The practice of individuals or companies entering into assignable contracts to purchase a home from an owner, then marketing the contract for the purchase of the home to the public has been become a hot topic nationwide in the real estate industry in recent years. This is usually referred to as “wholesaling”. The question is often, “is wholesaling legal?” The answer depends upon the specific laws of the state in which the marketing is occurring.
In South Carolina, the practice may require licensure and compliance with South Carolina’s real estate licensing law.
At recent Commission meetings, there have been discussions regarding this wholesaling trend, or the marketing of assignable contracts/equitable interests in real property by individuals who are not the legal owners of the properties. The Commission has interpreted that the advertising of real property belonging to another with the expectation of compensation falls under the statutory definition of “broker” in S.C. Code Ann. § 40-57-30(3) and requires licensure. If unlicensed individuals are advertising these real property interests publicly with the expectation of compensation, the Commission has directed that Cease and Desist Orders be issued against those individuals to stop them from engaging in unlicensed practice.
Pursuant to S.C. Code Ann. § 40-57-240(1), the licensing requirements of the Commission do not apply to the sale, lease, or rental of real estate by an unlicensed owner of real estate who owns any interest in the real estate if the interest being sold, leased, or rented is identical to the owner’s legal interest. The Commission has interpreted that having an equitable interest is not equivalent to an owner’s legal interest. Thus, an individual who only has an equitable interest in property that he or she is marketing for sale is not the property’s owner and has no legal interest in the property for purposes of qualifying for the aforementioned exemption from licensure. Licensees are also reminded that they are required to have a listing agreement with the legal owner of the property before marketing a property pursuant to S.C. Code Ann. § 40-57-135(E)(1).
This article may be found in the May 2022 SC Real Estate Commission Newsletter.