From car wash confessions to legislative lessons: The case for regulating wholesaling in alabama

Recently, I took my car to get cleaned at a local car wash company in town. 

The logo on my car sparked a conversation with a young kid checking me in. He wanted to tell me that he was a real estate investor and wholesaler and told me about his recent “deal.” He said unfortunately that he had to give the deal up because he was not legally old enough to wholesale in the state of Alabama.

I did not have at the time a positive view on wholesaling and that experience made me realize how out of control that “industry” has become. Thankfully, our friends to the east in South Carolina are taking some leadership that Alabama lawmakers should pay attention to. 

Before I get into that, let’s define wholesaling.

Wholesaling in general is when an “investor” locks in a contract with a seller that they typically have no intentions or ability to execute on and then flip this contract to a “real investor” for a profit. 

I use the quotes “investor” because I believe an investor by definition is someone who puts their capital at risk with plans of an expected return equal to the amount of risk for the investment. Since wholesalers typically have no capital, I don’t believe they are true investors. Many are looking to gain capital from wholesaling to become a true investor or to make a quick buck. 

Here’s a couple of the problems I see with the wholesaling industry. 

First, it’s a major disclosure and ethical  issue. If you can’t or don’t plan to execute on the contract with the seller then they should know that. Oftentimes, the seller is unaware that the buyer has no intentions to close and that they’re only after a quick paycheck. 

Second, if the wholesaler is not a true buyer or investor, but rather selling an option on a contract, this is very close to acting as a real estate agent. In the state of Alabama, there are laws governing real estate agencies. 

You have to get a license and be governed by the state. Also, one of the laws for agencies is that you can’t accept a “net listing,” i.e. the agent gets to keep everything above the amount the seller wants to sell it for. For example, if the seller wants $100,000 and the agent sells for $125,000, then the agent would keep $25,000 on a net listing. This is illegal in Alabama. In my opinion, this is very similar to what wholesalers do. 

Wholesaling is becoming a bigger issue in our city and state as exhibited by the kid at the local car wash who’s a self proclaimed “wholesaler.” Wholesaling has exploded over the past few years due to the availability of education on podcasts such as Bigger Pockets and our local area has one of the largest real estate investor groups in the US. 

It’s also exploding due to technology and AI. I’m personally inundated with spam texts and calls from wholesalers looking to purchase my investment properties.

I’m not a fan of a lot of government regulation, but wholesaling in Alabama is long overdue for regulation. A good place to start is to look at what our friends in South Carolina are doing. 

If you don’t have the capital to purchase a home, then you shouldn’t go under contract on it and if you’re going to sell someone’s property then you should be a licensed real estate agent per the laws in Alabama.

For more information, please visit www.mattcurtisrealestate.com. To check out more real estate resources, please visit Matt’s Youtube channel here.