BiggerPockets

I've read a lot of stuff about real estate wholesale being illegal with out a licence. This is an excerpt from Havard graduate John T. Reed:
I suspect that much of what is advocated as flipping is really unlicensed brokerage. Indeed, the two actual-case-history articles I wrote about real flippers both involved real estate brokerage firms that did flipping as part of their overall activity.

I have heard gurus say words like, "You're really just bringing a buyer and seller together." On page 2 of Flipping Properties, the authors say, "Investors who flip houses accomplish the same basic tasks that real estate agents accomplish." Their point is how easy it is. My point is that if you are just bringing a buyer and seller together, you are not an investor, you are a broker.

It's not just a semantic issue. Brokers are licensed and heavily regulated. If you are engaging in brokerage without a license and without complying with the various regulations, you are breaking the law. In some states, a lawyer can broker real estate deals without getting a real estate sales or brokers license.

Also, i read elsewhere that "bird dogging" is illegal w/o a real estate liscence. Is all of this true? How can i find out?
Thanks!
~Noob

Hmm, i don't think i quite understand the phrase "principle to the transaction". Can you elaborate, please? Also, do you, by any chance, know how i can get my hands on this wonderful "contract" everyone is speaking of? I've heard of the clauses and such and the "and/or assigns" deal, but I don't exactly know how to get the contract itself. Should I hire a lawyer? And also....one more thing (sorry my post is so long): I thought bird dogging and wholesaling were interchangeable terms.

When you sign a contract to purchase a property, you're now a "principle" to the transaction. A broker never signs such a contract.

If you buy an option to purchase a property, you now own that option. So, you're a principle to that transaction.

If you actually buy a property, you're the owner. You can turn around and sell it to anyone for any price you like (notwithstanding some state laws) and pocket the gain (less taxes.)

A broker, on the other hand, markets the property. He or she brings the buyer and seller together, but is not involved in the buy/sell transaction itself.

This "contract" is a purchase contract. Goes by various names in various places. Every real estate broker has a stack of them in their briefcase or on their computer. If you've every bought or sold a property, you've signed one. They vary from place to place, and for different purposes. So there is no "the contract".

Bird dogging is different. Here you just find properties, then give the info to someone else who will wholesale it or buy it themselves. I'd suggest you do some reading here in the "Wholesaling" forum. You can learn a lot about this business reading here.

Thanks so much guys! I really appreciate the help! I've been doing hours of research on wholesaling on different websites and they all say different things most of the time, so i get really confused. I just found this site today, and i'm glad i can get "person to person" advice~ again, thanks!!

To Brian: I don't know what any of those transactions mean... I guess it's back to google for me! (I'm such a noob---)

Oh! I still don't know how to obtain those contracts. Would it be wise to get an attorney to compile one for me? Or can i go to office depot and use those (although, i've read that they are quite unprofessional as well as inadequate for wholesaling...)?

"I'd sure hate to tell my cell mate I'm in for using the wrong font on a contract, but that's the way the law reads."
Hahaha! that was funny! anyway, I did research some REIAs, but I don't know how much it costs to join yet (I'm in GA by the way). Well, thanks for your advice; I'm definitely going to put it to good use!

"Flipping" sometimes refers to wholesaling and sometimes to fix and flipping.

To Robin Vidovich
Hi! Thanks for the advice! For you, as an experienced wholesaler, do you get your contracts checked out by lawyers/attorneys (what's the difference anyway?) I've heard that it's safer that way, but is it necessary? I don't want to blow off a couple of hundred dollars if I don't need to...

If anyone knows, please help me out!

Also, does anyone know a $ amount (or an estimate) of how much it would cost to hire a lawyer to go over contracts with you?

Jaime,

You could save a lot of time and money by connecting with your local REIA...they will have all the forms you need that other investors have used.

