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Real estate wholesaling is the process through which an individual, the “wholesaler,” enters into a purchase contract with the seller of real property and assigns, for profit, that same contract to an end buyer. Notably, the process of wholesaling differs from “fixing and flipping” real property in that the wholesaler does not close escrow, performs no renovations, and incurs no carrying costs. Rather, the wholesaler assigns their contract rights to a third-party buyer who ultimately purchases the property directly from the seller.  

Upon entering into a purchase contract, a wholesaler obtains equitable title, which is the interest retained by a person who has contracted to purchase a property but has not yet closed the transaction. This is different than legal title, which is actual ownership of the real property. Wholesalers must therefore remember that they cannot sell the property itself and must market and sell only their equitable interest. Stated differently, the wholesaler is selling their contractual rights, which is their sole interest in the property.

The process of wholesaling exposes real estate licensees to a great deal of potential liability. Disclosure and transparency are absolutely critical, yet even with full disclosure, sellers are often dismayed to learn that the wholesaler was able to assign the purchase contract to an end buyer who is ultimately paying more money than the contract price between the seller and wholesaler. To mitigate the risk, fully understanding the process is critical and real estate licensees are therefore encouraged to consider the below frequently asked questions and corresponding answers.

This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel

Scott Drucker

A licensed Arizona attorney, Scott is General Counsel & Assistant CEO for the Arizona REALTORS® serving as the primary legal advisor to the association.

Scott Drucker