Wholesaling with a License within a Brokerage

10 Replies

So my wife and I run a brokerage here in Indianapolis.  We do a lot of investor deals but we also do a fair amount of retail stuff..  flips and other wise.  Obviously we have to operate under a code of ethics as any other licensee would.  

We are looking into hiring an agent that is working on getting his license as we type.  

The agent is currently wholesaling and I know he wants to continue doing so.  My question is this...   What do I need to do / know / be aware of as the principle broker...?   If anyone else has experience in this realm I would love to hear thoughts.  

Is wholesaling something he should do completely aside from our brokerage? Obviously he would have to disclose he's an agent but could he operate his wholesaling business like an agent selling his own properties FSBO?

Do I need to charge him the normal commission split to cover any potential liabilities?  Or are we safer staying out of it... ? 

Is this a situation I should avoid all together and not have any of my agents wholesale at all?   I've always thought it would be easier to get a listing and move it... rather than pulling off a wholesale deal...  should I stick to that?  

Any feed back would be much appreciated.  I know there is going to be state to state differences in laws but I'm actually interested in the overall thoughts of brokers and wholesalers around the country..   As well as local thoughts and experiences!   

 Thanks in advance BP community.   :)   -Ryan  

317-965-8708

Ryan, that's a tricky one. Wholesaling as a licensed agent can get sticky due to the fiduciary relationship that the agent has to the seller. In a wholesale situation, they wouldn't be acting as a sellers agent of course, but I know it has been claimed that licensed agents have taken advantage of their knowledge and expertise and that the seller was at a disadvantage. I've always felt that if you're wholesaling only  it's better not to be licensed. I'm not a wholesaler though so I'd love to hear what others say about this.

@Mike D'Arrigo   Good insight.  I was thinking about that too...  if they get it under contract and sell the contract they are almost demonstrating that they knew it was worth more than they told the seller.    But...  if they go into saying "hey this is worth 50k but I will buy it right now for 45k"   ...Thats kinda how I present myself when I do direct mailers.   I also always offer to list it at the higher price too... and they never want to do that.  They want fast cash.

317-965-8708

Great topic. Laws vary state to state. Also it would eventually become a problem because in Michigan all deals must go through your broker unless it's your primary residence. There are ways he can do it legally but that has to be something he is willing to research. But you being the broker you would be putting yourself at risk.

Maria Fortner, Real Estate Agent in GA (#370583) and MI (#388605)
(404) 295-7877

So by wholesaling you are meaning just assigning contracts? 

I've never been able to square how one can ethically wholesale while being licensed. Now if he's going to actually take title, that's different than assigning contracts. 

Just my opinion.

Originally posted by @Rusty Scott :

So by wholesaling you are meaning just assigning contracts? 

I've never been able to square how one can ethically wholesale while being licensed. Now if he's going to actually take title, that's different than assigning contracts. 

Just my opinion.

 I know everyone does it a little different...  but yes, not closing and assigning contract..  make a fee...   So your thinking because of fiduciary responsibility like @Mike D'Arrigo said...  to seller...     I can respect that for sure.  

317-965-8708
Originally posted by @Maria Fortner :

Great topic. Laws vary state to state. Also it would eventually become a problem because in Michigan all deals must go through your broker unless it's your primary residence. There are ways he can do it legally but that has to be something he is willing to research. But you being the broker you would be putting yourself at risk.

 All deals..   huh.      

..Not trying to put myself at risk!  Or everyone that works here, for that matter.   

Seems like there is a right way to do it...   maybe just switch out the assignment contract with a listing contract..   and freakin' sell it... ?  commission would probably be less than a wholesale fee but can't you do net listings that would work exactly the same?  I don't know.  Maybe people just want to sell for cash immediately and not list.   But again...   a 14 day, short term, non exclusive, net listing...    lol..   There has to be creative way to do it right.  

317-965-8708

I am going to start a thread

"I am an honest RE agent and an Ambitious Wholesaler"

I would talk to the RE estate commission in your state

Tell them you want to both

Act as a fidiciary agent and

Act as a principal real estate investor

How do I advise my prospective sellers?

What kind of disclaimer do I use when acting as a principal business owner wholesaling?

basically it boils down to the fact that wholesalers DONT have rules. As licensed agents and brokers we do. Net listing is illegal in Michigan, check your state to make sure. If your guy is serious about being an agent his commissions will be lower, you guys can still work together on deals if he decides not. But as a Broker you are putting yourself in the line of fire. 

Maria

www.mbluellc.com

Maria Fortner, Real Estate Agent in GA (#370583) and MI (#388605)
(404) 295-7877

If there is no agency agreement with the Seller, are you really an agent/fiduciary?  There is no contract indicating that you represent them.

I'm playing devil's advocate here.  There seems a clear need to operate at a high ethical standard and, at a minimum, disclose that you are a Realtor and intend to profit from the arrangement.   At the end of the day, however, it's their house and if they want to sell it quickly for less than it would fetch on the open market, they can do that.

Just to clear the air, If you as a licensee are purchasing or wholesaling a property directly from the owner, there is absolutely no fiduciary responsibility, as you are NOT acting as an agent. That does not, of course, mean that you don't act according to your ethical standards.

I am both a wholesaler and a licensee. When wholesaling, I make clear what my intentions are and always disclose that I am licensed. My broker retains ZERO risk, because neither they nor any of their representative(s) are conducting business or providing services in my transactions.

If anything, I would suggest having your future agent sign a hold harmless and maybe even go as far as requiring him to sign some sort of hold harmless disclosure with all his sellers in his wholesale deals. That can really just be an additional extra few sentences added to his purchase agreement.

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