THE WHOLESALE REAL ESTATE TRANSACTION TRANSPARENCY AND PROTECTION ACT TAKES EFFECT ON JANUARY 4: WHAT YOU NEED TO KNOW

John E. Hosa, (412) 594-5659, jhosa@tuckerlaw.com

On July 8, 2024, Governor Josh Shapiro signed Act 52 – the Wholesale Real Estate Transaction Transparency and Protection Act – into law, which requires real estate wholesalers to obtain licensing and grants additional protections to property owners in wholesale transactions.

Real estate wholesaling is a practice where an individual or company enters into a contract to purchase a property and then sells the contract to a third party for a fee – usually an investor – without ever owning the property.  By way of illustration: a property owner and a wholesaler execute a contract in which the wholesaler will purchase a property for $200,000, but the contract allows the wholesaler to assign the contract to another buyer.  The wholesaler then assigns the contract to an investor for a higher price of $210,000 and pockets $10,000 as an assignment fee.  The wholesaler essentially acts as a “middleman” and never owns the property, then profits from the difference between the original contract price and the assignment fee.

Due to its profitability, this practice is immensely popular.  Real estate wholesalers typically seek distressed or undervalued homes, and they often use tactics such as texting, phone calls, and television commercials offering to pay cash for houses.  However, real estate wholesaling has generated significant controversy because of its potential for misleading tactics – for instance, complaints have arisen in recent years about some wholesalers taking advantage of senior citizens and other vulnerable individuals who do not know their home’s true market value or who were not informed that they were a party to a wholesale transaction. 

Act 52 aims to quell these concerns by requiring real estate wholesalers to obtain licensing and by promoting greater transparency in wholesale transactions.  The Act amends the Real Estate Licensing and Registration Act (“RELRA”) by expanding the definition of “broker” and “salesperson” to include any person who engages or attempts to engage in a wholesale transaction.  All brokers and salespersons are required to obtain licensing under Section 301 of the RELRA.  The Act defines “wholesale transaction” as “[u]ndertaking to promote the sale, exchange or purchase of an equitable interest or other interest in residential property with the intent to assign, sell or otherwise transfer the interest for a fee, commission or other valuable monetary consideration without having taken title as the owner of record of the interest.”  The RELRA imposes both criminal and civil penalties for brokers or salespersons who conduct business without a license.

Act 52 also permits a consumer – defined in Section 201 as a person who is the recipient of any real estate service – to cancel contracts for wholesale transactions by the 30^th day after the date of execution or conveyance of the property, whichever occurs first.  When these contracts are cancelled, the wholesaler must refund all payments of any kind made by the consumer.  Further, all contracts for wholesale transactions must “prominently” disclose the following information:

• A statement that the contract is for a wholesale transaction, as defined in the Act;

• A statement that the consumer has the right to: (1) obtain an appraisal of the property, (2) consult with a licensee under the RELRA who is not affiliated with the wholesaler or the wholesaler’s broker, or (3) seek legal counsel before or after entering into the contract;

• A statement that the consumer has the right to cancel the contract by the 30^th day after the date of execution or conveyance of the property, whichever occurs first, by certified return receipt mail or any other bona fide means of delivery;

• A statement that within ten (10) business days after the receipt of a notice of cancellation, all payments of any kind made by the consumer shall be refunded to the consumer.

Contracts that do not contain the above information may be cancelled by the consumer at any time prior to conveyance of the property. 

Act 52 will take effect on January 4, 2025.  If you are engaged in the business of real estate wholesaling, it is imperative that you immediately obtain the licensing required under the RELRA and that you include the four (4) above-referenced items in your future contracts for wholesale transactions.  The Real Estate & Construction Group at Tucker Arensberg, P.C. will continue to monitor Act 52, including all associated caselaw, and will provide periodic updates.

Reprinted with permission from the December 26, 2024, issue of The Legal Intelligencer. © 2024 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved.