Wholesaling - is it legally a brokerage or not?

Saw this on John T Reed’s website:

[i][b]"A lot of “real estate investment” techniques I hear about sound suspiciously like a brokerage. Flipping is one of them. One guru said he was “just a middleman” when he does flips. That kind of talk would make good evidence against you in an unlicensed-practice-of-brokerage prosecution.

To do a brokerage deal, you must have a brokers license or be a licensed salesman and be affiliated with a licensed broker. Laymen tend to believe that they can finesse that by simply not calling themselves brokers. Not true. The law has a doctrine called “substance over form.” It says that the courts will look at what you do, not what you call it. If what you do looks more like brokerage than investing, they will demand to see your license and hold you to the standards of behavior of brokers—most notably a fiduciary duty to the client. Flipping looks a lot like bringing a buyer and seller together for a commission. That’s brokerage.

Furthermore, it not only looks like unlicensed brokerage. It looks like a “net listing.” A net listing is one where the seller says, “Just get me X dollars. You can keep any amount above that.” Net listings were illegal in New Jersey when I was licensed there. They are ethically questionable everywhere because of the powerful conflict of interest regarding the setting of the asking price. Normally, the broker has a fiduciary duty to recommend no less than market price to the seller. But in a net listing, the broker has a strong temptation to recommend less than market so he can increase his take."[/b][/i]

Is any of this true? If so, is there any way around it? What is involved in getting a Broker’s license to cover my @$$? Any and all input will be greatly appreciated. Thanks.


As far as I know, it is not considered brokering as long as you are a principle in the transaction, meaning you have your name on the agreement of sale, option contract, or whatever you’re using. Once you wholesale the deal, you are selling your buying interest in the property.

However, if you were to say to the seller “I’ll find you a buyer for $5,000” then that is brokering, because you’re bringing two people together and you are not a principle in the deal, and you need to be licensed to do that.

What about the “net listing thing?” Is that also illegal?


If you are a principle in the deal then you are not brokering. Net listing only applies for brokering. I guess it depends on where you are, states like New Jersey and New York are pretty consumer-centric and may read into the situation differently.