Regulating Real Estate Wholesale Transactions in Pennsylvania

On July 8, 2024, Pennsylvania Governor Josh Shapiro signed Senate Bill 1173 into law, now known as Act 52 of 2024. This legislation amends the Real Estate Licensing and Registration Act (RELRA) to address the practice of real estate wholesaling, introducing new definitions, licensing requirements, and consumer protections.

A wholesale transaction in real estate involves a party, known as the wholesaler, entering into a purchase agreement with a property owner with the intent to assign that contract to an end buyer for a profit, without ever taking title to the property. Essentially, the wholesaler acts as an intermediary, profiting from the difference between the contract price with the seller and the amount paid by the end buyer. Act 52 explicitly defines and regulates this practice within Pennsylvania.

Key Provisions of Act 52

1. Licensing Requirements: Individuals engaging in wholesale transactions are now classified under the definitions of "broker" and "salesperson" within RELRA. This classification mandates that wholesalers obtain the appropriate real estate licenses to legally conduct such transactions in Pennsylvania.

2. Disclosure Obligations: Wholesalers are required to provide clear disclosures to all parties involved, ensuring transparency about their role and intentions in the transaction. This measure aims to prevent misunderstandings and protect consumers from deceptive practices.

3. Consumer Protections: The act grants consumers the right to cancel sales agreements or contracts for wholesale transactions under specified conditions, offering an added layer of security for both buyers and sellers.

Rationale Behind the Legislation

The enactment of Act 52 addresses growing concerns over unregulated wholesaling practices that often exploit vulnerable homeowners, such as seniors or those facing financial difficulties. Unlicensed wholesalers have been known to use high-pressure tactics to secure properties at below-market values, subsequently assigning contracts to third parties for substantial profits, all without proper oversight. By requiring wholesalers to obtain real estate licenses, the act ensures that these individuals are subject to the same ethical standards and regulatory scrutiny as licensed real estate professionals.

Licensing and Background Checks for Real Estate Professionals

In Pennsylvania, obtaining a real estate license involves several steps designed to uphold industry integrity and protect consumers:

• Educational Requirements: Aspiring real estate salespersons must complete 75 hours of pre-licensing education, covering real estate fundamentals and practice.

• Examination: Candidates are required to pass the Pennsylvania Real Estate Salesperson Examination, demonstrating their knowledge of state and national real estate laws and practices.

• Background Checks: Applicants must undergo a criminal history check through the Pennsylvania State Police's PATCH system. The background check documents must be dated within 90 days of the application submission to ensure current information.

These stringent requirements aim to ensure that only qualified and trustworthy individuals are licensed to engage in real estate transactions, thereby protecting consumers from fraudulent or unethical practices.

By bringing wholesalers under the purview of RELRA, Act 52 ensures that individuals engaging in wholesale transactions are held to professional standards, including mandatory education, ethical obligations, and accountability to the State Real Estate Commission. This move promotes transparency and fairness in real estate dealings, safeguarding consumers from predatory practices.

Act 52 of 2024 represents a significant advancement in regulating real estate wholesaling in Pennsylvania. By mandating licensure and enforcing disclosure requirements, the act aims to protect consumers and uphold the integrity of the real estate market. As the legislation takes effect on January 4, 2025, it is crucial for individuals involved in or considering wholesale transactions to understand and comply with these new legal obligations.

If you are involved in real estate wholesaling or are considering such transactions, it is essential to understand the implications of Act 52 on your activities. Contact the experienced attorneys at The Ament Law Group to ensure compliance with Pennsylvania's real estate laws and to protect your interests in all transactions.