Unlicensed agents being charged in court
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesUnlicensed agents being charged in court
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Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12yMy long standing opinion is that wholesaling is nothing more than unlicensed brokering with some legal mumbo-jumbo wrapped around it to circumvent licensing laws. And not nearly as lucrative as the gurus who teach it claim. So that whole business is really about gurus fleecing newbies out of what little cash they might be able to scrape together. A house cleaning is overdue. Of course any new laws or regulations often have the unintended consequence of creating new guru opportunities.
55 Replies
- Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes12y
@Jay Hinrichs Sounds like just another reason to get licensed! I don't see why anyone would want to operate in what could be considered a gray area when the cost to get licensed is really inconsequential.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes12y
Wait, @Jay Hinrichs
Are you trying to tell me that bringing a buyer and a seller together and collecting a fee is an activity that requires a RE license?
STOP THE MADNESS JAY!
- Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes12y
My long standing opinion is that wholesaling is nothing more than unlicensed brokering with some legal mumbo-jumbo wrapped around it to circumvent licensing laws. And not nearly as lucrative as the gurus who teach it claim. So that whole business is really about gurus fleecing newbies out of what little cash they might be able to scrape together. A house cleaning is overdue. Of course any new laws or regulations often have the unintended consequence of creating new guru opportunities.
- Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes12y
@Jon Holdman @James Wise @Jay Hinrichs
You all have expressed a strong opinion about this in the past, also. I am just curious if you are against those who wholesale using legit options to buy and assignment? In other words if I found a deal that I felt was good enough that I would put a legitimate consideration at risk, such as 5% of the purchase price. Isn't it then a valid assignment of a legal contract if I sell the right to that option? I am not talking the guru deals with a $10 payment and a dozen weasel clauses, I am talking a real option to buy that has a right of assignment.
Just curious where your objections lie.
- Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes12y
From my point of view lease options to purchase were for the benefit of a person wanted to buy a home.. live in the home and then exercise their option to purchase somewhere down the line... Not as a method to or a RUSE to circumnavigate the whole real estate industry and the licensing that some of us have taken the trouble and time and spent many years ( in my case 40) in an industry and try to protect the industry from non licensed folks who's only objective is to bring a buyer and seller together in a short period of time and make a commission doing that.. or a flip fee or an assignment fee etc. That's my position... Further its my position if you want to flip houses then just buy the dog gone thing and then resell it...Especially those that work in the low end markets were they are buying 5 to 50k homes if you don't have the money to buy the home you should save up until you do... Or find a transactional funder that will fund for you.. ( which is what I do to an extent) not for the purpose of wholesale flipping but for the purpose of complete reno then resale..
Lets look at those who market properties here in the US for Turn key guys and just make referral fee's many of those are not licensed and they are clearly acting as a broker without a license but the SEller is not liable to the law its only the person conducting themselves in that manner.. And of course this lady in Singapore got nailed for it...
So to take it another step why have a real estate industry at all... In stead of listing agreements anyone can just have a purchase and sale agreement put up 5% EM which by the way is nothing in my mind.. that's only 500 to 1000 bucks on many of the low end stuff..
This is how its done in China I was just in a CE class for my Oregon brokers license that I hold and I am getting the CiPS endorsement which is a 5 day course and gives me a designation as A NAR Certified international property specialist... Any way the course was being taught by Chinese and the conversation came up about protecting your listings and commission and they made the point that anyone with a smart phone is a RE agent in China.. Wild Wild west.
- 12yRoy N.Pro MemberRental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
It comes down to intention.
A wholesaler does not enter into an Agreement of Purchase and Sale with the intention of purchasing the property. Now you can be totally upfront with the vendor about what you are doing, but in the end, you are tying up the property while looking for a buyer ... essentially making you a broker.
Why not get your real estate licence and then you would not need to put down EMD to do the same thing?
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes12y
- Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes12y
I understand your point, and agree to an extent. But much of that sentiment involves turf wars as much as necessity. Too much of the regulation that happens is based on turf wars and protecting interests, though they start out with protecting the consumer in the beginning.
I did not say lease option, I am speaking of an option to buy real estate within a specific time, with a non-refundable consideration paid up front. Purchase options are a legitimate part of contract law extending far beyond real estate, and assignment of contracts is also part of contract law.
I intend to get licensed as soon as I am living where I invest, it is not a matter of being unwilling but rather impractical at this point.
- 12yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @Jay Hinrichs:
As many may know there is a huge sales effort over seas to sell US turn Key properties. And many if not most of those marketing the properties are no licensed. And in some instances they do not need licenses. However not the case in this country...
I can see the same thing here in the US with all the flipping... by unlicensed folks getting paid off of the huds for marketing fee's etc. Just like the Gov came down on the mortgage industry with Dodd Frank it may be only a matter of time until states other than Ohio and Florida start to crack down on un licensed activity.
