How would you work this?

Question

Please don't laugh if I'm going about it the bass ackwards way. Here's the story. I am a licensed NJ agent and a new investor. I got a lead for an estate sale. Went to see the house with my wholesaler mentor. The seller wants more than we're willing to pay. On a whim I posted the property on Craigslist, and I got an interested buyer the next day! I showed the property to the buyer and gauged what he would pay. I never discussed money in front of both buyer and seller together, only separately in private. It seems buyer wants to pay $200k and seller wants to get $200k. Now both are waiting for me to act. Knowing that a buyer is interested, my mentor tried to lock up the property at $185k cash but seller refused. What's the best way I should go about it? Should I get the property as a listing and try to negotiate a higher commission? Should I "buy" the house and assign the contract to the buyer? Any suggestion is appreciated!

** I should add the buyer is putting 20% down but will require bank financing, and the house needs total rehab. And of course I have to share my proceeds with my mentor and referrer. Gotta spread the wealth! :)

Joel Owens · Answer

If you are an agent you are treading a very slippery slope.You would need to get your broker approval before trying these kinds of activities.

The reason is the broker might not want that liability and it might not be covered by their E and O insurance policy.

Also even though you don't have a relationship with the buyer or the seller your actions can create an "implied agency" with one or both parties.This is dangerous as it puts you into an agency relationship where the buyer or the seller could claim damages later for misrepresentation.

You need to talk to your broker about this and then if you are allowed to move forward the proper legal disclosures would have to be made to everyone involved.

When you are licensed you are held to a higher standard  than a typical investor is.

good luck-no legal advice

J Scott · Answer

Why do you say this?

Unless there is some state specific law or some rule imposed by her specific broker, I see no reason why Lily couldn't do either:

1. Take the listing as an agent and make her commission;

2. Wholesale and/or purchase the property as an investor and resell.

Her license isn't keeping her from doing either of those things, and it's not clear that her license is keeping her from doing anything.

I think Joel's point (and a very good one) is that by not committing to a specific strategy, Lily is potentially creating a conflict of interest or potentially running afoul of fiduciary responsibilities if her actions create a de facto agency relationship.

But, assuming she commits to either particular strategy, has her broker's approval and makes the appropriate disclosures, I see nothing about having her license as hindering her ability to do this deal.

Just my take...

Account Closed · Answer

Thank you all for your feedback. I negotiated with both parties and got the buyer to pay me 3% ($6k) for the deal when it closes. Just got the paperwork signed last night. It took this long because the seller's lawyer held it up. Anyhow they signed on the dotted line, and will close as quickly as the mortgage is approved. Best part, buyer found out his childhood friend's grandparents live a couple of doors down.

I do appreciate the licensed status. I've been having much better luck too after I switched to a 100% commission brokerage.

Account Closed · Answer

When I started thinking about getting into real estate, I thought becoming an agent will help me learn the real estate business and give me the "insider's edge."

All that licensing class and broker taught was how to be a conventional agent. I've always been more interested on the investing side and I have to learn all that on my own. I've paid more fees to maintain my license than I ever made on commission. While some investors favor having a license and others don't, right now I'm not sure how it's going to work for me. I just switched to a new broker so hopefully it will help me more than hold me back. But the idea of making more money is very tempting! :) Not to mention all those anti-investor agents out there telling you what NOT to do when they have no clue themselves...

Account Closed · Answer

My broker is actually pretty supportive as long as everything is properly disclosed. But yeah, I do waffle between keeping and ditching my license when something like this comes up ...

Account Closed · Answer

Thanks Joel. So I should take the listing and just make a straight commission? My broker's advice is to get the listing (of course!). But I will not be able to "share" the commission with any unlicensed persons like my mentor.

Tyler Carpenter · Answer

I agree with J Scott. I would take the commission because it seems like both parties wont budge. The way I look at it as an agent, you will make about 5000 (200k * 2.5%) minus your brokers commission  and thats a guarantee since you have a deal just waiting. If you wholesale, look at an average wholesale deal its about 5k, and thats not a guarantee since you cant get either side to budge.So your basically about even of what you would be at right now.

And as far as having a license vs not, you wouldnt be able to put this deal together if you didnt, so I think thats a huge plus.

Thats the way that I see it.

Joel Owens · Answer

There are advantages and disadvantages to being licensed. I think the advantages outweigh the disadvantages.

You have to ask Lily WHY you got your license in the first place??

Andres V. · Answer

And this is why your license is locking you out of the deal. For this one, take the listing, make your commission, and call it a lesson learned.

A friend of mine let her license expire just so she could be doing the deals as investor herself. I am not sure how e rules ar in NJ but see if you can become a broker, at may give you more flexibility.

Good luck!

How would you work this?

Most Popular Reply