ACT 52 EFFECT ON REAL ESTATE WHOLESALING

On July 11, 2023, Pennsylvania Governor Josh Shapiro signed Act 52 into law, significantly impacting real estate wholesaling practices within the Commonwealth. This article examines the key changes introduced by Act 52 and their implications for real estate wholesalers operating in Pennsylvania.

 

What is “Retail Wholesaling? Real estate wholesaling involves contracting a property and then assigning that contract to another buyer for a fee. Prior to Act 52, this practice was largely unregulated in Pennsylvania, leading to concerns about consumer protection and market transparency. The initial buyer never takes title to the property, assigning any and all interest in the property he has to the new buyer, who actually purchases the property. If you are a “wholesaler”, then this act now imposes Licensing Requirements.

 

Under Pennsylvania's Act 52, the Real Estate Licensing and Registration Act (RELRA), there are specific exemptions to the real estate licensing requirements. These exemptions include:

 

(1) An owner of real estate with respect to property owned or leased by such owner. In the case of a partnership or corporation, this exclusion shall not extend to more than five of its partners or officers, respectively, nor to other partnership or corporation personnel or employees. This exclusion shall not apply to a wholesale transaction.

(2) The employees of a public utility acting in the ordinary course of utility-related business under the provisions of Title 66 of the Pennsylvania Consolidated Statutes (relating to public utilities), with respect to negotiating the purchase, sale or lease of property.

(3) The officers or employees of a partnership or corporation whose principal business is the discovery, extraction, distribution or transmission of energy or mineral resources, provided that the purchase, sale or lease of real estate is a common and necessary transaction in the conduct of such principal business.

(4) The services rendered by an attorney-in-fact under an executed and recorded power of attorney from the owner or lessor (provided such power of attorney is not utilized to circumvent the intent of this act) or by an attorney at law.

(5) A person acting as trustee in bankruptcy, administrator, executor, trustee or guardian while acting under a court order or under the authority of a will or of a trust instrument.

(6) The elected officer or director of any banking institution, savings institution, savings bank, credit union or trust company operating under applicable Federal or State laws where only the real estate of the banking institution, savings institution, savings bank, credit union or trust company is involved.

(7) Any officer or employee of a cemetery company who, as incidental to his principal duties and without remuneration therefor, shows lots in such company’s cemetery to persons for their use as a family burial lot and who accepts deposits on such lots for the representatives of the cemetery company legally authorized to sell the same.

(8) Cemetery companies and cemeteries owned or controlled by any of the following:

(i) A bona fide church, religious congregation or fraternal organization.

(ii) An association created by a bona fide church, religious congregation or fraternal organization.

(iii) A municipality.

(9) An auctioneer licensed under the act of September 29, 1961 (P.L. 1745, No. 708), known as “The Auctioneers’ License Act,” while performing authorized duties at any bona fide auction.

(10) Any person employed by an owner of real estate for the purpose of managing or maintaining multifamily residential property: Provided, however, That such person is not authorized or

empowered by such owner to enter into leases on behalf of the owner, to negotiate terms or conditions of occupancy with current or prospective tenants or to hold money belonging to tenants other than on behalf of the owner. So long as the owner retains the authority to make all such decisions, the employees may show apartments and provide information on rental amounts, building rules and regulations and leasing determinations.

(11) The elected officer, director or employee of any banking institution, savings institution, savings bank, credit union or trust company operating under applicable Federal or State laws when acting on behalf of the institution in performing appraisals or other evaluations of real estate in connection with a loan transaction.

These exemptions indicate that while certain individuals and entities are not required to have a real estate license under specific conditions, the exemption does not extend to wholesale transactions, meaning that wholesaling real estate would still require compliance with the licensing requirements under RELRA § 455.304. Exclusions.

 

To comply with Act 52, current real estate wholesalers in Pennsylvania should take the following specific steps: First, they must ensure they are properly licensed under the expanded definitions of "broker" and "salesperson" as amended by Act 52. This act now includes parties who engage in real estate wholesale transactions within these definitions § 2.00 Act 52 of 2024, The Wholesale Real Estate Transaction Transparency and Protection Act. Second, wholesalers are required to disclose to consumers the nature of the sale. This means they must clearly inform consumers that the transaction involves 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 § 2.00 Act 52 of 2024, The Wholesale Real Estate Transaction Transparency and Protection Act. Additionally, under certain circumstances, wholesalers must grant consumers the right to cancel contracts for wholesale transactions. This provision is designed to protect consumers and ensure transparency in wholesale real estate transactions § 2.00 Act 52 of 2024, The Wholesale Real Estate Transaction Transparency and Protection Act. Failure to comply with these requirements can result in civil penalties. The Pennsylvania Real Estate Commission may levy a civil penalty of up to $1,000 on any person who practices real estate without being properly licensed under this act, after affording the accused party the opportunity for a hearing § 455.305. Civil penalty. By following these steps, real estate wholesalers in Pennsylvania can ensure they are in compliance with Act 52 and avoid potential penalties.