Legal News: Oregon Starts Restricting Real Estate Wholesalers

Oregon’s governor has signed H.B. 4058 into law. The point of this new provision? To help people know how brokers work with sellers and buyers in deed transfers.

The bill takes effect January 1, 2025. Most notably, the law sets out to regulate residential property wholesaling. Before this, Oregonians could engage in wholesaling without legal restrictions.

OK, so what is real estate wholesaling?

A Wholesaler Buys and Sells a Home, Without Ever Holding the Deed.

In wholesaling, a home buyer signs a purchase contract agreeing to pay a specific price. Then the buyer assigns the rights in that contract to another buyer. At a markup, of course.

In other words, there are two contracts involved:

First, a purchase agreement with a seller; and

Second, an assignment contract that conveys rights to the next buyer, who will take the deed.

Note that the wholesaler never has to touch actual real estate ownership to do this. The deed is never in the wholesaler’s name.

Real estate wholesaling is catching on as a way to earn money in the real estate market without actually buying properties. On YouTube.com, home flipping influencers even make money from teaching courses that discuss and promote wholesaling.

For some, wholesaling is a successful strategy. To others, it’s a public nuisance. Either way, it’s been the subject of policy arguments for a long time. In some states, wholesaling is accepted practice. Other states have laws that keep wholesalers on very short leashes.

What’s the Issue With Wholesaling?

Some consumers back the option. After all, selling to a wholesaler can make offloading a home relatively quick and easy.

On the other side of the coin, some people have complaints. Some have sold their homes, then seen them immediately relisted (on Craigslist and Facebook!) at a higher asking price.

Sellers who didn’t grasp what was going on may feel taken aback, or just plain ripped off.

According to state officials, some wholesalers take advantage of naïve sellers. These officials cite the prevalence of unlicensed investors getting into the method.

So, the state wants to make sure wholesalers tell the homeowners what’s going on before striking these deals. Indeed there are states that ban unlicensed people from wholesaling. These bans assume that regulating real estate agents keeps people honest and they believe it should be the same in the wholesaling context.

Oregon’s New Law Is an Industry-Led Regulation.

Many key groups agree with the law’s goals: transparency and stronger consumer protections in real estate transactions. The Oregon Housing Alliance endorsed the measure, describing it as a “regulation to increase consumer transparency and protect homeowners and homebuyers from predatory practices.”

But the industry itself wanted this to be done in the first place. When Rep. Vikki Breese-Iverson (R-Prineville) first introduced the measure, she pointed to Oregon REALTORS® for their work in spearheading the law’s creation. Assigning contracts for fees doesn’t go over well with REALTORS® groups.

Now, it’s the task of the Oregon Real Estate Agency (OREA) to get ready to administer the new law. That’s the state office that governs professional real estate licensing under Oregon law. What will be the practical effects, starting in just a few months’ time?

Now that the bill is signed into law, the state officially runs a residential property wholesaler registration program.

Oregon Stops Cash for Listing Agreements, and Enhances Transparency.

Yes, there’s more. Here’s what else Oregon has set out to do through this new law:

Outlaw cash for listing contracts. Technically called future right to list contracts or forward right to list agreements, these commit a deed holder to working only with a specific broker when they sell — if and when they might decide to sell. The broker pays the deed holder for the right. So what’s the problem? It’s the way these contracts can and do rope in cash-strapped people who then get bound by decades-long obligations.

Mandate written contracts between real estate agents and the clients they work for. All licensed real estate agents will need to have printed contracts when they work — for either the seller or the buyer.

Tighten up the disclosure rules for wholesalers, agents, and real estate brokerages, to ensure the customer — whether a seller or a buyer — knows who they are dealing with and has a full set of contact details.

Directs Oregon’s licensed real estate agents (who do wholesaling) to sign up on the new residential property wholesaler registry or give “proper written disclosure to any potential buyers or sellers of all residential property wholesale transactions…” So, no wholesaling without notice and information to customers about what’s going on.

Forbid buyers’ and sellers’ agents to split commissions without consent of the clients they represent. Here again, Oregon’s saying people should know what they’re bargaining for, and how their agents get paid. This provision will promote open and full discussions about fee arrangements, educating clients and underscoring the customer’s prerogative to negotiate fees with their agents.

Note: Oregon brokers may not promise to share agent commissions with buyers. But a buyer’s agent in Oregon can absolutely negotiate the commission — which basically gives the buyer the same outcome (lower purchase costs). It helps the home buyer keep mortgage costs down, too.

Stay With Us, as the Debate Continues…

We expect some tension and a lot of attention on Oregon’s decision to regulate residential wholesalers. Debates have ended up in regulations in Oklahoma and Illinois. As in Illinois, Maryland policymakers want wholesalers to be licensed.

People who engage in wholesaling for a living are pushing back. They point out that selling a contract isn’t the same as selling a house. Why should the state subject them to the stringent regulations that bind agents?

Meanwhile, wholesaling influencers warn their podcast followers: Don’t market homes for sale on Facebook and Craigslist, or shoot out mass advertising messages. By marketing properties whose deeds you don’t hold, you could be crossing a line. You’ll get into trouble, they warn, if you’re caught engaging in unlicensed real estate practice. But if you steer clear of fraud, they insist, you should have the right to strike contractual agreements with others.

Indeed, to stay on the safe side of the law, wholesalers can get their real estate licenses. Or they can work for a licensed broker. Either way, wholesalers should be consulting with real estate lawyers in their state.

What do you think? In any case, the debates will continue — and not just in Oregon.

Supporting References

Oregon House Bill 4058 – Relating to Regulated Real Estate Activities (full-text PDF of Enrolled House Bill 4058-A, published by the Oregon State Legislature via Oregon.gov: (signed into ORS Ch. 696 on Mar. 7, 2024). See Overview.

Oregon Real Estate Agency (OREA): Regulatory Trends Update (PDF dated Spring 2022).

Lincoln County Leader via NewportNewsTimes.com: Oregon Senate Strengthens Consumer Protections in Real Estate Transactions (Newport, Oregon; Mar. 7, 2024).

New Limits Homes via NewLimitsHomes.com (St. Petersburg, Florida): Navigating the Legal Landscape – Understanding Where Wholesaling Is Illegal in the U.S. (Mar. 1, 2023).

Justice Hager for the Oregon Housing Alliance: 2024 Legislative Session Report (Mar. 27, 2024).

And as linked.