It would take me ages to pass the test haha.
Josh is taking his in November lol :)
- Flipper/Rehabber · Atlantic County, NJ · Member since 2012 · 514 posts · 209 votes12y
Are we trying to make this North Korea?! Follow my rules or I kill you because you think different then I! This is America, the land of opportunity! Why so serious? There's plenty of money for everyone!
You do not need a license to buy or sell RE. If you did, wholesaling/rei in general would be illegal and it's not, so you don't. You need money, but you don't need a license. The whole idea of a club, requiring a license to ONLY buy n sell based upon a small group of people making the rules and only benefitting them is ludicrous! More money has been made in the past hundred years by entrepreneurs than the entire human history combined!
There are bad people in every industry! Every single profession you can think of there are bad people. The majority want to do what's best for everyone involved. The minority can and will do bad things. Look at the NFL, 99% do great things for their community and families. 1% take a different path. Only a few bad apples make the headlines. You don't take away study hall from every student just because a couple of kids were caught smoking cigarettes outback...
If you're mad about the gurus teaching bad ways to REI then become a (so called GOOD guru) and teach the right way to invest!
Everyone has a different path to success, don't force them onto yours.
“The difference between successful people and really successful people is that really successful people say no to almost everything.”
? Warren Buffett - Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes12y
Jay,
I am licensed in 11 states across the country. I had a call from a friend of a friend today who was offering to pay me 2,000 per transaction for the use of my broker's licenses. He is looking to broker multi-million dollar apartment complexes and collect a "consulting fee" while paying me a small fee. I turned him down because my licenses are worth a lot more money than the small fee he was offering. When I explained this to him, he got upset and said he was paying me a fee for doing nothing. I told him he should get his license and be legal about what he is doing. What is your thoughts?
Mark
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes12y
Mark that doesn't sound like a friend to me but a USER.
These larger transactions are complex. I won't put my name on anything I am not directly involved in.
When the house of cards come down I am sure that friend will go hide under a rock somewhere.... : )
- Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes12y
wow that's great 11 states you must be a pro at CE I am broker in 3 states and NMLS so I have 4 CE 's to do ... Many people rent licenses that's a fact... And of course many think brokers are lazy do not do anything and do not bring value.. But to like has been discussed if you want to sell RE without owning it.. Get a license otherwise work on getting your funding source's in place so you can close and flip... But reality is does not matter the Genie is out of the bottle hell its one of the top subjects on BP and those that do it are proud of it. and those that want to do it are enamored with those that do it..
I guess from my perspective because ( and maybe I missed something) I never flipped a contract I always closed on the deals, but to be fair many of my deals were larger transactions and not these little cheapie houses.. Where I was flipping to a heavy and they would just as soon go around me as not.. and it was not like I could find multiple buyers..And the profits were substantial 6 figures to mid 6 figures.. so we needed to be able to close end of discussion other wise the developer would just go right around us without a worry as to relationships.
- Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes12y
Originally posted by @Joel Owens:
Mark that doesn't sound like a friend to me but a USER.
These larger transactions are complex. I won't put my name on anything I am not directly involved in.
When the house of cards come down I am sure that friend will go hide under a rock somewhere.... : )
Joel,
It was a friend of a friend. I would not necessarily call him a friend of mine. I just thought it was relevant to this topic. I thought it was interesting that his view was agents dont do anything, but he cant get a license himself.
Mark
- Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes12y
Don't get me wrong. I think the commissions and fees associated with real estate are outrageous. I think that eventually things will happen that will significantly reduce these fees, just like has happened in many other industries. Any agent who says their job cannot possibly be automated is fooling themselves. That's bad for agents, but good for buyers and sellers. Maybe not the wild west @Jay Hinrichs describes in China. But a lot closer to selling a car on craigslist than the current process.
Wholesaling, as far as I can tell, is exactly the same business as agents. Gurus throw out big numbers for the fees being collected for wholesaling. But it looks to me that the fees actually collected are not much different than the fees agents get from selling a property.
That's not to say there aren't occasional deals where a wholesaler makes a very large, percentage wise, fee. In some cases the seller is perfectly happy with the price they're getting, the buyer is happy and the wholesaler pockets a much larger fee than they would from a commission on the deal. Especially when commissions are getting split between two agents and two brokers.
But that large fee is coming right out of the seller's pocket. If the seller is aware of that, as they are when the assignment fee appears on the HUD-1 or when they sign a listing agreement with an agent, fine. If the wholesaler is using a double closing or some other mechanism to hide the actual fee from the seller then I have a real problem. Somewhere along the line the wholesaler has had to convince the seller to take their low offer, knowing they will make a big fee. That's really the seller's money and, by convincing the seller to accept a lower price, the wholesaler is taking money out of the seller's pocket. If that's open and the seller's OK with it, fine. If its hidden and the seller would be upset if they find out what's really happened, then I have a problem with the transaction.
