Novations are Brokering Without a License. Change My Mind.
Scott JohnsonBusiness Member
Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votesNovations are Brokering Without a License. Change My Mind.
Most Popular Reply
Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
1yQuote from @Scott Johnson:
Let me be more specific. I didn't have enough space in the Title:
Novations where the investor uses a Limited Listing that puts them as the primary contact for scheduling showings, receiving/accepting offers and negotiating are brokering without a license.
Novations where the investor actually hires a real estate broker to handle the aforementioned for the seller are not included. As far as I'm concerned, they're a great way to wholesale in states where they've outlawed wholesaling.
And yes, I'm a broker. I've got something to gain. I'm Novation Listing Friendly. Deal with it.
Correct me where I'm wrong but Novations can be executed by either a Power of Attorney being given to the investor or by an investor just doing the paperwork, both being done after they secure their interest with an option contract (unless there's some other creative thing I haven't heard about yet). With the Power of Attorney, there may not be an issue.
All I can say is that when an investor is the person who's doing the job that a real estate broker is commissioned to do, per state law, that's brokering without a license, which is no bueno and shouldn't be allowed.
If novations are done using a broker, it's straight up CYA. Work their commission into your numbers, especially if they understand novations.
.
My understanding of a Novation is where the "Investor" puts up the money to fix up the house, without buying the house and no loan paperwork, then splits the money when the owner sells. Obviously very risky for the investor. The owner could easily change their mind and not sell and there is nothing the investor could do about it. Investor recording a memorandum against the property is likely illegal. The investor may or may not be an agent and may or may not represent the owner in the sale.
I am not an agent and I would do your definition or my definition for various reasons.
What is a "limited listing"?. Is that the same as a "pocket listing"?
12 Replies
- Investor · San Diego · Member since 2021 · 11 posts · 3 votes1y
I think it depends on what the investor is doing. If they are just hooking up a seller with a retail buyer, then I’d probably agree with you that it’s brokering without a license. But if they’re going to do major repairs to improve the property before listing it (which is where the value add really is), then I think they’re in the clear.
It’s always best to get a license just to protect yourself. But I don’t think investors are being shady anything with this approach. As long as they are fully transparent, which would mean having clear contracts, and very clear escrow instructions, I think it’s fine.
Full disclosure, I’m going for my license just to cover myself for this kind of thing.
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes1y
Quote from @Scott Johnson:
Let me be more specific. I didn't have enough space in the Title:
Novations where the investor uses a Limited Listing that puts them as the primary contact for scheduling showings, receiving/accepting offers and negotiating are brokering without a license.
Novations where the investor actually hires a real estate broker to handle the aforementioned for the seller are not included. As far as I'm concerned, they're a great way to wholesale in states where they've outlawed wholesaling.
And yes, I'm a broker. I've got something to gain. I'm Novation Listing Friendly. Deal with it.
Correct me where I'm wrong but Novations can be executed by either a Power of Attorney being given to the investor or by an investor just doing the paperwork, both being done after they secure their interest with an option contract (unless there's some other creative thing I haven't heard about yet). With the Power of Attorney, there may not be an issue.
All I can say is that when an investor is the person who's doing the job that a real estate broker is commissioned to do, per state law, that's brokering without a license, which is no bueno and shouldn't be allowed.
If novations are done using a broker, it's straight up CYA. Work their commission into your numbers, especially if they understand novations.
.
My understanding of a Novation is where the "Investor" puts up the money to fix up the house, without buying the house and no loan paperwork, then splits the money when the owner sells. Obviously very risky for the investor. The owner could easily change their mind and not sell and there is nothing the investor could do about it. Investor recording a memorandum against the property is likely illegal. The investor may or may not be an agent and may or may not represent the owner in the sale.
I am not an agent and I would do your definition or my definition for various reasons.
What is a "limited listing"?. Is that the same as a "pocket listing"?- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Ken M.:
.Quote from @Scott Johnson:
Let me be more specific. I didn't have enough space in the Title:
Novations where the investor uses a Limited Listing that puts them as the primary contact for scheduling showings, receiving/accepting offers and negotiating are brokering without a license.
Novations where the investor actually hires a real estate broker to handle the aforementioned for the seller are not included. As far as I'm concerned, they're a great way to wholesale in states where they've outlawed wholesaling.
And yes, I'm a broker. I've got something to gain. I'm Novation Listing Friendly. Deal with it.
Correct me where I'm wrong but Novations can be executed by either a Power of Attorney being given to the investor or by an investor just doing the paperwork, both being done after they secure their interest with an option contract (unless there's some other creative thing I haven't heard about yet). With the Power of Attorney, there may not be an issue.
All I can say is that when an investor is the person who's doing the job that a real estate broker is commissioned to do, per state law, that's brokering without a license, which is no bueno and shouldn't be allowed.
If novations are done using a broker, it's straight up CYA. Work their commission into your numbers, especially if they understand novations.
My understanding of a Novation is where the "Investor" puts up the money to fix up the house, without buying the house, then splits the money when the owner sells. Obviously very risky for the investor. The owner could easily change their mind and not sell and there is nothing the investor could do about it. Investor recording a memorandum against the property is likely illegal. The investor may or may not be an agent and may or may not represent the owner in the sale.
I am not an agent and I would do your definition or my definition for various reasons.
What is a "limited listing"?. Is that the same as a "pocket listing"?That was my understanding as well, and if they filed a UCC and had a Jv agreement giving them some type of equity stake in the property then its gray but they could sell have the seller FSBO and them act as the person managing it. Its gray but I would not think its illegal or acting as an agent or broker- but I am not really the right person to ask nor am I an attorney.
7e investments53 Reviews - Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes1y
Quote from @Ken M.:
Quote from @Scott Johnson:
Let me be more specific. I didn't have enough space in the Title:
Novations where the investor uses a Limited Listing that puts them as the primary contact for scheduling showings, receiving/accepting offers and negotiating are brokering without a license.
Novations where the investor actually hires a real estate broker to handle the aforementioned for the seller are not included. As far as I'm concerned, they're a great way to wholesale in states where they've outlawed wholesaling.
And yes, I'm a broker. I've got something to gain. I'm Novation Listing Friendly. Deal with it.
Correct me where I'm wrong but Novations can be executed by either a Power of Attorney being given to the investor or by an investor just doing the paperwork, both being done after they secure their interest with an option contract (unless there's some other creative thing I haven't heard about yet). With the Power of Attorney, there may not be an issue.
All I can say is that when an investor is the person who's doing the job that a real estate broker is commissioned to do, per state law, that's brokering without a license, which is no bueno and shouldn't be allowed.
If novations are done using a broker, it's straight up CYA. Work their commission into your numbers, especially if they understand novations.
.
My understanding of a Novation is where the "Investor" puts up the money to fix up the house, without buying the house and no loan paperwork, then splits the money when the owner sells. Obviously very risky for the investor. The owner could easily change their mind and not sell and there is nothing the investor could do about it. Investor recording a memorandum against the property is likely illegal. The investor may or may not be an agent and may or may not represent the owner in the sale.
I am not an agent and I would do your definition or my definition for various reasons.
What is a "limited listing"?. Is that the same as a "pocket listing"?,
Correction: I said
"I am not an agent and I would do your definition or my definition for various reasons."
Meant to say:
"I am not an agent and I would *NOT* do your definition or my definition for various reasons." - Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes1y
@Ken M. What they do is file the memorandum with only the buyer notarizing it, not the seller. I think that's where the courts are going to tell investors that they're SOL, but that'll be up to the states.
The locations I've seen (and the one I've done) weren't any extensive repairs. We just did what needed to be done to allow for FHA/VA financing. I'm sure there's investors putting more money into those properties.
- 1yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesNovation falls into the general category of equitable title and not legal title - something like CFD “Light”. Does an investor need LEGAL title to be marketing their own property (which does not require licensure) or will equitable title do? Does the same investor need FULL equitable title or will a partial interest do? It will be a while until the courts will settle this, and the answer may be different in different states.
Quote from @Scott Johnson:
Let me be more specific. I didn't have enough space in the Title:
Novations where the investor uses a Limited Listing that puts them as the primary contact for scheduling showings, receiving/accepting offers and negotiating are brokering without a license.
Novations where the investor actually hires a real estate broker to handle the aforementioned for the seller are not included. As far as I'm concerned, they're a great way to wholesale in states where they've outlawed wholesaling.
And yes, I'm a broker. I've got something to gain. I'm Novation Listing Friendly. Deal with it.
Correct me where I'm wrong but Novations can be executed by either a Power of Attorney being given to the investor or by an investor just doing the paperwork, both being done after they secure their interest with an option contract (unless there's some other creative thing I haven't heard about yet). With the Power of Attorney, there may not be an issue.
All I can say is that when an investor is the person who's doing the job that a real estate broker is commissioned to do, per state law, that's brokering without a license, which is no bueno and shouldn't be allowed.
If novations are done using a broker, it's straight up CYA. Work their commission into your numbers, especially if they understand novations.
Here’s some other questions. The investor who obtains a contract and then lists with a broker, while doing no improvements to the property and paying no mortgage payments or anything else; has done nothing the owner couldn’t do - just listed the property. So is this fraud in some states? If so, has the broker who accepted the listing knowingly abetted the fraud? Has the broker violated ethical standard of either the state real estate commission of the NAR?- Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes1y
@Don Konipol Ooooooooooo! That's a VERY good question. Its my opinion that until the courts have decided and the Real Estste Commissions have made rules around it, I don't necessarily believe the broker would be punished because how would they have known? I don't believe the questions of title are taught at length in our real estate licensure courses, so I don't feel like they'd be punished outright. A slap on the wrist, possibly.
- 1yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Quote from @Scott Johnson:
@Don Konipol Ooooooooooo! That's a VERY good question. Its my opinion that until the courts have decided and the Real Estste Commissions have made rules around it, I don't necessarily believe the broker would be punished because how would they have known? I don't believe the questions of title are taught at length in our real estate licensure courses, so I don't feel like they'd be punished outright. A slap on the wrist, possibly.
Well, the broker would have known by asking. Proof, as such would be construction contract, payment receipts, cancelled checks, etc. If the answer is the investor has done nothing or almost nothing of benefit for the seller, than the broker would need to decide (1) if fraud had been committed (I’m NOT saying it was, I’m just reiterating what seems to be the direction of state laws and regulations in many jurisdictions) and (2) would the broker be considered a “willful” participant in the fraud? If the property owner ends up finding an attorney who will sue (on a contingency basis), you can be 100% certain the broker will be named as a defendant in the lawsuit. Again, I’m not rendering an opinion as to the broker’s liability, just describing the nature of our judicial system.
And, all situations are NOT the same; for example, a situation where an individual seeking to engage a broker to represent them in the sale of a property produces a power of attorney signed by the property owner differs considerably from the same individual producing a contract for purchase as the basis of their "ownership" stake. In many states the person with a contract to purchase does NOT have the right to market the property per se; only the right to market the CONTRACT. So does listing the PROPERTY run afoul of real estate commission regulations, state laws, or MLS listing criteria in these situations?
While it all may work for a while (until the broker is sued or named as co defendant) it would seem like a good idea for the broker to discuss this with a very experienced real estate attorney to learn the risks involved and to seek ways to mitigate those risks. - 1yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Don Konipol:
Quote from @Scott Johnson:
@Don Konipol Ooooooooooo! That's a VERY good question. Its my opinion that until the courts have decided and the Real Estste Commissions have made rules around it, I don't necessarily believe the broker would be punished because how would they have known? I don't believe the questions of title are taught at length in our real estate licensure courses, so I don't feel like they'd be punished outright. A slap on the wrist, possibly.
Well, the broker would have known by asking. Proof, as such would be construction contract, payment receipts, cancelled checks, etc. If the answer is the investor has done nothing or almost nothing of benefit for the seller, than the broker would need to decide (1) if fraud had been committed (I’m NOT saying it was, I’m just reiterating what seems to be the direction of state laws and regulations in many jurisdictions) and (2) would the broker be considered a “willful” participant in the fraud? If the property owner ends up finding an attorney who will sue (on a contingency basis), you can be 100% certain the broker will be named as a defendant in the lawsuit. Again, I’m not rendering an opinion as to the broker’s liability, just describing the nature of our judicial system.
And, all situations are NOT the same; for example, a situation where an individual seeking to engage a broker to represent them in the sale of a property produces a power of attorney signed by the property owner differs considerably from the same individual producing a contract for purchase as the basis of their "ownership" stake. In many states the person with a contract to purchase does NOT have the right to market the property per se; only the right to market the CONTRACT. So does listing the PROPERTY run afoul of real estate commission regulations, state laws, or MLS listing criteria in these situations?
While it all may work for a while (until the broker is sued or named as co defendant) it would seem like a good idea for the broker to discuss this with a very experienced real estate attorney to learn the risks involved and to seek ways to mitigate those risks.
from my view point working with wholesalers and sellers bascially daily in the lower value asset realm ( fixers) where they work.. one issue is going to be Splaining how this works to a seller. I mean most sellers in these situations wont have a clue.. thats why wholesalers white lie all the time with I AM A CASH BUYER and its my partner ( end buyer) who is going to do the walk through..
Oregon just passed a law on this that goes into effect in June.. Any sale of a property that you do not actaully own.. you just have a contract on or an equitable interest and its your business model.. Not the one off developer who might have an option on a development parcel and wants to flip to Lennar ( like I do) but those in the business of selling fixers ( wholesaling ) must either have a RE license or the NEW LICENSE which is a Wholesaler license.. to get one you dont need to pass a test or join the board or anything like that.. Its much like the Developers licenses that I have in Oregon IE anyone who is buying and flipping a house and working on it themselves or hiring a contractor they need a developers license.. ( most flippers simply dont know this I did not know it until i got fined LOL) and on my housing projects I build I have to have a license for Each LLC that owns a specific project Or that LLC has to have a contractors license.
So back to Wholesaler license.. whats require is:
1. Surity Bond like we get for construction or developers license and to get a bond you normally need very good credit its not a huge bond I think only 20k or so but you have to qualify for it FICO wise and pay for it annually as it renews.
2. you need insurance ( what exact type I am unclear on It just says insurance) So probably the same kind of insurance i have gotten for my developers license and or my contractors license. And again you need decent credit to get this as well and renew annually.
3. You must make full disclosures up front to both buyer and seller. Like RE agents do with their disclosure statements that define agency..
4. there must be full disclosure of who is getting what monetarily. Double one day closes still require full disclosure. Oregon is a Title company state and as such all the big underwriters have their own title and escrow offices and they will not take any risk they will make sure sellers are protected.
5. Advertising on line or mailers etc there are disclosures that must now be on all forms of advertising NO more white lies IE I am just a local person looking to buy a house.. If your in the bizz you have to disclose it up front.
so on and so forth.. for me personally I like this levels the playing field and will get the not so good actors out of our bizzness and protect vulnerable sellers who get lied to.
Quote from @Scott Johnson:
Let me be more specific. I didn't have enough space in the Title:
Novations where the investor uses a Limited Listing that puts them as the primary contact for scheduling showings, receiving/accepting offers and negotiating are brokering without a license.
Novations where the investor actually hires a real estate broker to handle the aforementioned for the seller are not included. As far as I'm concerned, they're a great way to wholesale in states where they've outlawed wholesaling.
And yes, I'm a broker. I've got something to gain. I'm Novation Listing Friendly. Deal with it.
Correct me where I'm wrong but Novations can be executed by either a Power of Attorney being given to the investor or by an investor just doing the paperwork, both being done after they secure their interest with an option contract (unless there's some other creative thing I haven't heard about yet). With the Power of Attorney, there may not be an issue.
All I can say is that when an investor is the person who's doing the job that a real estate broker is commissioned to do, per state law, that's brokering without a license, which is no bueno and shouldn't be allowed.
If novations are done using a broker, it's straight up CYA. Work their commission into your numbers, especially if they understand novations.
Change your mind, huh?
Best I could tell most people‘s mind’s already made up based upon personal benefits and preferences.This thread and others you got people that admitted not knowing exactly what it is trying to say if it’s good or bad.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.