If you are really worried about the legality of the form, then you could always buy one for your first deal...I did a google search and clicked on the first item that came up:

http://www.uslegalforms.com/Georgia.htm

There are a number of different types of contracts that you can use to accomplish the same thing..option, earnest money, purchase and sales etc...all you need is an ownership interest, or as jon said to be a "principle" to the transaction. Overall, if you want to find an end buyer before you actually take title, you need to have the legal right to market the property as the seller and enter into a contract with said end buyer.

Originally posted by Brian Gibbons

* Cooperative Assignment (Lease Option then sell-assign the contract
* Straight Option and Assign the Contract (flip)

These look interesting. I spoke with a guy today who is doing these in orange county. I answered his "Rent to own" ad on craigslist. Next thing you know I am telling him I want to do what he does and he's telling me he'll walk me through a couple deals for a 50/50 split. Sounds good to me. But I am trying to learn a little more before hand. The way he described it it did not sound like a typical sandwich lease option. Any recommendations on books/resources that cover these two?

Sorry Jamie, not trying to hijack your thread. Great thread by the way.

I am a newbie and this is my understanding of the licensure requirements for practicing real estate as it applies to investors.

If one is not a principal in a transaction, one has to have a license in Illinois. You are putting buyers and sellers together in a property transaction and getting paid for it. This requires a license.

When you are wholesaling a property - assigning or " selling" the contract to a buyer - technically you are not a principal in the transaction because you have not closed with the seller. So long as you close and are a principal, you do not require a license.

With regard to bird-dogging. the " Real Estate Act of 2000" in Illinois, talks of words like " customer" versus " client" etc. and, talks of " activities not rising to the level of 'agency' or brokerage" .
I would think that wholesaling and bird-dogging does not rise to the level of " agency" or " brokering" a transaction.
But the prosecutors at the department of professional regulation or someone sueing you for it - which like the others say is unlikely, to which I agree - can probably get you with the technicalities of the law.

If you get a sales license then you have to work with a brokerage and give them their cut of the commission. Now, after this, if you find a property on your own and, do the analysis on it for a buyer and, the buyer is willing to pay you the fee for it - either by putting together a contract with an assignment clause - wholesaling, - or simply giving the information to the buyer, bird-dogging - technically, the fee the buyer would pay you, would have to be routed thru the broker and the broker must get his cut. The salesperson must be paid thru a broker. Am I right ?

This defeats the purpose of setting up business as an investor i.e. of doing wholesaling and bird-dogging. And, if one wants to do wholesaling and bird-dogging one would have to be a broker and get a brokers license, not just a sales license - this in my opinion is an overkill to do the investor activities of wholesaling and bird-dogging.

It seems like I will have to get a sales license first. Then I can bird-dog and wholesale along with my broker - right ? Please correct me if I am wrong.
It doesn't make any sense to get licensed to do bird-dogging or wholesaling but since it is regulated the way it is, we have no choice but to work with a brokerage with a sales license or get a brokers license, which one cannot get until you get a sales license.

The crux of the matter is, can wholesaling and bird-dogging be technically differenciated from " agency" or " brokerage" . I mean in the event you get sued if the deal goes sour with the buyer or seller, can you win the case by changing lets say your job title and things like " customer of a business person" versus " client of a broker or sales agent" and saying things like " I am not an 'agent' of this principal - my intention is to 'be' the principal" - wholesaling - & " I am in the business of giving information - bird-dogging" and the " buyers are my customers not my clients to whom I have a fiduciary duty towards" etc etc.

I am trying to see if I can do wholesaling and bird-dogging without a license. I have not as yet enlisted an attorney to work on this in detail in Illinois to find out whether the specific activity of wholesaling and bird-dogging can be exempt from licensure - I have only spoken to an attorney and I was told that to be safe I should get a license. But in terms of time, money and effort of getting a sales license first and the outcome i.e. having to work with a broker should have a pay back that is proportional to the work you put in as a wholesaler or birdogger.

I mean is it worth it to get a sales license and then, if so, how do you setup the agreement with the broker for your wholesaling and bird-dogging activities ? That is, in terms of pay and agreements etc. Is it worth it ?

Has anyone checked with an attorney with regard to this and got a precise answer ?

Thanks