Making Commission by Connecting Sellers and Buyers Off-Market

29 Replies

I have connections with a lot of investors in my area.  I also have connections with a lot of people (qualified young professionals) who are looking to buy their first home.  The problem is that I live in a hot market, and everything is overbid and sold quickly.

My friends would love to get a chance to buy something off-market, or before it hits the market.  And I know flippers would love the same opportunity, as they would have less costs (staging, agent commissions, etc).

Now the question is, if it's a win-win for the buyer and seller, and they want to share some of the cost savings with me, how would I be able to be compensated (preferably at closing)? Or should I just get paid on the side as a "consulting fee" or something?

Note: I am not interested in becoming a real estate agent.

If you are able to get a steady stream of off-market deals at good prices, and have no interest in buying them yourself, but only to make a cut on connecting them with a buyer - that sounds like the definition of wholesaling to me.  

Do some research on wholesaling on this site if you are not familiar with the concept.  The basics in one sentence is to put the property under contract yourself then flip your contract for a small markup.  

Actually, it sounds like the definition of brokering real estate to me, and you need a license for that.  This would be like me saying I'd like to do other people hair for a fee, but I don't want to get a cosmetology license.  Even if I'm good at it, and people are willing to pay me for it, it would be illegal for me to do it without a license. 

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You can earn a referral fee from the flipper by introducing them to your friends and recommending them, but you can't actually negotiate the deal as Dawn had mentioned, that's definitely brokering. Wholesaling to end buyers that need a loan is pretty much impossible, so I wouldn't recommend you go under contract without the ability to close.

This sounds like a standard retail deal. Nice houses need sold to regular people. That's when someone invented the real estate agent. Wholesaling is a different animal.

I don't know about you guys but wholesale is totally legal! I as a wholesaler put the buyer on a purchase and sale agreement on bases of I can assigned this out to another buyer if I so wish! Please check Washington state law before you say it is illegal! I have been doing this since the melt down of subprime. I'm doing this with my legal teams of lawyers and realtors.

Dawn Brenengen good point Dawn. Check your local laws. It's common practice here for builders to offer a referral fee if someone brings in a buyer.

Originally posted by @Josh C. :

Dawn Brenengen good point Dawn. Check your local laws. It's common practice here for builders to offer a referral fee if someone brings in a buyer.

 In all states I am aware of, real estate license law does NOT apply to the sale of new construction, if the salesperson works exclusively as the builders employee.

To be a broker is to either be an intermediary between two parties, or to be the agent of one of the parties.

To wholesale a property is to represent only yourself as a buyer or seller.

Realtors argue that wholesalers never intend to purchase the property themselves, therefore they are merely disguising their brokering activities.

If a wholesaler's to complete the purchase, and then turn around and sell the property, no one would say this was a brokerage activity.

If the wholesaler where to use a simultaneous closing to buy and sell, few would consider this brokering.

It is when wholesalers put a property under contract with no intent to close the transaction themselves, only to assign the contract to someone else for a profit, and to back out should they not be able to find a buyer, that people believe that this begins to look more like brokering than investing.

Since it would require meeting a difficult burden of proof for a prosecuter to successfully prosecute a wholesaler for brokering without a license, and because the resulting penalties for conviction are so light, and because a direct "victim" is hard to find, that most wholesalers will never be bothered by the legal authorities, even if they live in a state where the real estate commission considers wholesaling to be brokering.

@Nghi Le this is called practicing real estate without a license. If you want to make money by bringing sellers and buyers together, invest the money and time into a license so you don't break the law. 

Am I the only one who thinks posting this under "innovative strategies" is a little funny?

Thanks everyone for the comments so far.  I didn't consider this to be similar to wholesaling, as I've always thought of wholesaling involving properties that need rehab. But after giving it more thought, wholesaling shouldn't depend on whether it's a pretty house or ugly house, right?  And wholesaling is completely legal in my state.  Bird-dogging seems to be too, since a lot of people are doing it.

So there's two ways to approach wholesaling:

1.  Find sellers, then find buyers who are looking for that kind of property.
2.  Find buyers, ask what their criteria is, then find sellers/properties that matches that criteria.  This is why some wholesalers start with building a buyer's list first before marketing to sellers.

What I'm essentially doing is #2 (assuming I do put it under contract under my name and/or assigns).  For those who are saying that this is illegal and that I need a license, can you clarify why this wouldn't be considered wholesaling (and do you believe in the concept of wholesaling)? @Dawn Brenengen @Brandon L. @Stephanie Irto

I've also been reading about homeowners buying from wholesalers, and the only restriction I see is from FHA buyers. With conventional financing, this shouldn't be a problem. Is this your understanding, @Josh C. ?

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@Nghi Le  Your original post also made no mention of wholesaling, which, when done properly, is legal.  Your previous description of what you want to do is the definition of brokering real estate.

If you put a home under contract and close on it yourself, and then you resell it - you are totally fine.  That's not wholesaling.  That's just selling a house you own.  

If you put a home under contract and you have the ability to close on it yourself if you don't sell the contract first, then that is totally fine.  That is wholesaling.

If you delude sellers into thinking they have their home sold, and you back out of the contract if you don't come up with an end buyer in time - that is unethical.  If you are above board and tell the seller that you will be looking for a buyer while you have the contract on the home, and the seller is aware that that is your end goal, that is brokering real estate. 

In California, non-licensed parties can be paid a fee for introducing principals that eventually close a transaction. The non-licensed party cannot act in any capacity more than an introduction and likely should not advertise their efforts as an ongoing service to brokers, buyers, or sellers. The non-licensed party is not entitled to a fee for making an introduction; the details of any payments should be outlined in writing before making an introduction.

