What is and isn't bird dogging ?

18 Replies

People have brought me real estate deals for many years. Some I bought, some I didn't buy, and some I paid a finder's fee - I thought of it as a huge tip for a great service. On BP I read that this practice - telling someone about a property they may want to buy is illegal. OK; so what can be done legally? Is it the doing or the being paid for doing that is illegal?

Also: how about if someone brought me a property and I gave them equity in it instead of paid them cash - is that illegal? Actually that seems like it might be a better arrangement all around than just: Here's a grand - thanks.

What is the legal / illegal line for non-Realtors?

These laws vary from state to state. In Florida, it is a violation of Chapter 475 F.S. to pay or agree to pay compensation. to someone for buying or selling real estate . That is simple. When I teach this in real estate school, I explain to the students that there are no questions on the real estate exam about, "What can you get away with?".

The big problem with 'birddogging' is that it is illegal. What if you agreed to pay Mr. Layman for sending you a deal. Mr. Layman sent you a deal. You refused to pay him. He has no recourse in court.

What if Mr. Layman sent a deal to his friend. This turned into a BIG DEAL. The friend bought a ten million dollar property because of the referral.. The friend refused to pay. Mr. Layman has no recourse. Does this happen? It happens with properly licensed real estate agents. I suppose it happens with laymen,

Need to look closely to state law. Here, as well as other states, like the word "facilitate" which can have broad applications. If you even facilitate a deal it can be illegal. Some add, facilitate with the expectation of compensation, some compensation may be required.

IMO, it's the intent of the law, not so much the letters used.

In your case Stephen, you're not the one acting without a license. However you are paying amounts outside of settlement in the acquisition of real estate that if undisclosed can then be a violation of mortgage, settlement laws and tax code. I'd say common sense prevails, a hundred bucks may not set off sirens, a thousand could very well, I'd say it must be significant to the value of the transaction. I'd say off hand, IMO, a half point is significant, $500 on a $100,000 deal. But the law isn't written that way, it points to any cost or expense incurred. Common sense again tells you that you don't need to calculate the cost of fuel going to closing or claim mileage, but you could.

I suggest putting birddogs in your LLC as a restricted member with an interest in management activities and pay them, however, as a member rather than as a contract employee or independent contractor. Their job could be to locate deals all day long in their company position. You could have 50 birddogs, some may not work as much as others. Not only are they acting as a principle but most states have license exemptions for administrative staff of property owners. Then, whatever you pay them is expensed on the books and income taxes paid, no more under the table stuff. :)

Promotion
Innago
Property Management Software
Manage Your Rentals Better For Free. Save Time & Money.
Easily Collect Rent, Screen Tenants, Sign Leases, List Properties, Manage Work Orders, & Much More!
100% Free Try It Now

Sure, taking them in as a partner is fine, you may want to consider the financing issues with partners being considered.

But, I think that's too far over the top saying that finding a deal warrants sharing in it without other participation.

Giving a small percentage in title away isn't a good idea. As mortals, your partner can get hit by a bus. If you decide to sell, you'll be dealing with someone you may not know and they may have a different idea of what the value might be.

Partners need to be selected carefully, they may be subject to legal and financial matters that can effect your business. Reputation will come into play as well, birds of a feather flock together. Birddogs are often seen as working illegally or unethically, usually the reason they don't do a deal is due to the lack of knowledge. I certainly would not someone known to be working with, for, or in partnership with, me out there making mistakes or possibly crossing the line.

While I mentioned putting them inside your LLC, taking on birddogs is very much like a real estate broker taking in agents. Inside or out of a company you may be responsible for their actions. And, you won't be able to operate quietly with birddogs, the parties to the contract will find out, the closing agents see things and lenders may see things as well and the grapevine is always active. :)

Thanks Bill.

I always try to think of new and interesting ways to do things.

