BiggerPockets

I just got done reading the post "Attention Birddogs: This is a Must Read For You! (7 Steps To Get Started Now)" There was a question raised about the legality of bird dogging. The conclusion was basically to check with a local real estate lawyer to find out for sure. I will do that but I would still like some feedback from BP on 3 questions:

1. I want to bird dog because I have no REI experience and it seems like a great way to get my feet wet. I don't care about making any money. If I did it for free just so I can learn, wouldn't that be legal anywhere? If an investor was grateful and wanted to give me money, like a tip or something, should I refuse it (assuming it is illegal where I am)?

2. Do wholesalers need real estate licenses? If not, please explain how wholesaling is legal if bird dogging is illegal. From that post the law was quoted as: "Anyone who, for compensation, sells, offers to sell, buys or offer to buy, or negotiates the purchase or sale or exchange of real estate...leases or offers to lease or rents or offers to rent any real estate or improvements thereon is required to hold a real estate license."

3. I've read other places on the internet that paying "finders fees" is only illegal for licensed real estate professionals. Well, I am currently taking classes to get my real estate license. Does that mean I could not use bird dogs if I became a wholesaler? I will ask this in my next class and follow up with that response.

Thanks,
Leslie
:clap:

Originally posted by J Scott

1. Yes, if you wanted to bird dog for free, that would certainly be legal anywhere. As for taking payment for your services (regardless of what you call that payment), it will depend on your local laws.

2. No, wholesalers do not need real estate licenses. The difference between a wholesaler and bird-dog is that the wholesaler actually has the property under contract, giving him (if done correctly) an equitable stake in the property...the wholesaler is allowed to profit from the sale a property he has an equitable stake in, and that profit can be made legally at the closing table.

3. I'm not sure about other places, but my wife is an agent, and where I live, I know of no sure-fire way for us to pay a bird-dog without breaking the rules. One potential work-around is to have a Independent Contractors Agreemetn and to pay the bird-dog as a contractor (1099). I'm not positive that is legal though...

I completely agree with J Scott.

I would like to add in regards to #1 that I don't see how Birddogs can fall into the category of selling, offering to sell, buys, offers to buy, negotiates the purchase of the sale or exchange of real estate...lease or offers to lease, rents or offers to rent...

I just can't see how someone who locates the property and says, "Hey this is a good deal, you should buy it" would need a license.

Then again I'm not Lawyer, so I'm not here to give you legal advice. Trust me when I say, talk to a lawyer or legal consultant, it's the only way you'll know for sure...for yourself. That's what I did.

Also, the Independent Contractor Agreement is heavily used in birddoging from what I've seen, along with the Joint Venture/Partnership agreement.

Thanks for the responses. I guess I should get my real estate license in case I ever do want to receive a fee.

I did ask about bird dogging in class. My instructor, a broker, was repulsed by the concept. He said that it was illegal and I asked him why. He said that because you are brining properties to potential buyers, you are acting as a real estate agent.

Here is my personal thought about the issue. I'm not a lawyer or a real estate licensee (yet) but I don't see how this makes sense. As a bird dog, I have no power to act on behalf of 'my client' in the transaction, so there is no actual agency. So now we are saying that even recommending a property is illegal. I told my instructor how I found a BEAUTIFUL Detroit home for $17,000 3 bed, 2 bath in a really nice neighborhood. I don't want to own in Detroit so I told my girlfriend about it since she's a Detroiter and wants to buy in Detroit. Currently she rents for $650/mo so she could probably save $400-$500/mo if she bought this place. So I asked him if what I did is illegal. He said "Yes." But why?? She know's I'm not an agent and if necessary I could have said "based on my unlicensed, unqualified opinion, this place might be a great deal for you, but you should seek the opinion of a licensed professional before proceeding." So what if she loves it, hires an agent to help her buy it, then takes me for a day at the spa in thanks? Laws requiring licensing are usually in place to protect the public from people who represent themselves as capable when they are not. So who does this law protect? It's like if my friend had a headache, and I offer her asprin or ibuprophen, what I'm doing is illegal because I'm not a doctor. I'm sure this law is in place because it prevents some kind of higher level fraud that I'm not aware of but when it's applied to bird dogging, it seems like the industry is just trying to protect it's interests. I feel like it's not warranted because I don't see a conflict of interest or potential for fraud like with kickbacks, and I don't see a danger to the public because investors are not unaware of your qualifications or ignorant about real estate transactions.

Like I said, I accept all your advice. If there is anyone out there who can clarify the purpose of this law for me, I'd be glad to hear it.

Thanks!
Leslie

Originally posted by Financexaminer

Acting in the capacity as a principal in the transaction is the key. Stay away from being a facilitator between other parties and you should be fine. Bill

Bill, I'm glad I came across this. As you know, I just talked to someone who wants me to bird dog for him. What's the difference between facilitating and acting as a principal?
This guy said he wanted to just cut me a check of 10% when it closes. I'd like to get more involved in the process like assigning; I think assigning is better from a legal stand point.
He did mention as acting a liaison would give me 25%. Would that be a principal or facilitator? So much to learn...

Originally posted by J O

The guy who wants me to bird dog for him wants to work off a 1099 agreement.

Things get a little murky when you try to encapsulate a bird-dog agreement as an independent contractor situation. Not saying it can't be done (perhaps even legally), but you might want to chat with a real estate attorney and cover your bases.

I can't speak for other localities, but in my state (Georgia), the only time a referral fee is legal is when it is paid by an unlicensed seller (i.e., not an agent or broker) to another unlicensed person (presumably someone who made the referral). If the laws in your state are similar, it might be best to try to somehow get the referral fee from the seller instead of the buyer.

Originally posted by Leslie Coxon

Thanks for the responses. I guess I should get my real estate license in case I ever do want to receive a fee.

That doesn't necessarily fix the issue. As an agent you work for a broker. Your fee has to go through the broker and he or she will take their cut. They will also expect you to have a buyers agency agreement and comply with all the other laws. It is unlikely that you will find a broker that will go along with this.

I don't see how this makes sense. As a bird dog, I have no power to act on behalf of 'my client' in the transaction, so there is no actual agency.

This is not the issue. Most state laws say the practice of "Real Estate Brokerage" is "for compensation, putting a buyer and seller together"

So now we are saying that even recommending a property is illegal.

In most states, only if "for compensation"

I told my instructor how I found a BEAUTIFUL Detroit home . . . I told my girlfriend about it since she's a Detroiter and wants to buy in Detroit. . . . So I asked him if what I did is illegal. He said "Yes." But why??

If you didn't receive compensation The instructor was probably wrong. He was certainly wrong by Maryland law.

Laws requiring licensing are usually in place to protect the public . . . So who does this law protect?

Careful who you vote for. Every protection for a careless consumer restricts the freedom of intelligent consumers.