Denise Forman Gaines is the president of the Delaware Association of Realtors.
Most Delawareans have never heard of “real estate wholesaling,” but a new state law makes it important for homeowners to understand.
Wholesaling is a real estate practice in which someone enters into a contract to buy a property but never actually intends to own it. Instead, they assign their rights under that contract to another buyer and earn a fee for doing so.
In some situations, wholesaling can serve a legitimate purpose. For example, a homeowner who inherits a vacant property or owns a house in poor condition may prefer a quick and convenient sale rather than spending months making repairs, listing the property and negotiating with multiple buyers. A wholesaler can help facilitate that type of transaction.
However, wholesaling has also generated concern across the country. Some homeowners — particularly older adults, heirs or individuals facing financial hardship — may not fully understand the value of their property. In those cases, a wholesaler may secure a contract at a low price and then assign that contract to another buyer for a significant profit. It can be argued that this results in homeowners unknowingly giving up equity that could have remained in their own pockets.
Recognizing both the benefits and risks, Delaware recently enacted a law to increase consumer protections without banning the practice altogether.
Under the new law, individuals engaged in the business of wholesaling residential real estate generally must be licensed by the Delaware Real Estate Commission. A consumers must receive a disclosure explaining that the transaction is a wholesale transaction and that the wholesaler intends to assign the contract for compensation. A homeowner must also be informed of his/her right to seek an appraisal, consult an attorney or speak with an independent real estate professional.
Perhaps most importantly, sellers now have a 21-day right to cancel a wholesale contract, giving them time to evaluate their options and make a fully informed decision.
Whether you are selling your home tomorrow or years from now, the lesson is simple: Understand who you are dealing with, understand the value of your property and never feel pressured to sign a contract before you have all the information you need. Though the law has not yet been fully implemented, it is important to understand the protections it will provide.
We thank Sen. Spiros Mantzavinos, D-Elsmere, and Rep. Bill Bush, D-Dover, for their leadership on this issue. An informed homeowner is a protected homeowner.
Reader reactions, pro or con, are welcomed at civiltalk@iniusa.org.