And on here I see people saying they'd like to get into this business but they have no money, no experience, and so forth. Something that I don't overly care for is birddogging - I scare them up; yes. But it's more a necessary evil to me. It's like Realtors - I love them and a good one is worth every penny of their commission. So I don't try to sidestep them. They do the things that I do not like to do. <g>

So, in the same line of thinking; I was just wondering to help someone else while helping myself. I would happily pay someone to find properties for me but if that is illegal then I thought to maybe come up with some other way. My thought was that there might be some way for us to both help each other. I don't know how it would be structured - that's why I am discussing it now. I don't want them to feel cheated but obviously I can't give them 50% either. I was just curious what could be done.





Originally posted by @Bill Gulley :
Sure, taking them in as a partner is fine, you may want to consider the financing issues with partners being considered.

But, I think that's too far over the top saying that finding a deal warrants sharing in it without other participation.

Giving a small percentage in title away isn't a good idea. As mortals, your partner can get hit by a bus. If you decide to sell, you'll be dealing with someone you may not know and they may have a different idea of what the value might be.

Partners need to be selected carefully, they may be subject to legal and financial matters that can effect your business. Reputation will come into play as well, birds of a feather flock together. Birddogs are often seen as working illegally or unethically, usually the reason they don't do a deal is due to the lack of knowledge. I certainly would not someone known to be working with, for, or in partnership with, me out there making mistakes or possibly crossing the line.

While I mentioned putting them inside your LLC, taking on birddogs is very much like a real estate broker taking in agents. Inside or out of a company you may be responsible for their actions. And, you won't be able to operate quietly with birddogs, the parties to the contract will find out, the closing agents see things and lenders may see things as well and the grapevine is always active. :)

If I were to do this I'd use an LLC and make them a member. They could have a 5% interest. They could benefit from work done inside the company. You would buy out their 5% interest inside the terms of the operating agreement.

The LLC buys a 60K property, then you buy out their interest in that property for $3,000. Now, the property is totally in your capital account. The 3K is also expensed and the BD has earned income. It's not a settlement issue as the LLC is the buyer. Show your commercial lender the operating agreement where the BD interest is purchased after settlement and I doubt they will consider such a small interest held for an hour after settlement.

The interest purchased doesn't have to be a % of the price either, it could be a flat rate.

I'd also check on their abilities too. :)

That must be why you get the big money brother! That seems like a real fine idea and strategy to accomplish the end. I'll have to see if I can find anybody locally who thinks it's a good deal for them.

Thanks!






.
Originally posted by @Bill Gulley :
If I were to do this I'd use an LLC and make them a member. They could have a 5% interest. They could benefit from work done inside the company. You would buy out their 5% interest inside the terms of the operating agreement.

The LLC buys a 60K property, then you buy out their interest in that property for $3,000. Now, the property is totally in your capital account. The 3K is also expensed and the BD has earned income. It's not a settlement issue as the LLC is the buyer. Show your commercial lender the operating agreement where the BD interest is purchased after settlement and I doubt they will consider such a small interest held for an hour after settlement.

The interest purchased doesn't have to be a % of the price either, it could be a flat rate.

I'd also check on their abilities too. :)

Just to understand from my perspective, why wouldn't you use a realtor? A good realtor that specializes in investments would be invaluable. Perhaps all you guys can give me some insight on why a investor would use a bird dog and not a professional? Especially when you are willing to pay anyway and there is so much risk involved with using them. I love conversations like this, give me some insight guys, so I can be even better with my investors :)

@Lauren Taylor

Great question! The deals that bird dogs bring me are not deals that are MLS deals. I think that's the point of bird dogs they find off market deals that aren't being approached by realtors other investors. I have a lot of great bird dogs bringing me deals. I'm even developing my own database software to manage them all. I think a Realtor that specializes in investments has value but mainly on MLS deals. We search the MLS too. I hope that answers your question.

@Stephen S.

I am not an American and only know Tennessee law as that is where I operate but why can't you just pay an assignment fee to your finders. They sign up the deal in their name (or their entity name) and assign it to you for a fee. Problem solved? Thats what I do in Tennessee anyway and it ain't illegal.

