REALTOR® Advocacy Leads to New Law

REALTOR® Advocacy Leads to New Law

In case you missed it, AAR had an exciting update about a REALTOR®-backed bill being signed into law. As we reported in May, the new law, Act No. 2023-201, makes significant changes to two real estate practices: 40-year right to list agreements and wholesaling. Effective August 1, these changes have the potential to impact how you do business. Continue reading to learn more about the law, as well as best practices to help you maintain compliance.


40-Year Right to List Agreements

The first change to the law relates to the practice of recorded, 40-year right to list agreements. AAR’s concern about these agreements is their predatory nature toward consumers due to their long duration and the nature of the agreements as liens that run with the land. The agreements create clouds on the titles of Alabama homes, burden Alabama homeowners with false promises, and create unreasonable restraints on real property. The agreements are particularly problematic when they target vulnerable populations.

An Example of How the Issue Occurs

      • Companies target homes in specific areas of a community, typically elderly and vulnerable populations, offering cash in return for 40-year listing agreements.
      • The agreements run with the property they are on, not with the owner.
      • The agreements cloud the property’s title, hampering the owner’s ability to borrow money through a mortgage or home equity loan.
      • The agreements entitle the company to a fee every time the home changes hands over the 40-year life of the agreement. 
      • The advertisements and explanations of this practice are deceptive and do not fully explain the terms of the agreement.

Alabama is not the only state to address the issue – the Attorneys General of Massachusetts, Pennsylvania, Ohio, and Florida all sued a firm who regularly engaged in the practice. Additionally, Colorado, Georgia, Tennessee, Idaho, Maryland, North Dakota, and Utah have passed legislation related to long-term listing agreements.  

The new law classifies long-term listing agreements as “unfair service agreements” and prohibits any agreements that fall into this category. Under the law, a prohibited unfair service agreement is one that meets the following criteria:

  1. Deals with the provision of services in connection with the purchase or sale of residential real estate;
  2. Lasts for more than one year; and
  3. Either:
    1. Purports to run with the land or be binding on future owners of interest in the property,
    2. Allows for assignment of the right without notice to and agreement by the property owner, or
    3. Purports to create a lien, encumbrance, or other real property security interest.

When the law goes into effect on August 1, unfair service agreements will not be enforceable, and violators are liable to affected parties for $10,000 in damages. This means that after August 1, there should be no new unfair service agreements that meet the above description entered into in Alabama. Moreover, when the law becomes effective, new unfair service agreements will be considered a “deceptive act” under the Alabama Deceptive Trade Practices Act.

It is important to note that existing unfair agreements will not be automatically invalidated when the law takes effect. Therefore, knowing whether one of these agreements is in place over a property with which you may help a client is crucial. To figure that out, simply search the probate records of the county where the property is located. If you find an unfair agreement in place, an attorney should be consulted to help everyone understand their rights. If the property holder is interested, the new law creates a pathway for invalidating unfair agreements. This involves filing an action in the local Circuit Court where the agreement was originally filed. For agreements entered after August 1, the law also allows for statutory damages of $10,000, actual damages, court costs, and attorney fees.

Keep in mind that exemptions are built into the new law to avoid unintended consequences with other commonly utilized real estate-related contracts and agreements. The exemptions are:

  • Home warranties and similar products that cover house maintenance for a set period
  • Insurance contracts
  • Option to purchase and right of refusal
  • Maintenance/ repair agreements entered into by HOAs in common interest communities
  • Management agreements for residential real estate
  • Declarations of covenants, conditions, or restrictions created when forming an HOA, group of condominium owners, or other common interest community, or addendums to those documents
  • Mortgage loans and commitments to make or receive mortgage loans
  • Security agreements under Alabama’s Uniform Commercial Code relating to the sale or rental of personal property or fixtures
  • Water, sewer, electrical, cable, telephone, or other regulated utility providers
  • Mechanics’ or materialmen’s liens under Alabama Code § 3511-20 and other judicially imposed liens

Frequently Asked Questions:

  • What is the primary takeaway for practitioners as the law relates to 40year listing agreements?
    • 40-year listing agreements are unfair service agreements under the law. Avoid entering into any listing agreements that run with the land and have a duration greater than one (1) year.
  • Can companies enter into new unfair service agreements after August 1?
    • No. Doing so may result in both criminal punishment and civil penalties.
  • Are existing 40-year right to list agreements invalidated by the Act?
    • Not necessarily. The Act declares such agreements unenforceable, but it does not automatically invalidate existing agreements and the damages portion of the law cannot be enforced retroactively. If you find one of these agreements in force on a property, an attorney should be consulted.
  • Does the law limit all listing agreements to a one-year duration?
    • No. The law limits right to list agreements that last for more than one year and are recorded or purport to run with the land. “Running with the land” is a legal phrase that means the lien or other agreement attaches to the title and applies regardless of who owns the property.
  • Why wasn’t this legislation brought under license law?
    • The legislation goes beyond license law and has broader reach to apply to any entity, company, or person who engages in unfair service agreements, creating both criminal and civil penalties for violations. The business model of some companies who were engaging in the practice of 40-year listing agreements was structured specifically to circumvent and evade license law. As such, if an individual or company engaging in the practice was not a licensee, license law offered little recourse for those affected by unfair service agreements.


Second, the new law places limits on a deceptive practice known as wholesaling i.e., the marketing and selling for a fee of rights under an agreement to purchase a home without the knowledge of the seller. This legislation helps provide greater transparency and notice for unsuspecting homeowners. AAR’s concern about wholesaling pertains to Alabama homeowners being taken advantage of by companies who obtain an interest in a property, market that interest to third parties without the knowledge of the seller, and create unsafe and unfair conditions for the seller with very little recourse.

