CT lawmakers push for tighter scrutiny of residential real estate wholesalers
SKYLER FRAZER
Joanne Breen, former president of CT Realtors testifying at the Legislative Office Building on Thursday,
Lawmakers have proposed a bill to regulate agreements between real estate wholesalers and sellers of residential property in Connecticut, as a way to protect residents from potentially confusing and unclear contracts.
Why does it matter?
According to BankRate.com, wholesaling saw a significant increase during the pandemic. That has led to increased scrutiny from some states and the media, which have raised concerns about predatory sales practices and the inability of homeowners to get out of deals.
What’s in the bill:
House Bill 5461, which was introduced by the Insurance and Real Estate Committee, would establish new guidelines for contracts between home sellers and real estate wholesalers, who are essentially middle men between people selling their properties and buyers. Wholesalers typically enter into contracts with homeowners that include a down payment and agreement to pay a certain amount of money when the home is eventually sold.
The proposed bill requires any real estate wholesaler to disclose, in writing, that it “intends to sell or assign such wholesaler agreement for a profit; does not represent the seller of the residential real property or such seller's financial interest; and intends to market the seller's residential real property for sale to prospective buyers or assignees of such residential real property.”
The bill would also require the property seller to provide the real estate wholesaler a written residential condition report that would then be shared with the prospective buyer. Contracts between sellers and wholesalers couldn’t exceed six months, per the bill.
Notably, the bill says any seller 65-years-old and up can terminate a wholesaler agreement without penalty up to the closing of the sale. The seller would have to provide written notice to the wholesaler and return their deposit.
Who’s for it:
Advocates of the proposal say older adults and those in tough financial situations are typically the ones to get taken advantage of because of real estate wholesaler agreements. Sellers sometimes don’t know the market value of their property and the potential profit the wholesaler could make when it sells.
Buyers are also sometimes at a disadvantage without having a condition report to disclose any potential issues with the property they’re purchasing.
“Sellers need to understand that they will likely be selling their property at a price considerably lower than the market value, because otherwise there wouldn’t be any reason for the wholesaler to want to do this — they want to make a profit,” Joanne Breen, former president of CT Realtors, said during a public hearing Thursday.
Who’s against it:
Thursday’s public hearing didn’t have any opposition, but state Department of Consumer Protection Commissioner (DCP) Bryan Cafferelli said in written testimony that the DCP recommends the bill’s language to further clarify the type of agreements covered and which specific rights a residential seller may contract away.
What’s next:
The Insurance and Real Estate Committee held a public hearing Thursday morning to hear from constituents about the proposal. No further action has been taken on the bill this session.
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