As I said; I love using a Realtor. But few are interested in dealing in what I want to buy. Which is pretty 'bargain basement' to them. Selling a $20K house and selling a $200K house involves a similar amount of effort but the commission is probably seven or eight times higher. I don't know but I doubt that their broker encourages their dealing in low end stuff either. <g>

And don't forget; that generous looking 6% commission can easily become a barely-worth-it 1 1/2% commission less expenses once they split with everybody.

Also; Realtors are conditioned to think "MLS" when they are looking for properties I think, and the ones who aren't can't devote much time to bird dogging properties. What is in the MLS is 'already for sale'. Which is why I liked the idea that people were interested in doing birddogging. Not as a career of course but to get their feet wet, make some money, get involved and going, be able to recognize a good deal when they see on, and then move on from there. It seemed to be a common concern I see expressed here and thought that maybe there was a way for us to help each other.

And it could go in all kinds of directions for us. I could buy what they come up with and find a way to compensate them. Or I could finance theirs finds for them and then be more hands-off than I typically am.

I was very fortunate to have a great family of Realtors in NJ who all treated me very well. But the father and son are both dead now and the wife is semi-retired and I am not interested in buying anything in NJ anyway. I like Realtors and I utilize their services often - but that doesn't mean that we're married. <g>

I do like collards but that doesn't have to stop me from having some kale. <g>



Originally posted by @Lauren Taylor :
Just to understand from my perspective, why wouldn't you use a realtor? A good realtor that specializes in investments would be invaluable. Perhaps all you guys can give me some insight on why a investor would use a bird dog and not a professional? Especially when you are willing to pay anyway and there is so much risk involved with using them. I love conversations like this, give me some insight guys, so I can be even better with my investors :)

Agreed folks! My "birddogs" would be Realtors. Many are "listing agents" they specialize in finding deals and load up the MLS. But, they don't have to load them up on the MLS, they could do a Fee Agreement/Authorization to Show instead of an open listing at 5%. Local customs and MLS rules apply, but an agent doesn't have to list any property.

Dean's comment is great too, but many birddogs can't get it under contract or want to take the risk of signing anything, much less get into assignments. If they begin doing that they aren't so much birddogs as wholesalers.

My "birddogs" weren't really in the business of RE. They can be a friend you'd take to lunch and explain what you're looking for. I've posted a number of people that make good birddogs, people who work outside and drive around. All they did was make a call, hey people are moving out of 4328 S. Elm, it looks like a 3/2. For the tip, they'll get a gift certificate, no strings attached.

If I were to pay more on a specific deal, I'd use a Realtor. Pay more than the commission split (usually 3% at a 6% listing).

Stephen, there is no law that says you must pay only 6%, you can pay a flat fee. I understand your saying Realtors aren't interested in doing a 20K deal, many will be interested in doing 10-20K deals and agreeing to provide limited services, say the just do the contract and coordinate closing? You can make almost any agreement for specific services. If a birddog is willing to do so much (X amount) work why wouldn't a starving Realtor? Find a new Realtor, train them in what you need and do, they are out there.

Why would I pay, say 5%, to a birddog that has little knowledge, that I'd have to train and that has no liability or responsibility in the deal? That birddog won't be chasing around doing admin stuff, getting title coverage, inspections or settlement coordination most likely. The birddog can't explain anything to a seller, show comps or put the deal together. Realtors take on liability in what is accomplished and they are insured, if your birddog really screws up you have no recourse.

