Real estate licensees may encounter wholesaling arrangements in which an investor enters into a purchase contract with a property owner and then seeks to find another buyer willing to purchase the property at a higher price. In some arrangements, the investor uses a process called "novation," in which the original purchase contract is replaced with a new contract between the property owner and another buyer.
These arrangements may also involve a limited power of attorney authorizing the investor to sign listing agreements and other documents on the property owner's behalf. The investor may then engage a real estate firm to market the property and locate a buyer, even though the investor does not own the property.
These arrangements raise several legal questions, including the investor's authority to act on behalf of the property owner, potential conflicts of interest, how the investor will be compensated, and whether the arrangement complies with Wisconsin real estate licensing laws. Licensees should not assume that an investor's contractual interest in a property or a power of attorney resolves these concerns.
Before agreeing to provide brokerage services in connection with this type of arrangement, licensees should have their firm's legal counsel review the proposed contracts and transaction structure to evaluate the legal implications and the firm's obligations.