@Dawn Brenengen

My original post didn't mention wholesaling because it didn't cross my mind at the time.  My original post just simply asked, "How can I do this?"

In which you basically responded, "You can't.  It's illegal."  I'm not trying to do anything unethical.  This question came up because my family and friends know that I remodel houses, and they want to buy a move-in ready home off the market without the insane bidding wars and headaches, but I don't always have a flip going on in the locations that they want or with the specs that they want.  So I told them, "Let me reach out to my investor network to see if I can find a house for you."  And then it developed from there.

This is basically an extra exit strategy for flippers.  They have a chance to get their property under contract right before it's completed and sell it off-market with less headaches.  Worst-case if the buyer falls through, they simply continue what they were originally doing and list it on the open market.  No one is getting deluded or screwed over, and there is no distressed homeowner involved.

My intention isn't to make this into a business, which is why I don't want to be a wholesaler or realtor; I already work full-time in IT and full-time as a rehabber.  A few people have contacted me about doing something like this over the past couple of weeks and I want to make sure that I can do it right.  If it's too complex or will make me look like some kind of criminal, I can simply not do it or do it for free (since money is usually what complicates things anyway).

After reading your last post, it is clear that what you are proposing to do is brokering, which legally requires a real estate license.  Should you obtain said license, you would have to be very careful about your actions re the law of agency.  

As I stated previously, even if you did not obtain a license the chances are you would not be prosecuted.  However, in the event of a lawsuit you would lose some or all of your statutory defences, and might even be successfully sued for treble damages under the statute of fraud.

Utilizing a structure of purchase contract assignment would somewhat disguise the brokering activity, and lessen the threat of a lawsuit.  

Rather than rely on us layman for opinions, why not book a couple of hours with an experienced, knowledgeable real estate attorney, and let him guide you as to whether or how to engage in this activity?

@Nghi Le

I see you have a business logo, that might be for rehabs, but what ever you do in real estate you will be seen as being in the business, not just a casual independent buyer or seller. 

Wholesaling isn't "legal" in any state! The issue falls under common law, contract law, lacking the intent and ability to perform, if you close the deal and sell, that isn't wholesaling.

It appears that there is a lack of knowledge of today's real estate system. There is not much of a hill to climb in finding out who has been contracting in real estate. All contracts that get to closing are retained in file, 3 to 7 years by the closing agent. Finding who did what is not a problem for law enforcement or an attorney. 

I've not even mentioned the real estate broker's file retention requirements. Every contract, not just closed transactions! 

In all states, real estate commissions govern real estate licensing laws, they do so under administrative law, they can assess fines and direct prosecution to courts. Wholesaling, bird dogging or brokering without a license, you can be required to show up (with counsel if you like) at an investigative hearing held by the real estate commission and this is no courtroom, it's administrative law and the burden of proof is much different, you might say, it is what they say it is!

The commission can make a finding of facts and then send you to court for prosecution! That can be orange jump suit time. Prosecution is then based on the findings of that commission, pretty much a slam dunk for a prosecutor. 

BTW, the "victim" in wholesaling is from the owner's equity that has been stripped by the wholesaler. Those that fail to close, making a contract with ill intentions also took the property off the market for the owner, they lose marketing time which can put them in a different period and cause a financial loss. That may not be such an issue in the deep South, but for those who have Winter, it's a big deal!

The only acceptable expense that may come from owner's equity is a real estate commission paid to a licensee!

A wholesaler's pattern of executing contracts that never close in their name can be found through all of the closing agents in an area. Your name is on that contract, the closer also needs a copy of any assignment and the contract shows the assignment. It's not rocket science to do a name search! 

Real estate commissions also have examinations of brokers, title companies or anyone else dealing in real estate, including any closing attorney. What they look for in these examinations is legal compliance. And that's why we have file retention requirements, for examination purposes ! So, it's then very possible that the wholesale deals you did 2 and 3 years ago can generate a letter from the commission. Now, may be some won't sleep as well as they have been....LOL!

What you are contemplating is brokering without a license!

Trying to get paid under the table or outside of closing is a violation of federal law and you'll also have tax fraud as the true costs to a buyer or seller are not accurate, intentionally providing inaccurate figures to a settlement agent. That goes for any new construction deals as well.

It sounds like you're a bit adverse to conducting illegal activities, so that is a good thing, if you want to deal in real estate facilitating transactions, get a licensee, you can do that part time too. Good luck :)

@Nghi Le  The very short answer is - It's illegal.  The nuanced answer is that if you do it correctly, which means actually putting the home under contract for yourself, then you may fall into a gray area of legality.  You could also do this under the radar and never get prosecuted (where most people who do this are), which doesn't make it legal, but makes it possible for you to accomplish what you want to do.

Brokering is the act of putting buyer and seller together.  So, if you want to pass the easy litmus test of "is this legal without a license?" then just think, are you connecting a buyer and seller?  If so, you need a license.

You can definitely do it for free, as the legality comes in to play when you perform real estate activities "for a fee."

So many of you got the wholesaling concept twisted. My job as a wholesaler is to help the person I found under stress (In which I have invested Marketing Money) to move that property quick by us purchasing it or by someone from my network to get it in 30 days or less. Wheather we make 5 dollars or 50K on the transaction is completely up to us beacuse at the end of the day all I am working for is to solve that persons problem and to make money while we do it. One of the many issues today is that a lot of brokers or agents (Not all of them) all they want is to get a listing and hope for the best for a buyer to find it and move it.  it is why many wholesalers make 7 figures a year while realtors are only subject to the comissions stipulated on their contract. Wholesalers are problem solvers and negotiators, while many realtors are just listing agents, the best realtors in the industry know how to wholesale as well, and the difference in between the succesfull ones and the others, is the networks we are able to build to move properties quick.