Non-Compete Agreements in Real Estate
A non-compete agreement (also called a non-competition clause or covenant not to compete) is a contractual provision that restricts one party from engaging in a competing business within a defined geographic area for a specified period. In real estate, non-competes appear in brokerage employment agreements, wholesaling team agreements, partnership dissolutions, and business acquisition contracts.
Where non-competes appear in real estate
Brokerage agreements: Some brokerages require agents to sign non-competes restricting them from practicing in the same market for 6-24 months after leaving. Enforceability varies widely by state.
Wholesaling teams: If you build a wholesale team with acquisitions managers and disposition specialists, non-competes prevent them from leaving to start a competing operation using your systems, buyer lists, and deal flow.
Partnership splits: When a wholesaling partnership dissolves, non-competes prevent one partner from immediately competing for the same deals and buyers.
Business sales: When selling a wholesale business (buyer list, systems, brand), the seller typically agrees not to compete in the same market for a defined period.
Enforceability
Non-compete enforceability varies dramatically by state. California and a few other states generally do not enforce non-competes against employees. Texas enforces them if they are reasonable in scope, duration, and geography. Most states evaluate reasonableness on a case-by-case basis. A non-compete that prohibits someone from wholesaling anywhere in the United States for 10 years would likely be unenforceable. One that covers a single metro area for 12 months is much more likely to hold up.
For wholesalers
If you hire team members, a non-compete protects your buyer list, deal sources, and systems. If you are joining a team, understand the non-compete terms before signing. The most critical protection is usually the buyer list — that is the most valuable asset in a disposition business and the hardest to recreate.