An Example of How the Issue Occurs

      • A wholesaling company targets homes in specific areas of a community, typically with elderly or vulnerable homeowners. The wholesaler makes an under-market value on the home.
      • For example, even though a home may be worth $150,000, a wholesaler offers $50,000, reaches an agreement with the homeowner, and enters into a contract to buy the home.
      • Immediately after signing the contract, the wholesaler begins marketing their interest to purchase the home to potential subsequent buyers at the market price of $150,000.
      • The wholesale buyer stands to make a windfall of $100,000 without ever taking possession of the home. This occurs to the detriment of the original homeowner, who has no knowledge that their home is being actively marketed by the wholesaler.

Unsuspecting homeowners, especially the elderly and vulnerable communities, can lose the equity in their home by not realizing the value of their investment and are unaware of the wholesalers’ intentions. Unaware homeowners are surprised by people coming to view their homes in response to the wholesaler’s marketing, leading to potentially dangerous situations. Another common practice is for wholesalers to go under contract on a house, market the property until closing, but back out of the purchase agreement if no subsequent purchaser can be found. Not only does this take the home off the market during that period, but it also leaves the homeowner having to file an expensive – and time-consuming – lawsuit to enforce the purchase agreement.

The new law requires a buyer engaging in wholesaling to disclose their limited interest, disclose the intent to market that interest, and disclose the assignment of the equitable interest. The new law applies only to single family residential real estate and does not apply to any other type of real estate transaction.

The requirements should not be taken lightly – failure to abide by them will constitute a Class C misdemeanor, punishable by both jail time and a fee. The law also allows for monetary damages (i.e., punitive damages) in the event of a violation, up to three times the amount gained through the undisclosed wholesale. Several other states have taken action on wholesaling residential real estate, including Arkansas, Illinois, Oklahoma, and Texas.

So, practically speaking, if you’re engaged in wholesaling single-family residences, what is required of you? Put simply, disclosure is key. If you want to market the property, you will have to disclose the buyer’s intent to market the seller’s equitable interest in the property before any marketing occurs. The seller must be informed of any agreement to assign the buyer’s interest to a subsequent purchaser at least 3 business days prior to the effective date of the assignment. Finally, the nature of the buyer’s equitable interest must be disclosed to prospective purchasers when the property is being marketed. This information is reiterated in the table below:


Disclosure to Who?

Disclosure of What?

When to Disclose?

To the Seller

Buyer’s intent to market the seller’s equitable interest

Before any marketing occurs

To the Seller

Effective date of any assignment of the buyer’s interest to a subsequent purchaser

At least 3 business days before the effective date of the assignment

To the Prospective Purchaser

Nature of the buyer’s equitable interest

When marketing the property


Frequently Asked Questions:

  • What is the primary takeaway for practitioners on residential wholesaling?
    • Disclosure and transparency are crucial under the new law. All parties must be fully informed of the nature of the wholesaling transaction and the intent to engage in the practice.
  • Does the new law completely prohibit wholesaling?
    • No. The Act places limits on wholesaling of single-family residences by requiring additional disclosure and creating civil and criminal penalties for non-compliance.
  • Can a person still engage in real estate investing?
    • Yes. Traditional investing in real estate property is unaffected by this change in law. As always, real estate investors should be mindful of the potential tax consequences and limitations under homebuilding licensure if the property is sold within one year of purchase, as well as potential capital gains taxes if the property is sold within two years of purchase.
  • What are the required disclosures for wholesaling under the Act?
    • The law requires disclosure at three different times. 1) Before marketing a property under a purchase agreement, the buyer should notify the seller of the intent to market. 2) In marketing the property, the buyer should notify potential buyers of the nature of the buyer’s interest (i.e., rights under a purchase agreement). 3) Upon reaching an agreement to assign or wholesale the property, the buyer should notify the seller three days before the assignment of the contract becomes effective.  
  • Is the right to contract protected?
    • Yes. The right to contract is a fundamental element of a real estate transaction and the law preserves this right. This means that an owner may go beyond the law to prohibit assignments or require that any assignments be agreed to in writing by the owner.
  • Can a law require a homeowner to be represented by a REALTOR®?
    • No. Just like the law cannot require that a person be represented by a professional in other settings – such as an attorney, a financial manager, or a homebuilder – the law also cannot require the use of a real estate agent to buy or sell a home. However, this issue highlights the importance of consumer awareness campaigns to help consumers understand the importance of utilizing a REALTOR®. A REALTOR’s® knowledge and expertise in real estate transactions can help ensure that the homeowner receives maximum value for their property.
  • Why wasn’t this legislation brought under license law?
    • The legislation goes beyond license law and has broader reach to apply to any entity, company, or person who engages in wholesaling, creating both criminal and civil penalties for violations. Like unfair service agreements, the business model of some companies who were engaging in engaging in wholesaling without disclosure was structured specifically to circumvent and evade license law. As such, if an individual or company engaging in wholesaling without disclosure was not a licensee, license law offered little recourse for those affected by issues that arose related to wholesaling.
  • Do you expect any further limitations on wholesaling to be brought under license law?
    • We expect that legislation may be considered to add an additional layer of accountability under license law for real estate companies and agents who may engage in the practice of wholesaling of single-family residential real estate.

If you have any questions about the law or how it works and you are a member of AAR, feel free to contact us at the Legal Helpdesk!