Is Wholesaling Real Estate in Michigan Legal without a Real Estate License?

Legal Wholesale Practice Debated by Michigan Lawyers, Attorneys and Real Estate Investors.

Topics of This Article , What We Will Discuss —

Wholesaling real estate in Michigan is legal, but it seems likely that you need a license if you are a homeowner planning to wholesale your own property,
Michigan allows no more than five transactions yearly as a homeowner.
State laws, like Michigan Compiled Laws (MCL) 339.2502b, suggest limits on unlicensed sales, but the “assignment of contract” may not count as a “real estate sale.”
Marketing wholesale contracts must avoid advertising the property itself if unlicensed, instead focus on the contract rights instead.
The assignment of contract is legal in Michigan, requiring a clear clause in the purchase agreement.
The purchase and sales agreement is a marketable commodity under Michigan law, recognized via equitable conversion.

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Introduction to Wholesale Investing

Wholesaling real estate involves finding a property, signing a purchase agreement, and then selling that contract to another investor for a profit without owning the property.

In Michigan, this strategy is popular for those with limited capital, but it must be done ethically and legally.

The wholesaler assigns this contract to an end buyer,(The Purchase and Sales Agreement,) usually another investor, for a slightly higher price, earning a profit from the difference. This is known as the assignment fee.

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This process allows the wholesaler to facilitate a “real estate transaction” without ever purchasing the property, making it an attractive option for those with limited capital.

This guide will delve into the legalities, marketing strategies, contract assignments, and the recognition of purchase agreements as marketable commodities, providing a thorough resource for readers.

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Legal Requirements in Michigan

Michigan’s legal framework, particularly MCL 339.2502b, indicates that homeowners engaging in more than five real estate sales in a year as an owner may require a real estate broker’s license.

However, the evidence leans toward that the “assigning of contracts” does not consider as a “real estate sale, or transaction” thus allowing unlicensed wholesalers or individuals to operate within limits.

Always consult a Real Estate Attorney or Lawyer for clarity, especially given potential controversies around licensing. Brokers are not a Legal Counsel. Talk to a Real Estate Lawyer.

Ethical Practices and Marketing

Ethically, being transparent with sellers about your intent to assign the contract and ensure all parties understand the terms. If you are unlicensed, you can only market only the contract rights, not the property.

To comply with Michigan law, which restricts property advertising to licensed agents or owners. It’s bests to say something like “Assignment of Contract, Equitable Interest for Sale,” or “My Rights to Purchase for Sale/Assignment of Contract” or even “Contract for Sale.”

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Assignment and Marketable Commodity

The assignment process involves transferring your purchase agreement and rights to an end buyer, this is legal in Michigan with a proper assignment clause.

The purchase and sales agreement is a “marketable commodity,” recognized under Michigan’s doctrine of equitable conversion, giving you an equitable interest you can sell.

Comprehensive Guide to Wholesaling Real Estate in Michigan Ethically

Legal Framework and Licensing Requirements

Michigan’s legal environment for real estate wholesaling is governed primarily by the Michigan Occupational Code, Act 299 of 1980, specifically MCL 339.2502b.

This statute states that an individual who is the owner of real estate must obtain a license as a real estate broker if they engage in the sale of that real estate as a principal vocation, defined as:

Engaging in more than five real estate sales in any 12-month period as a homeowner selling their own home.
Representing to the public that they are principally engaged in the sale of real estate.
Devoting over 50% of their working time, or more than 15 hours per week in any 6-month period, to the sale of real estate.

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The controversy arises in whether assigning a contract in wholesaling counts as a “real estate sale.”

Research suggests that since the wholesaler is selling their contractual right, not the property itself, it may not fall under this definition, allowing unlicensed wholesalers to operate.

However, to be cautious, it’s advised to limit transactions to five per year without a license, as some sources indicate this threshold — (Ark7: Michigan Real Estate Wholesaling Guide).

The Michigan Board of Real Estate Brokers and Salespersons oversees these regulations, and wholesalers must ensure they do not perform activities reserved for licensed professionals, such as advertising the property for sale.

If a wholesaler crosses into these activities, they could face fines or legal issues under the Michigan Occupational Code.

Marketing Contracts and Ethical Considerations

Marketing is a critical aspect of wholesaling, but it must be done ethically and legally in Michigan.

Unlicensed wholesalers can only promote the right to buy the property through their contract, not the property itself, as Michigan law restricts property advertising to licensed agents or property owners (Real Estate Bees: Wholesaling Houses in Michigan).

This means marketing efforts should focus on building a buyers’ list and advertising the assignment opportunity, ensuring transparency with all parties.

Ethically, wholesalers must be upfront with sellers about their intention to assign the contract and disclose any fees to both the seller and the end buyer.

To stay compliant with Michigan law, which limits property advertising to licensed agents or owners, consider phrasing your marketing like this:

“Assignment of Contract: Equitable Interest Available,” “My Purchase Rights for Sale/Contract Assignment,” or simply “Contract for Sale.” These options keep the focus on your contractual rights, not the property itself, ensuring you’re in the clear.

Misrepresenting oneself as a licensed agent or deceiving sellers about the transaction’s nature is unethical and potentially illegal.

To maintain ethical standards, consider consulting with a real estate attorney to draft clear and compliant contracts, ensuring all parties are informed and agree to the terms.

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The Assignment of Contract Process

The assignment of contract is central to wholesaling and is legally permissible in Michigan, provided the original purchase agreement includes an assignment clause.

Photo by Gabrielle Henderson on Unsplash

This clause allows the wholesaler to transfer their rights under the contract to another party, the end buyer, for a fee. The process involves:

Drafting the Purchase Agreement: Ensure the agreement with the seller includes an assignment clause, such as, “Assignment of Contract: The parties to this Contract mutually agree that it is binding upon them, their heirs, executors, administrators, personal representatives, successors, and assigns.
All parties agree that this Contract is assignable to any party for a profit.” (Real Estate Skills: What Is An Assignment Of Contract In Real Estate?).
Finding an End Buyer: Market the contract to potential buyers, ensuring compliance with marketing restrictions if unlicensed.
Executing the Assignment Agreement: Once a buyer is found, use a separate assignment agreement to transfer the rights, specifying the fee and ensuring all parties sign.

Michigan law does not impose additional restrictions on assignment clauses beyond general contract law, making it a straightforward process when done correctly.

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However, always ensure the seller consents to the assignment, as some contracts may require their approval.

Practical Steps for Wholesaling in Michigan

To wholesale real estate effectively and ethically in Michigan, follow these steps:

Educate Yourself: Understand local market trends, such as median home prices increasing by 6.5% year over year as of recent reports (Real Estate Skills: Is Wholesaling Real Estate Legal In Michigan?). Attend seminars and network with experienced investors.
Find Properties: Look for distressed properties through MLS, networking with real estate professionals, or websites like Houzeo, Zillow, and Trulia (Houzeo: 7 Steps to Make Millions Wholesaling Real Estate in Michigan).
Negotiate and Sign: Draft a purchase agreement with an assignment clause, ensuring it’s favorable and compliant with Michigan law.
Market the Contract: Build a buyers’ list and market the contract rights, ensuring you do not advertise the property if unlicensed.
Assign and Close: Assign the contract to the end buyer, coordinate closing, and collect your fee, ensuring all legal documentation is in order.

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