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Bill designed to increase transparency of wholesale real-estate transactions
KEITH ARNOLD
Special to the Legal News
Published: March 12, 2024
Committee members in the Ohio Senate are considering a bill devised to regulate certain activities of real-estate wholesalers.
The legislation––Senate Bill 192––would expand the list of real estate-related activities that requires licensure as a real-estate broker for individuals that deal in residential real estate contracts, regardless of whether those dealings are on behalf of another person––specifically, those engaged “in the business of buying, selling, offering to buy or sell, marketing for sale, exchanging or otherwise dealing in contracts, including novations and assignable contracts, for the purpose or sale of residential real estate,” according to analysis by the Ohio Legislative Service Commission.
Sen. Andrew Brenner, R-Delaware, said the state’s Division of Real Estate and Professional Licensing has reported a rise in wholesaling activity throughout the state and accounts of related activity that includes predatory contracts, misleading sales tactics, clouding title to properties and targeting vulnerable homeowners.
“Real-estate wholesaling is the practice where a wholesaler enters into a contract with a property owner and then assigns their interest in that contract to a third-party investor for an assignment fee,” the lawmaker said during a Government Oversight Committee hearing of the bill last week. “While this may not sound threatening, problems arise when wholesalers engage in aggressive tactics to persuade homeowners into entering into the contract.”
Additionally, wholesalers often mislead the homeowners into believing that the wholesaler is the one purchasing the property, he said.
“The homeowner only becomes aware of this at the closing table when they discover that they are selling their home to a third-party investor who they have never interacted with,” said Brenner. “The homeowner also finds that they were offered well-below fair market value for their property, benefiting the wholesaler who makes a profit, depriving the homeowner from equity in their home.”
“Unlike an investor who flips a home after purchasing it, wholesalers have no intention of actually purchasing the property and never take title,” Brenner said. “If the wholesaler cannot find an investor to sell the contract to, the wholesaler will back out of the contract without closing, with few consequences.”
He said other states, including Texas, Oklahoma, Illinois, Nebraska, Arizona and Arkansas, have passed similar legislation, while legislatures in numerous other states are considering similar action.
Another provision of SB 192 introduces disclosure requirements for wholesalers, analysis provided.
Acting as the purchaser of the property, the wholesaler must disclose to the owner of the property, on a form prescribed by the superintendent of real estate, all of the following:
• That the grantee is a wholesaler and is buying the property intending to make a profit;
• That the wholesaler may assign its interest in the property to a third party and may collect a fee from the ultimate buyer of the property, separate from any fee included in the contract between the wholesaler and the owner of the property;
• Acknowledgement by the property owner that the purchase price may be less than the actual market value of the property and that the property owner voluntarily transfers the property to the wholesaler at that price;
• Whether the wholesaler holds an active real-estate broker or salesperson license and, if not, that the wholesaler is not representing the property owner and is not acting as their broker or agent in the transaction;
• That the property owner is advised to seek legal advice before entering into the agreement.
In the circumstance in which the wholesaler is the seller of the property, the wholesaler must disclose to the buyer of the property details on a similar superintendent-approved form.
Brenner said enactment of SB 192 would increase accountability and protect the public from predatory tactics by ensuring wholesalers meet a minimum level of competency in real-estate transactions and are knowledgeable of Ohio’s laws and regulations designed to protect consumers.
“SB 192 will also increase the transparency surrounding the wholesaling process, by requiring wholesalers to disclose to the homeowner and end buyer of their true intentions,” he said. “This disclosure is vitally important as it informs the homeowner that the wholesaler is not representing them, that the wholesaler intends to assign their rights to the contract for a profit and that they may be offering below fair market value for their home.”
A violation of the disclosure requirements would be considered an unfair or deceptive act or practice with the injured party entitled to relief of their economic damages plus up to $5,000 in noneconomic damages, analysis detailed.
Additionally, the Ohio attorney general may investigate and bring actions against a wholesaler alleged to have violated the disclosure requirements.
Hamilton County lawmaker Sen. Louis Blessing III, R-Colerain Township, is joint sponsor of the bill, which awaits further consideration by the committee.
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