Either I'd do it myself or I'd use a Realtor, paying some nominal something for a tip is fine, but take care who you get involved with. :)

Promotion
Sharestates
America's Private Lender
Receive Fix and Flip Funding Approval In As Little As 24 Hours!
Sharestates helps developers and brokers secure funding quickly with the most competitive terms.
Get Funded
Originally posted by @Lauren Taylor :
Just to understand from my perspective, why wouldn't you use a realtor? A good realtor that specializes in investments would be invaluable. Perhaps all you guys can give me some insight on why a investor would use a bird dog and not a professional? Especially when you are willing to pay anyway and there is so much risk involved with using them. I love conversations like this, give me some insight guys, so I can be even better with my investors :)

Realtors would cost 5-6% (depends on agreement,state...etc), a bird dog can find something for much less than that. There are other potential complications such as the increased amount of red tape, paper work & the other tasks that come with that

Interesting that FL laws are so restrictive about bird dog fees. However, this is clearly a State-by State matter as for the legality.

The question, as originally posted, asks "What is a bird dog?" Rather than trying to define it for Florida, I'd rather hijack the thread a bit and have other people describe what they understand bird dogging is, or perhaps what it is not.

When I think of someone bird dogging a deal, I think of a lead generator; someone who finds a situation and, in my mind, acts in a marketing role to introduce principals. Not a negotiator. Not an offer-writer. It's that simple, to me. In my observation, some bird dogs are independent contractors and some act for a single investor, depending in the formality of their arrangement.

Bird dogs can get principals into trouble. Either by misrepresentation, unrealistic promises (hence unrealistic expectations) or blatant violation of the law.

In my experience, bird dogs come and go. Most burn out and are the 80%+ of anything that are unsuccessful at whatever they do. A few shine. A handful if them become investors, themselves.

I don't think of a bird dog the same as a wholesaler, however I'd like to hear from others on this topic. What do you think the role of a bird dog to be?

@Lauren Taylor , the main incentive would be to find steeply discounted UNLISTED properties. The benefit of this for us investors is that there is little or not competition. Personally I am not sure why a "birddog" would go through all the trouble of finding a deal for a small fee when they could wholesale it for much more, but that's another topic. It takes time and money to find GOOD unlisted real estate deals, I am not going to give mine away for a $500 fee.

At least in Columbus, probably 95% of investors are using the MLS (my total guess), so deals sell or get bid up the same day they hit the MLS, which turns them into not-so-good deals.

The other 5% are buying from wholesalers or doing their own marketing for unlisted properties and getting MUCH better deals!

Although I learned the actual term here on BP, my concept for the people who do this is more of a networking kind of thing. I have friends who are liability attorneys. So whenever I meet someone who has been in an accident or injured I always say a version of: I know a guy . . . . he helped me out with some things - maybe you should call him. He's a good guy - you'll like. <g> Some of the cases have turned into really large settlement situations and I have been given a "referral fee" for being the genesis. Lawyers do it among themselves all the time so it never occurred to me that it might ever be illegal.

On the other side of that; they refer me HVAC/R work, expert-witness work, etc.

When I had Realtor friends they would sometimes call me and say: Can you save this deal for us? We need a buyer by 3:00 today - will you do it? If the deal was nice and they typically were I would always do Something to show appreciation for them thinking of me first.

So my concept of 'bird dogging' would not be so much in putting a deal together as it would be in finding a likely do-able deal. It doesn't make sense if they are just saying "here's a house" with zero other input. I don't really know how it would work in 'nuts & bolts' detail - I am feeling my way here. <g>

But really; maybe a wholesaler would be better and closer to what would work for me. Someone who puts virtually the whole deal together and then says: how about this?

My problem with people doing this is they are often delusional about my costs and the value of their work. <g> Somebody called me earlier this week: house is 600 square feet. all kinds of new stuff; water well, floors, kitchen, furnace, A/C, and some other stuff. Septic has just failed and the house needs a new roof. The story is that the house was rented for $800. a month but the owner can't find the money to do the repairs. In that area I think the house is worth maybe $50K in perfect condition. They both claim that the value is $60K And that the new septic and roof will be $9000. all in - so would I pay the bargain basement price of $48K for the house? <g> After all: I will have an automatic $3000. of equity right up front. <g>

I suggested that the house might work for me at $15K and they then launched into how was apparently insane and didn't know what a great deal I was missing.




