, firm, or corporation who, for a fee, commission or other valuable consideration, or by any reason of a promise of reasonable expectation thereof, lists for sale, sells, exchanges, buys or rents, or offers or attempts to negotiate a sale, exchange, purchase or rental of real estate or an interest therein.

However, it is also important to know who is not required to be licensed in NJ, according to state law, which primarily includes the owners of real property, lawyers, receiverships, executors or administrators, etc. NJRS 45§15-4.

Note that New Jersey’s real estate and license laws are quite strict, with potential violations delineated by NJRS 45:15-17, wherein the commission may place a probation, suspend for a period less than the unexpired portion of the license period, or may revoke any license issued under the provisions of R.S. 45: 15-1.

The violations noted by the law are extensive, although nothing explicitly addresses wholesaling (NJRS 45:15-17 (a – t). The first violation’s penalty is $5,000, with a second violation of no more than $10,000, a third violation has this consequence, that if a licensee is deemed to be guilty of third violation of any of the provisions of this section, whether of the same provision or of separate provisions the commission may deem that a person a repeat offender, in which event the commission may direct that no license as a real estate broker, broker-salesperson, or salesperson shall henceforth be issued to that person.

Finally, in accordance with New Jersey’s common law, buyers are protected against sellers who fail to disclose relevant facts or pertinent information about the property for sale.

Sellers are required to disclose known defects to a buyer, and in this case, the assignee. Deliberate concealment of a “material defects” constitutes grounds for the recission of the contract, plus potential monetary damages for the purchaser. Seller liability also includes remaining silent on known facts. [See Correa v. Maggiore, 196 N.J. Super. 273, 281 (Super. Ct. App. Div. 1984)]

As such, you are required to disclose known, latent, & material defects, if there are any, to the buyer or assignee. These mandatory disclosures should be put in writing (the contract will do) so the buyer understands the condition of the home, and you have written proof of the required disclosure.

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

Do You Need A License For Wholesaling In New Jersey?

No, you do not need a real estate license to wholesale properties in New Jersey. However, real estate wholesalers in New Jersey must ensure their actions do not include those actions defined by New Jersey law that require a real estate license.

Note that real estate investors who employ a wholesaling strategy in New Jersey often choose to become a licensed real estate agent or real estate broker, or, at the very least, establish professional relationships with other real estate licensees & professionals in the area in which they work, while building a list of viable potential cash buyers.

New Jersey doesn’t offer reciprocity in real estate licensing with any other state.

In addition, real estate wholesalers in New Jersey would benefit from following this advice –

• Stay transparent – make sure the contract of sale is clear.
• Manage the seller’s expectations by being honest.
• Don’t market/sell the property – a wholesaler must only market/sell their right to purchase real property.
• Consider consulting an attorney to ensure you have maximum legal protection.

Real estate wholesalers can complete the deal using one of these primary exit strategies –

• An assignment of contract – typically has the lowest closing costs
• The execution of the Double Closing strategy
• Wholetailing - closing on the property, then listing it on the multiple listing service (MLS)

Read Also: How To Find Off-Market Properties In New Jersey: The 4 Best Sources

Are Real Estate Contracts Assignable In NJ?

The purchase agreement or contract of sale is legally enforceable and considered the most important document in a real estate transaction. In New Jersey, real estate contracts of sale provided by Realtors are NOT assignable unless one obtains the seller’s consent. However, with the seller’s consent, real estate wholesaling is completely legal in New Jersey.

As a real estate investor, it’s important to become familiar with the New Jersey Association of REALTORS Standard Form of Real Estate Contract. On page 2 of this standard contract used by real estate professionals in the Garden State is Item 14 – The No Assignment Clause, wherein it states that the agreement shall not be assigned without the written consent of the seller. This means that the buyer may not transfer to anyone else his/her/their rights under this Agreement to buy the property.

A purchase agreement is considered a bilateral contract; this essentially means that each party (i.e., the seller or the buyer) must meet performance requirements as written in the contract.

At a minimum, a real estate contract of sale should include this information:

• The sale price of the real property.
• What are the terms of the buyer’s credit, i.e., cash?
• The legal description for the real property.
• The anticipated date of possession.
• The Warranties of title for the transaction.
• Property tax provisions, among others.

Final Thoughts

Is wholesaling real estate legal in New Jersey? Wholesaling real estate in New Jersey is indeed legal, provided that unlicensed wholesalers strictly adhere to the state laws governing real estate transactions and avoid engaging in activities that would typically require a real estate license. This compliance ensures that their operations remain within legal boundaries, enabling them to capitalize on market opportunities without legal repercussions.

Now that you're aware that wholesaling is a permissible and viable strategy in New Jersey, it's the perfect time to deepen your understanding and refine your skills. We recommend enrolling in Real Estate Skill's free training program. This program is designed to equip you with the necessary tools and knowledge to effectively navigate the real estate market in New Jersey. Take advantage of this opportunity to learn from experienced professionals and start leveraging the potential that wholesaling has to offer.

*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