Yes. Wholesaling real estate is legal in Texas, but it is subject to specific disclosure requirements and licensing rules. A wholesaler generally enters into a purchase contract, acquires an equitable interest in the property, and then assigns that contractual interest to another buyer for a fee. Texas law allows this activity without a real estate license when the wholesaler complies with the law and does not engage in unlicensed brokerage.
What Is Real Estate Wholesaling?
In a typical transaction, the wholesaler signs a contract giving them a right or contractual interest to purchase the property. The wholesaler then finds an investor willing to take an assignment of that contract.
Texas law recognizes this distinction between legal title and an equitable or contractual interest. A person can acquire an option or interest in a contract to purchase real property and then sell the option or assign the contract, subject to statutory requirements.
Is a Real Estate License Required?
Generally, no. Texas Occupations Code Section 1101.0045 permits a person to acquire an option or enter into a contract to purchase real property and then sell the option or assign the contractual interest without holding a real estate license, provided the person does not use the transaction to engage in real estate brokerage.
Texas Real Estate Commission rules similarly state that a person may assign an interest in a purchase contract without a license when the person discloses the nature of the equitable interest and does not engage in brokerage activity.
The distinction is important: the wholesaler is selling a contractual interest, not representing the property owner as an agent.
What Disclosure Is Required?
Texas law requires written disclosure. Property Code Section 5.0205 requires a person, before entering into a contract to sell an option or assign an interest in a purchase contract, to disclose in writing to the potential buyer that the person is selling only an option or assigning a contractual interest and does not hold legal title to the property.
The same statute also requires written disclosure to the property owner that the wholesaler intends to sell the option or assign the contractual interest.
These requirements became particularly important after legislation effective January 1, 2024, expanded the written disclosure obligation to both buyers and sellers.
What Happens if the Wholesaler Does Not Disclose?
Failure to make the required disclosure can create licensing problems. TREC explains that a person offering an equitable interest without properly disclosing its nature may be considered to be engaging in real estate brokerage. If the activity constitutes brokerage and the person is not licensed or otherwise exempt, the transaction can create regulatory and legal exposure.
Wholesalers should make the required disclosures in writing rather than relying on verbal explanations.
Can a Wholesaler Advertise the Property?
This is an important distinction. A wholesaler should not market a property as though the wholesaler owns the property when the wholesaler only has a contractual or equitable interest.
TREC states that if a person offers a property for sale when the person does not own the property, that person may be engaging in brokerage and must be licensed. By contrast, a person can advertise and assign the person’s contractual interest if the nature of that interest is accurately disclosed.
Advertising should clearly identify what is actually being offered.
Can an LLC Be Used for Wholesaling?
Yes. A wholesaler may use an LLC, but forming one does not eliminate licensing or disclosure requirements. The legal analysis still depends on what the person or entity actually does in the transaction.
What Should a Texas Wholesaler Check?
A wholesaler should review the purchase and assignment agreements carefully. Important provisions can include assignment rights, purchase price, earnest money, deadlines, closing requirements, default provisions, and written disclosures concerning the wholesaler’s contractual interest.
The underlying purchase contract should also be reviewed for its assignment provisions before the wholesaler markets the contractual interest.
Is Wholesaling the Same as Flipping?
No. A flipper generally purchases and takes title before reselling. A wholesaler generally assigns a contractual interest before taking legal title.
The two strategies therefore involve different legal and financial structures.
Conclusion
Wholesaling real estate is legal in Texas when conducted within the state’s real estate laws. A person can generally enter into a purchase contract and assign the contractual interest without a real estate license, provided the person is acting as a principal rather than performing unlicensed brokerage and makes the required written disclosures.
Texas law requires disclosure to both the potential buyer and property owner. Misrepresenting an equitable interest as ownership can create licensing and legal problems.
Anyone planning to wholesale property in Texas should review the contracts and consider advice from a Texas real estate attorney.
