Wholesaling a 40-Lot Subdivision: Assignability, Disclosure, and the End Buyer
You represent a land wholesaler who has 40 finished, platted single-family lots under contract at $55,000/lot ($2.2M total) with a 90-day close and a $50,000 earnest money deposit. The wholesaler's plan is to assign the contract to a national homebuilder at $68,000/lot ($2.72M), netting ~$520,000 before fees. The purchase agreement with the original developer contains a clause: 'Buyer may not assign this Agreement without Seller's prior written consent, which shall not be unreasonably withheld.' The homebuilder's due diligence reveals that 6 of the 40 lots have a drainage easement that encroaches on the buildable pad, reducing those lots' value to about $40,000 each. The wholesaler has not yet told the homebuilder about the easement. The 90-day clock has 22 days remaining.
1. What are the wholesaler's legal and ethical exposures, and how should you advise handling the easement disclosure and the assignment consent?
Read the worked answer
Disclosure exposure. The wholesaler knows of a material defect (6 impaired lots) and has not disclosed it to the end buyer. In most states this is a material fact that must be disclosed; silence in the face of known adverse facts can support fraud/misrepresentation claims and jeopardizes the broker's license. Advise: disclose in writing immediately, before the homebuilder's diligence period expires, and re-price.
Assignment consent exposure. The clause requires the developer's consent 'not unreasonably withheld.' The wholesaler must request consent in writing now - 22 days is tight. If the developer refuses or delays, the wholesaler cannot close the assignment and may be in breach with the homebuilder. Do not assume consent; get it in writing.
Economic reality check. Re-price the deal: 34 good lots × $68k = $2.312M; 6 impaired lots × $40k = $240k; total ≈ $2.552M vs. $2.2M cost - still profitable (~$352k gross) but far below the $520k projection. Present the corrected math to both parties.
Broker conduct. The wholesaler's role is a principal/assignor, not merely a broker, but if you are licensed and involved you owe disclosure duties. Document every communication. Never let the client 'quietly' assign without consent and without disclosure - that is the fastest path to a lawsuit and a license complaint.
2. The developer refuses consent unless the wholesaler splits the assignment profit 50/50. What are the wholesaler's options and which do you recommend?
Read the worked answer
Options:
- Accept the 50/50 split - nets ~$260k on a deal that was ~$520k. Preserves the relationship and closes inside the 22 days.
- Challenge the refusal as 'unreasonably withheld' - the clause arguably prohibits a pure profit-split demand unrelated to the seller's legitimate interest. But litigation/arbitration takes months; the 22-day clock makes this impractical for this deal.
- Close in the wholesaler's own name and resell later - requires the wholesaler to fund $2.2M (or get a lender), which a typical wholesaler cannot do in 22 days; also converts a flip into a longer hold with carrying cost.
- Renegotiate with the homebuilder - pass some of the split through by adjusting the assignment price, but the homebuilder has already seen the easement issue and will resist.
- Walk / forfeit EMD - leaves $50k on the table and burns both relationships.
Recommendation: negotiate the split down (e.g., 25–30% to the developer) and close. The realistic alternative - litigating 'unreasonable withholding' - cannot beat a 22-day deadline, and forfeiting $50k to prove a point is poor economics. Going forward, the wholesaler should insist on freely assignable contracts and complete diligence before going hard, so a single consent clause cannot hold the deal hostage.