BiggerPockets

I refer potential deals to investors, and I charge a referral fee to do so. This is legal in all 50 States. I charge more for any research I do or leg work involved. Your examples above refer to someone " retailing" properties or the confines of such. I'm a wholesaler if I put a property under contract below market or retail, and refer or assign the contract to an end buyer or investor for an assignment fee, this is legal and has been a legal way of doing business for decades involving other types of transactions also. The IRS says you are a Dealer if you flip enough properties, but the law doesn't stipulate you have to be licensed to do so, nor does the IRS. Now if they change laws to stipulate that if you buy or sell such and such a number of properties as a dealer and sell them at market value OR wholesale value, you have to be licensed, then we will get licensed. If I were doing enough referrals or being classified as a dealer by the IRS, i would want a business entity name and structure set up to benefit from tax advantages as well irregardless, but as an individual, I am not required to. Birddogs are simply referring potential deals, it's the substance of what they do, not brokering or acting as an agent for anyone. Now if they say they broker or represent the buyer or seller in the actual transaction, and have not been hired and specifically licensed to do so, they are breaking the licensing laws as you say. Normally, I don't put properties under contract, I just find out if the owner needs or wants to sell, do my diligence on it to be sure things are what they say they are and then refer it to an end buyer who pays me a referral fee at a predetermined amount or rate, again, all below market or retail. I'm a specialist because I do more research and look up comparable sales in the area surrounding the property, sometimes even having a Title company to help me but again I don't have to be licensed to do this either or the companies or homeowners that give me the information would require it. This is why most information on properties and ownership is available from public records, so anyone (FSBO's) can buy or sell their homes without having to have representation or a license to do so. You as a agent or representative, contracted by a retail buyer or seller, and licensed to do so, are subject to the laws and standards required of you as such, I am not. I would suffice to say, if you call yourself a bird dog or referral specialist or jobber or wholesaler, and that is what you actually do by the aforementioned descriptions, you are still operating within the spirit of the law and what it was intended to be and should not have legal problems. If you or someone you know is agonizing over this, consult with an attorney to be more sure if you desire to since my reply here is not intended as legal advice, just common sense. -Thank you.

Most states real estate licensing laws are very similar. Now in reference to Texas' real estate licensing laws, here's the text directly from the Texas Real Estate Licensing Act for what a broker is:

" a person who, in exchange for a commission or other valuable consideration or with the expectation
of receiving a commission or other valuable consideration, performs for another person one of the following . . .

. . . (viii) aids or offers or attempts to aid in locating or obtaining real estate for purchase or lease;

(ix) procures or assists in procuring a prospect to effect the sale, exchange, or lease of real estate; or

(x) procures or assists in procuring property to effect the sale, exchange, or lease of real estate . . ."

Now there are a couple exceptions, if you are directly employed by someone who has an interest in it or if you are doing it for a close family member then you are exempt.

By the technicalities of the law, bird dogging is a violation of these laws. Wholesaling, in which you have an equitable interest in the property, is not regulated by the state's licensing laws since you are technically selling your own interest in the property.

Now there is another side to the whole birddog argument. Investors normally use birddogs that are people with occupations that will bring them into contact with vacant properties (i.e. cablemen, utility company employees, newspaper delivery people, etc.). Investing is not their job and the likelihood of someone like this being prosecuted for referring properties to someone would be very unlikely.

I have seen some discussion about the legalities of someone offering a referral fee for deals, and I would say technically it would violate the RE laws if you pay that fee to an unlicensed person. Now as the laws read, the one in trouble is the person receiving the fee and not the one paying it, and again I would be surprised to see any actual legal action taken against anyone in these circumstances.

With all that said, I am not an attorney, and I would recommend that you consult a qualified attorney in your state about these questions.

P.S. I pay $1,000 referral fee for properties. :D

Because of the risks involved, I went ahead and got my license. The last thing I wanted or needed was to appear something I wasn't and have problems as a result of it.

You are generating the sale of that property by finding buyers and sellers. You are the " procuring" cause of the sale and are receiving funds for it. You can call it a fee for service or whatever you like, but under the law, it appears as a commission and you put the people together as is regulated of licensed real estate agents.

I did this for a while up until I realized how far over the line I was. People call it a gray area and I can't agree anymore. If it acts like a duck, walks like a duck and quacks like a duck, then it's probably a duck.

As Ryan was saying, I don't see legal action coming up against someone for this, unless you find an agent who is pissed because you're taking the commission that he's worked to be qualified to receive without doing any of that yourself or you piss a buyer or a seller off by not handling the deal well and it being exposed. You really have to be careful of everything you do to keep your butt covered. But in that case, why not go ahead and get your license and do something different than most realtors in investment real estate do? Why don't you take care of the investors well by giving them solid information under the legal parameters of the law and keep all of you safe?

That's the decision I made and while I didn't want to do it at first, I'm glad I did now.

I am talking about a real estate salespersons license.

I'm not sure that having an agent's license would help. Wouldn't you need to have a broker's license, or at least have a broker officially in on any of the deals (and presumably taking a cut) to make it less " illegal?"

So with a RE license, you must work for a broker to do any deals at all? I cant do this on my own even with a license?

But you don't need a RE license to do any of those things. I would say that if it is something you don't need a RE license for, then it doesn't need to go through a broker, but if you do need a RE license to do it, then I would think it would have to go through the broker. That's why I don't see how having a RE license without a broker's license is helpful to an investor (unless he/she also wants to be a real estate agent, but that's a different issue).

Hmmm, I wonder why that would be. I would think that as a licensed agent you would be held to higher standard legally and ethically. If transacting bird-dog types of deals does fall under the category of things you need a license for, and you were doing them without the approval of a broker, I would think you'd be looking at more trouble than the typical (unlicensed) bird-dog.

I'm a newbie, so please bear with me.

What if you were getting an option to buy, or signing a purchase contract, which allowed you the right to assign your interest to another party? Would that really be classified as wholesaling, and not bird dogging, or, are they one and the same?