Agents allowed to wholesale....or have to cut in their broker on the deal?

Question

I am taking my real estate agent exam this week. I am doing wholesale deals now. But I want to be able to list homes the traditional way from leads I get from my marketing campaigns.

I want to be able to tell callers, "hey I put your house under contract for 30k and find you a buyer in 30 days or less, or I can list the conventional way and possibly get you 45k if you dont mind waiting and paying closing costs"

what do you guys think?

Lisa Kohl · Answer

While this may vary by state-if you have your RE license any transactions you do must be ran through the brokerage even if they are personal. Interview with investor friendly brokers in your area and let them know what you're wanting to accomplish.

Karl Krentzel · Answer

Awesome Q!!

I'm no attorney, nor do I play one on TV... that being said. It is obviously without saying that you need to be upfront with your broker about your wholesaling activities... however, to specifically answer your question...

That is a very multifaceted question.  If you could allow me a brief minute to explain I think I might be able to help shed some light on this!

Speaking as a Investing Broker/Realtor® with almost 19 years experience, I can safely share a few tips that might help you in your journey!

Are Agents Allowed to Wholesale?

The answer to this is an emphatic yes.  A simple examination of the National Association of Realtors® Code of Ethics Article 4 outlines specifically how agents are to conduct themselves (if they are Realtors® that is) if acting on their own behalf.

Simply because you are one profession or another does not disqualify you from entering into legal contracts with another person.  HOW you do it can be, but not the FACT that you can.

Do You Have to "Cut Your Broker In?"

This obviously is a little bit touchier of a subject.  In general, I would say "what does your employment contract say?"

Chances are, your employment with any potential Broker may have stipulations on how many homes you may be able to sell "free of charge" before they want a "cut".

However, what is more important is to understand that if you are "assigning a contract" (i.e. a to b contract, you assign your interest to another end use buyer "C") then generally speaking, they are NOT split with your Broker.

If you double close, (personally close on the A-B side, then subsequently sell to C in a separate transaction) then you may be required to pay your broker some form of commission split (again, depending on your contract)

The rationale is simple.  On an Assignment, you are not physically doing a "real estate transaction" although you do have contracts involved.

Your involvement is limited to the sale of the unique "Equitable Interest" in the property which is considered to be property similar to a car, not real property.

You would not pay your broker if you sold your car, but if you sold the land that the car sat on, then you would.  It is a fine distinction, but it depends on the type of closing you have.

Final Word of Advice...

No matter what, keep in mind that your Broker is the one who has to ultimately keep the lights on.. pay the Errors and Omissions Insurance, the staff, the Internet,  and other things to keep a brokerage open and functional.

I heard one of my earliest mentors Floyd Wickman say something that has always stuck with me... I hope it helps you figure out what is fair to do with your broker!

I took it to mean that if you take care of them, then you will always have a great place to work.  So be honest with them, up front, and work something out that is fair and equitable for everyone!

Let me know how it goes!!

Have a Powerful Sales Day!!

k

Joel Owens · Answer

That kind of activity may not be allowed in the brokerages IC agreement with you and also their E & O policy might not cover it.

So you have to talk with a brokerage ahead of time and see if they are okay with it or not.

An investor who is a broker might be more apt to work with you because if they lose the brokerage then likely they already own other investment properties versus a regular brokerage where transacting is the lifeblood of their business.

New agents often tend to be rogue agents with self interest above the brokerages at any costs. This is why I have zero agents and love it that way. Did that years ago and became tired of the headaches and babysitting. If you look around enough you might find a match that works for you.

Just remember that any activity that is R.E. goes through the brokerage.

Kirsten Wellborn · Answer

@Mike Wallace

Any brokerage activities will have to cut the broker in technically, as the fees are paid to the broker not you the agent. With that said, there are plenty of brokers that just charge a small transaction fee or whatever.  It will boil down to whatever deal you strike with the broker.

Now,  the same holds true if you wholesale the property.  It will need to be disclosed to your broker.

It will boil down to whatever you and your broker agree to.

Guy Gimenez · Answer

@Mike Wallace

Just need to make sure you can find a sponsoring broker whose policies allow such an arrangement.