Originally posted by @Rick H. :
Interesting that FL laws are so restrictive about bird dog fees. However, this is clearly a State-by State matter as for the legality.

The question, as originally posted, asks "What is a bird dog?" Rather than trying to define it for Florida, I'd rather hijack the thread a bit and have other people describe what they understand bird dogging is, or perhaps what it is not.

When I think of someone bird dogging a deal, I think of a lead generator; someone who finds a situation and, in my mind, acts in a marketing role to introduce principals. Not a negotiator. Not an offer-writer. It's that simple, to me. In my observation, some bird dogs are independent contractors and some act for a single investor, depending in the formality of their arrangement.

Bird dogs can get principals into trouble. Either by misrepresentation, unrealistic promises (hence unrealistic expectations) or blatant violation of the law.

In my experience, bird dogs come and go. Most burn out and are the 80%+ of anything that are unsuccessful at whatever they do. A few shine. A handful if them become investors, themselves.

I don't think of a bird dog the same as a wholesaler, however I'd like to hear from others on this topic. What do you think the role of a bird dog to be?

I think one of the big issues in talking about how to compensate, what to compensate, is it legal to compensate a birddog is figuring out what a birddog is.

A birddog is not an RE professional. They are just people that turn you onto a deal. Anything they get out of it is more or less fund money that is just a nice little bonus in life. True birddogs are people like your mailman, your kids bus driver, your elderly aunt Ethel who tells you about all her friends who talked about people that died at bridge club this month.

You give these people a small token to thank them for pointing you in the right direction (which you then did the work) and to encourage them to do it again.

If the person is actively marketing for deals and interacting with the sellers (if they are not already a personal acquaintance) then they should be getting it under contract and wholesaling it.

A lot of people will say they are birddogs but are really in some nebulous area inbetween these 2 situations where they are trying to be either unlicensed agents or lazy wholesalers.

The former will maybe find a warm lead then negotiate on your behalf with the seller or the sellers behalf with you and then have you directly sign all the contracts and get a fee or percentage of the price for their efforts. Don't EVER to this as it is blatantly practicing RE without a license.

The lazy wholesaler will do a lot of the stuff a wholesaler does. They might be actively marketing for deals. They might meet with sellers and evaluate their motivation and the nuts and bolts of the properties issues. They will then contact you about getting the warm lead to negotiate but will ask for a fee more inline with what a wholesaler will get. However while you didn't have to find the lead you still have to do all the work of evaluating, negotiating and contracting the place while needing to incorporate an excessive finders fee. I would not be a fan of this. This is also where you would probably need to do something along the lines of what Bill was saying about putting them in a business and such to pay them, which is another level of complication that diminishes the value they are bringing to the table.

Originally posted by @Lauren Taylor :
Just to understand from my perspective, why wouldn't you use a realtor? A good realtor that specializes in investments would be invaluable. Perhaps all you guys can give me some insight on why a investor would use a bird dog and not a professional? Especially when you are willing to pay anyway and there is so much risk involved with using them. I love conversations like this, give me some insight guys, so I can be even better with my investors :)

An active savvy investor should utilize a variety of methods to find deals.

- Do their own direct marketing and finding their own deals. Best scenario if you are good at it and have the time since there are no fees or commissions to dilute the deal.

- Have birddogs that might point them towards leads that could work and only have to pay a very nominal token to thank them for their limited efforts.

- Work with wholesalers that can potentially deliver good off market deals to them on a silver platter. You pay more but if the numbers work who cares and you only have to verify the numbers.

- Work with investor savvy agents that can find you diamond in the rough listed places and give solid expert advice on the property and the market conditions. While the seller technically pays the commission it of course dilutes the deal as you could offer a higher Net offer to the seller at a lower cost without agents involved. But like the wholesaler option, who cares as long as the numbers work and you have brought value by finding the deal, doing some legwork and being the liaison that will help bring it to closing.