The real estate practice of wholesaling has been expanding and evolving in Rhode Island. The following explains what wholesaling is, how it works, and provides examples.
WHAT IS REAL ESTATE WHOLESALING?
Real estate wholesaling is an investment technique in which an investor - the wholesaler - identifies a property at a below-market rate. Wholesalers may target distressed sellers, foreclosures or short sales, or property that is in need of work, then enter a purchase and sales agreement with a homeowner. The wholesaler acts as a middleman by selling or transferring their interest to another buyer at a markup.
TWO COMMON WHOLESALING OPTIONS
- Wholesaling involves assignments or back-to-back closings. Both approaches start the same way: a wholesaler signs a purchase agreement with a seller, giving the wholesaler an equitable interest in the property.
Double Closing
- Prior to closing, the wholesaler markets their equitable interest in the contract to an end buyer.
- The wholesaler closes with the seller and takes legal title to the property.
- The wholesaler immediately resells property to end buyer at a profit.
- Transactions occur back-to-back, often on the same day
- Two separate closings take place.
Assignment of Contract
- Prior to closing, the wholesaler markets and assigns his/her equitable interest in the contract to an end buyer.
- The end buyer pays the wholesaler an assignment fee.
- The end buyer purchases the property from the original seller at the same price, terms, and deadlines to which the wholesaler agreed.
- One closing takes place.
Example of an Assignment:
- A wholesaler approaches a homeowner.
- They sign a purchase and sales agreement for $250,000.
- The contract does not prohibit assignment to another buyer.
- The wholesaler markets his/her equitable interest to other buyers.
- An end buyer agrees to purchase the wholesaler’s equitable interest for $260,000.
- The wholesaler assigns the contract and receives a $10,000 assignment fee.
- The end buyer completes the purchase with the seller.
The wholesaler never takes title to the property and earns a fee for transferring the contract rights.
Potential Benefits and Risks of Wholesaling
When structured and disclosed properly, wholesaling may offer certain benefits. However, it can also present significant risks.
Potential Benefits
- Can provide sellers with a quick path to sale
- May help move distressed or difficult-to-sell properties
- Can connect sellers with active investor buyers
Potential Risks
- Sellers may receive below-market offers
- Lack of transparency about assignment fees
- Increased risk of failed or delayed closings
- Confusion about who the actual buyer is
- Potential legal and regulatory exposure
WHAT DOES WHOLESALING LOOK LIKE IN RHODE ISLAND?
In Rhode Island, wholesaling can appear as:
- “We Buy Houses” advertising
- Off-market solicitations
- Assignment language inserted in contracts
- Same-day or back-to-back closings
- Direct mailers or social media targeting distressed sellers
Most wholesale transactions occur outside the MLS.
WHY WHOLESALING RAISES CONCERNS
In Rhode Island, wholesaling itself currently does not require a real estate license. However, certain wholesaling activities could trigger enforcement.
Even though wholesaling is lawful in Rhode Island, it can create challenges:
- Lack of seller understanding
- Limited transparency
- Financially distressed owners
- Title and financing complications
- Failed transactions
These arrangements may create uncertainty for sellers, buyers, and cooperating agents.
IMPACT ON RIAR MEMBERS
Even if you do not wholesale, you may encounter it in practice through:
- Contracts containing broad assignment clauses
- Buyers who never appear at closing
- Request for same-day closings
- Sellers who were previously under contract with a wholesaler
- Collapsed deals
- Commission disputes
- Client confusion
Understanding the structure helps you identify potential risks.
BEST PRACTICES
If you encounter a wholesale-style transaction:
- Review assignment language carefully
- Confirm actual buyer’s identity
- Encourage clients to seek legal advice
- Document all disclosures and communications
- Work closely with closing counsel
- Transparency and documentation are critical.
Members of RI REALTORS play a key role in protecting consumers and maintaining market integrity.
For more information, please contact the RIAR Legal Department at [email protected].