Investor agents - is paying a wholesaler fee unethical?

19 Replies

All,

I recently became a licensed agent, but my predominant source of income is investing. Prior to becoming licensed, I did many deals through wholesalers. This seems to concern brokers. Some feel that it is an illegal "referral" fee to an unlicensed party. Others agree it's a fee for an assignment of contract, and isn't an ethical violation. Brokers out there - what are your thoughts?

@Aundrea Newbern

It's rather complicated.

Essentially, you're dealing with a middle-man/person. One person finds a deal and locks it up. Now you come along with your buyer as an agent for the transaction and add commission on top of that, which doesn't make sense. So, wholesaling is best with off-market contracts assigned to cash buyer lists. Otherwise, the end buyer has to pay the markup and your commission (assuming the wholesaler won't agree to pay the commission). But that's not the ethical dilemma.

Ultimately, wholesalers don't charge "fees," they markup the price of the deal based on what they can get for it. Because there is no actual cap, a seller can leave a lot of equity on the table. That's where the ethical dilemma comes in.

I won't pay an unlicensed broker a fee. I will pay a licensee. Some states may frown on non-licensees getting paid. I won't take the chance. 

I'm currently going through the same thing.  I have my license, but I want to wholesale.  I would just use your cash buyers list to wholesale.  Always disclose to all parties that you have a license and let them know there is no commission being collected.  You want to put down EM when you are wholesaling as well so that you will have equitable interest in the property. Wholesaling is always going to be a weird to everyone, until they want to buy a deal from you and agents will always be against it because they want to earn a commission. Hope this helps! 

@Christopher Phillips - thanks for the input. I AM the end cash buyer and I wouldn't be receiving commission. I would be paying the assignment fee.  The question I have is whether there is an illegal referral fee issue with me paying the assignment of contract fee? I would of course disclose that I am a licensed agent to the seller. Thanks!

@Keisha Andrew - have you asked your broker how they feel about it? I'm very curious as to different broker's opinions.

@John Thedford - even though the fee is paid for a contract assignment? My attorney thinks it would not constitute a referral fee. I've reached out to my state's commission to get their thoughts as well.

Originally posted by @Aundrea Newbern :

@John Thedford - even though the fee is paid for a contract assignment? My attorney thinks it would not constitute a referral fee. I've reached out to my state's commission to get their thoughts as well.

 What does your broker say

@John Thedford ...good question. I'm meeting with them at 4pm today to bring it up. I'll let you know. Most of the really good deals I get come this way, so I hate to give that option up.

@Aundrea Newbern Honestly I have not.  I don't believe I need permission to purchase a home. If I have another investor that comes along and will give me a better price for the property, I won't wait for my super busy principal broker to take out time to let me know if its ok.  My Real Estate Agent business is separate from my investor business. Some people don't want to put their home on the market and would rather like a quick sale. As agents its our duty to give them all possibilities, which include the chance to sell their home for less and receive cash fairly quickly. Are we suppose to just let them go and say good luck?  I've never had any agency relations with any of my investors so I don't believe it should be any problem.  

You could always double close instead of doing a contract assignment.  Double closing takes out any questions that anyone may have and makes it super legit :) It may cost a bit more, but it gives you piece of mind.

I would pay the fee and keep everything simple. No need to bring in people who don't invest and will just complicate everything.  If something happens later on then address it then.

I'm not a broker/agent. But I am going to start wholesaling soon, and have done research to make sure it's legal. Which it is according to Texas law. So if your an agent, it doesn't really matter because smart wholesalers know whether it's legal in their state, and can tell the agent that.

We wholesale and have done deals with Investors who are agents in Philadelphia. I would say to check with your legal team to make sure its legal in your state. 

@Kevin Whisler   - my attorney thinks it is but I think it's now dependent upon our real estate commission to opine. Do you all write it up in the contract as a fee for assignment of contract?

I'd have to check with the co-founder. He handles the buyers side of the transaction, I handle acquisitions. I just know that we have done a handful of deals with Investors that have a license, its not uncommon.

Originally posted by @Aundrea Newbern :

@Christopher Phillips - thanks for the input. I AM the end cash buyer and I wouldn't be receiving commission. I would be paying the assignment fee.  The question I have is whether there is an illegal referral fee issue with me paying the assignment of contract fee? I would of course disclose that I am a licensed agent to the seller. Thanks!

 Talk to your broker. They require you take a commission unless you have an agreement not to in advance.

@Aundrea Newbern . Ask your state Real Estate Commission. They are the organization you'll be returning  your license to -  if you mess it up!

@Christopher Phillips and @Jim Cummings - here in GA we have a legal helpline that's manned by an attorney for the real estate commission. I sent the inquiry in this morning as well as am waiting on my broker to review. The verdict is still out!

@Aundrea Newbern . you are on the best track.

As a Broker, I don't have any issues with you buying properties / Contracts. I wouldn't be in favor of an agent working for me doing doing wholesaling. 

Originally posted by @Keisha Andrew :

I'm currently going through the same thing.  I have my license, but I want to wholesale.  I would just use your cash buyers list to wholesale.  Always disclose to all parties that you have a license and let them know there is no commission being collected.  You want to put down EM when you are wholesaling as well so that you will have equitable interest in the property. Wholesaling is always going to be a weird to everyone, until they want to buy a deal from you and agents will always be against it because they want to earn a commission. Hope this helps! 

 its illegal in Oregon..  I just got a ruling.. if someone turns you into the DRE your going to get disciplined.. 

Not unethical.  The way someone goes about the process could be, but not the actual concept.

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