Wholesaling is the process of “purchasing” a property from its owner and then selling or assigning the purchase agreement to another investor at a higher price. The tricky thing is that the wholesaler makes the offer on the property and enters the contract but does not take title. They then turn around and sell or assign the contract on the property to an end buyer at a profit without making improvements or taking title to the property.

In the past, both Illinois REALTORS^® Legal Team and the National Association of REALTORS^® (NAR) have been vocal about the negative issues surrounding wholesaling. That is because the practice encourages taking advantage of homeowners who are often financially stressed, while offering little to no advantage to those homeowners who choose to sell their property. Wholesalers walk away with money in their pockets, and it is likely the seller may not ever be aware that they did not get the best possible price for the sale of the home.

Wholesaling is not automatically illegal in Illinois, but in order to legally engage in the practice certain requirements must be met. Under the amendments to the Real Estate License Act (RELA) in 2019, anyone who is engaged in a pattern of business of dealing in real estate contracts, including assignable real estate contracts, on two or more occasions in a year, must be a licensed real estate broker. The intent behind bringing wholesaling under the Act, was to allow the practice to be governed by RELA and allow the State to hold those who engage in the practice accountable. As a result, licensees expanding their business to include wholesaling must keep some important things in mind.

• In Illinois, licensees are presumed to be the designated agent of the consumer they are working with unless there is written agreement between the licensee and consumer stating otherwise. So, the wholesaler is likely representing their own interest and must disclose their position as “contract” buyer, and not act as a dual agent. This is prohibited by RELA.
• To meet the fiduciary-like statutory duties required under RELA, brokerages should consult legal counsel about the best way to make disclosures to consumers and get consent from consumers about their intent to profit from the transaction. They should also consult with legal counsel about drafting and adopting office policies on the practice.
• Errors and omissions carriers should be consulted before engaging in wholesaling to determine if the practice will be covered under their brokerage E&O insurance policy.

The Illinois Residential Real Property Disclosure Act and Radon Awareness Act both exempt executors and trustees of estates from completing disclosure reports. However, if an executor is aware of a material defect in a property simply through their relationship with the decedent or familiarity with the property, even though they are exempt from completing the reports, they should consult their attorney to determine if any disclosure should be made under common law principles.

Note that personal representatives of estates must complete disclosure forms under the federal lead-based paint disclosure regulations if the property was built before 1978.

Valuable information on statutory disclosure requirements in Illinois can be found on the Illinois REALTOR^® Legal A-Z page: