Is it illegal to offer a finders fee for buying houses?

16 Replies

Can you offer a finders fee to people who give you a lead that turns in to a deal? There are some real estate agents in our area threatened by us and other investors (even though we buy properties that are not retail ready) and they are saying we can not offer a finders fee or advertise a finders fee for leads. Is this accurate, what makes it illegal if so, and what are other creative ways to drum up the bird dogs? 

Originally posted by @Carrie Reyment :

Can you offer a finders fee to people who give you a lead that turns in to a deal? There are some real estate agents in our area threatened by us and other investors (even though we buy properties that are not retail ready) and they are saying we can not offer a finders fee or advertise a finders fee for leads. Is this accurate, what makes it illegal if so, and what are other creative ways to drum up the bird dogs? 

You might want to consult a lawyer in the state you are conducting business. In my understanding, and talking to a real estate lawyer, finder's fee or introduction fees are not illegal in VA. I was part of a deal a while back where a finder's fee of $5000 was paid by the seller. The title company did not have any issue with the arrangement. Everything went smoothly. I still own the property in my portfolio.

Don't give into threats. Realtors threatening is but natural, as their importance is undermined by your business transaction.

Not sure how things go in WI, but in AZ, only a licensee may receive compensation resulting from a real estate transaction and such compensation should be paid at the direction of the licensee’s broker. Basically, someone getting a commission for facilitating a real estate transaction is considered an agent here, and only licensed agents can get paid for such activities in AZ.

Every state has its own laws. I'd consult with your state's Department of Real Estate for a certain answer.

Here is WI state statute on the subject:

"Under s. 452.03 an agreement to pay a real estate brokerage commission to a person not licensed as a broker is void at its inception."

I am by no means a lawyer, but you'd want to tread very lightly before engaging in such activity without proper approval or understanding of state law.

https://docs.legis.wisconsin.gov/statutes/statutes/452/03

https://docs.legis.wisconsin.gov/statutes/statutes/452/19

Typically, my understanding of reading my state and other state statutes.....it typically is illegal to Receive a fee based on a closing occurring, bot not illegal to Pay that fee, as a non licensed person.

@Carrie Reyment

I hope it is not illegal. I don't pay anything at closing but I do pay different people who bring deals. Anyone over $600 gets a 1099 misc  I believe. I also pay people to put our door hangers and flyers out looking for deals would that be illegal. I tip people who help me or provide great service in many facets of my life and never thought it was illegal. I'm not sure how this is different. I don't have a contract but if I don't reward someone for helping why will they continue to help.  I used to cut lawns and wash cars as a kid for money and did not need a license, insurance, or SS# so things have definitely changed. I am not sure if this law exists if it is to protect realtors or consumers or both. Not sure why it would be a concern to anyone. I've never heard of anyone being arrested for it. Would the police arrest the payor or the payee as discussed in other posts. Get a lawyer I guess. 

Originally posted by @Bob Okenwa :

Not sure how things go in WI, but in AZ, only a licensee may receive compensation resulting from a real estate transaction and such compensation should be paid at the direction of the licensee’s broker. Basically, someone getting a commission for facilitating a real estate transaction is considered an agent here, and only licensed agents can get paid for such activities in AZ.

Every state has its own laws. I'd consult with your state's Department of Real Estate for a certain answer.

your really ruining the wholesalers night with this reply.. which basically is 100% accurate LOL..  

I know  WI is one of the more strict states in the country when it comes to license laws.

If your unlicensed and the person bringing you the deals is unlicensed.. not sure who would have authority over that.. I mean your just paying for a name and an address right .. they are not middlemanning or acting like agents putting the deals together correct ?? this is where unlicensed wholesalers run afoul with licensing laws in essence doing the work of an agent complete with marketing and putting their homes they have tied up on craigs list having a website sending out e mail blast.. etc.. that's clearly selling RE... and usually requires a license.   I know in most states agents are limited by license law as to how much they can pay for referral fee's and its usually a small amount or a token gift..

So what I am hearing is if you are unlicensed, there really isnt any authority to say what you can or can not do. If you are licensed, its a big no no if the other person is unlicensed. Is that correct? 

are you just paying for pictures and leads for homes that need renovation? of course you are

@Michael Biggs - what about @Carl Fischer 's questions? Can you pay someone to help you market for distressed properties? If you are unlicensed, can you pay someone to bird dog for you to help you find distressed properties? 

@Jay Hinrichs   If I knew better wholesalers, I would probably tell these people how to work these deals legally.

@Carrie Reyment if your worried about it simply call the real estate licensing agency and ask them.. opinions on BP are just that opinions and we all live and work in different states heck I bet a bunch of folks on BP have never even been to Green Bay... or WI  so go to the authorities and get a definitive answer it won't cost you anything and you will know what is legal and what the state will frown upon.

From my understanding, you must be licensed or have some interest in the property either marketable or equitable to receive a fee in a real estate transaction. The point is, the person who is asking for the fee has no legal ground to enforce a none payment of the said fee.   

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