Agents have a code of ethics that dictates they do their best to get the highest possible price. A wholesaler is not bound by any such code of ethics. Quite the reverse. The wholesaler wants to get the highest possible price when they sell and convince the seller to accept the lowest possible price.
Now, this is really just a form of arbitrage. The wholesaler is finding a pricing mismatch and taking advantage of that. That's an accepted practice in many forms of trading. The issue I have here is that sellers are often not particularly sophisticated about buying and selling houses. Establishing values on houses is very difficult. Careful selection of comps can tell the story someone wants to tell. If a wholesaler is taking advantage of a naive and often desperate seller, then I have a big problem. Maybe that's unusual. Given the target demographics for mailings for wholesalers (foreclosure lists, mortgage lates, code violations, probate, etc.) I think not. Seems some officials agree.
@Walt Payne I think there's a place for options. Options give you the right, but not obligation to buy something. They prevent the seller from dealing with anyone else, but give you a chance to back out if things don't pan out. But I don't see that the specific mechanism a wholesaler uses makes any difference. If the option buyer is clear about their intent and the seller is OK with the arrangement, no problem. If, again, things are being hidden from the seller, especially if its an unsophisticated seller, then I have a problem.
People pitching big dreams is not unique to real estate. Lots of get-rich-quick schemes out there trying to separate people from their money. Plenty in real estate, too. Wholesaling just seems like a particularly fruitful target area. It seems so easy, which makes it easy to pull in "students". I have no intention of becoming a RE guru. That doesn't mean I can't see that many of these gurus are flat out scamming their students out of thousands of dollars.
- 12yDawn AnastasiPro MemberRental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
Isn't the whole disparity that the wholesaler is claiming to sell a house when really what they are doing is selling their rights in a contract?
- Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes12y
very nice post and eloquently delivered wish I could do that :)
- Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes12y
Jay,
I have a CE company that will provide me certs for overlapping courses. If they offer an ethics course in California with the same content in Texas, then I just take the course once and pay for the second cert. CE is a lot of fun. JK.
Mark
- Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes12y
can you send me the school off line I need to do my CA this year and I just did my OR so maybe I have some overlap as well... I don't think people realize how valuable these licenses are there does not go a year that I don't send a few referrals down to palm springs from Oregon or Napa valley were I am from .. and when those folks buy I get a nice check and sometimes its pretty significant especially with the sales prices in the bay area. a nd the higher end La Quinta properties. Plus its good when your attracting investors like I do they want to know your credentialed most of the times.
- Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes12y
Why is it less ethical to negotiate a great price and sell it to someone else for a profit than if you keep it yourself as a rental or do the fix and flip?
If I get a great deal under contract and assign it to rehabber for $20K and the rehabber expects to make $40K why is it I'm stealing that money from the seller but if I just did the rehab and made the $60K then I just made a great deal?
Also as pointed out commissions can be huge and since they are getting split 4 ways usually the agents and brokers aren't making a killing, but with less hands in the cookie jar the seller can save money. Let's say a seller has a house that needs a ton of work and will not qualify for any conventional financing so it is going to a cash buyer, most likely an investor. It has an as-is investor value of $300K if the seller lists it with an agent the commission on that will be $15-18K most likely. If I go in and get it under contract for $290K then assign it to the investor for $300K the investor gets the same property at the same price, the seller sells for $10K less but pockets $5-8K more and I most likely make a larger fee than any single licensed person in a listed transaction.
FWIW I buy properties to fix and flip and to hold long term, I have a license and I do not wholesale except on the rare occasion I have more project going on than I can handle (those were the days...).
Don't get me wrong most wholesalers don't know their a$$hole from their elbow and do all sorts of stupid things, and don't have any idea what a deal is. That is the risk when you have the strategy with the lowest barrier to entry into the industry. However that is still a function of the people not the model. It is narcissistic to say that anything the rest of us do (unless you don't really try to get the best deal possible for you) is any more ethical and it is ignorant to say that there are not many situations where someone acting as a wholesaler can not deliver value to a seller even looking purely on the basis of price.
- Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes12y
good points then why even have a RE industry at all.. ? whats the purpose. if those that are not licensed have no real overhead no fiduciary no real ethics they are bound to.. Just dollars and sense...
I think we have two distinctive markets at play here the INVESTOR bombed out house market or heavy rehab market and the Nice home being sold to a homeowner that can qualify... those are two vastly different sellers and buyers of course. Where the buyer in the retail deal is just looking to live somewhere and the buyer in the heavy rehab is doing it for a business and profit... may those do not need representation on either side.. but form my experience average home seller of nice homes they need help and so do the buyers.
- Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes12y
Originally posted by @Jay Hinrichs:
good points then why even have a RE industry at all.. ? whats the purpose. if those that are not licensed have no real overhead no fiduciary no real ethics they are bound to.. Just dollars and sense...
I think we have two distinctive markets at play here the INVESTOR bombed out house market or heavy rehab market and the Nice home being sold to a homeowner that can qualify... those are two vastly different sellers and buyers of course. Where the buyer in the retail deal is just looking to live somewhere and the buyer in the heavy rehab is doing it for a business and profit... may those do not need representation on either side.. but form my experience average home seller of nice homes they need help and so do the buyers.
But that is sorta the point. There is the pretty house market that have sellers that can and should get retail and buyers that are house users that are willing to pay retail. These people just need to have people find the properties for them and then show it to them, or list it for them so people can find it. After that it is just guidance and getting the paperwork taking care of. BTW I am NOT discounting how much work those seemingly simple tasks actually are.
In contrast you have the investor market where few financed buyers can even buy these houses and even if they could (say a 203K loan) most wouldn't want to. In these cases agents bring minimal value as the pool of buyers are mostly savvy and want a good deal. For the buyers they really don't bring much to the table then getting them in to look at it and writing the offer. For the seller they can't really do much for the same reason that the buyer pool is limited and more savvy than normal.
Also worth pointing out that most agents don't want to deal with these buyers or sellers. Agents like listings that people want to buy and they like clients that want to find a house to live in and are willing to pay market value when they find it. A small handful of agents will do well listing crappy places (I see these tend to also be the top REO agents as well) and some will like working with investors. But for the most part this segment is underserved and ignored by the agent community.
- Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes12y
@Jon Holdman Very well said. I respect and agree with your position totally.
It comes down to a matter of intent and integrity. I feel if it is done ethically and with consideration of the seller's interests, then wholesaling without a realtor should be acceptable. Wholesaling is generally done on properties that are not retail ready, so there is really no reason to involve a realtor. But it should be done with the same integrity and disclosure. Double closings and other methods that hide the behind the scenes dealings are what make it all questionable, and why enforcement of licensing happens.
@Jay Hinrichs I also agree with your last post. The average retail buy probably does need representation on both sides to protect their interests. But the kind of properties that wholesalers are buying in general don't need representation.
I can, however, see a possible need for licensing of a different level for wholesalers. More like how a contractor license works than a full blown realtor license. A combination basic ethics and legal practices control rather than representation of others. Maybe a third class of basic real estate license that does not require broker supervision, but is held accountable for their own actions?
- Corona, CA · Member since 2014 · 154 posts · 100 votes12y
Sometimes we should be very careful who we take advice from, biggperpockets is a very powerful and influential tool, that has a wide range of educational tools..... but remember its just the internet, and you could be taking advice from a guy thats sitting in his underwear all day, and never have done a deal. I support anyone in the RE business, the investors, the brokers, the agent, and the wholesaler, everone ones important to the ongoing of the business, and theres a place for everyone. Just do good and honest business, and pay your taxes...An opion is one thing, but its just that"your opion" it means nothing...Competition scares people and some people want to be the only yellow letter senders in their area...So they will tell you anything...
And as far as wholesalers not making real money, you might need to move down here to So CAL and see what some of us shakers and movers are doing...My buyers need me and love me, i pass leads to agents frequently, and yes they give me a fee if they can turn it into a deal..Theres nothing illegal about wholesaling, when its done right....SMH at some people.
- Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes12y
it is illegal to give a referral fee to a non licensed agent just FYI ... And of course there are those that rise to the top in any and all professions... And most folks just fly right under the radar do their deals... I would say wholesaling with or without a license is just like RE brokerage side 10% of the people make 80% of the profits on deals.. Not everyone can just read some BP posts and pod cast and just jump out and be a wholesaler.
Same with those that want to sell RE... their are skills involved Sales skills for sure.. Ability to make an analysis of the asset in real time and quickly.. Having access to funds.. and then Knowing what your doing and working smarter and harder than most... The harder people work usually the luckier they get.
And with the advent of the internet and sites like BP and the Real Estate education sector (guru's) and Reality TV shows on flipping and foreclosures and everything in between... there are many more being introduced to the industry.. And of course that brings the good with the bad...The RE industry by just its nature of being licensed self regulates it to a certain extent.. but when you get the monthly RE bulliten you will see many Licenses being punished or their licenses revoked for various offenses... So to that extent the industry regulates out the bad apples.. In the wholesaling flipping business nothing to regulate those folks if they are bad they just keep going on being bad unless someone takes them to task with a civil action.. or someone turns them into the DRE like what is happening in some states now.
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