Can a LICENSED investor, with intent to Wholesale the property or assign it, get a property under contract listed by a realtor?
Basically the same scenario as going directly through the homeowners, but instead, you go through their agent, using your same verbage, contingencies, etc.
For this scenario -- Buyer, who is also an agent remember, will allow listing agent to reprsent him in sale.
Buyer, even though licensed, still has equitable interest in property & is capable of marketing property to end buyers after execution of contract, correct?
He Collects assnmt fee @ closing, the agent gets double commish, endbuyer is new homeowner.
Is this transaction permissable, or not? If not, what issues are you aware of, or buyer expect? If you are licensed, have you done a deal like this?
If you have a thought that does not include "seek legal advice or your broker", please do share!! All feedback welcome.
(ps. investor has disclosed to all parties his licensure) :D
All valid good points IMO.
IMO, your strategy will be up to your broker first of all.
If you are using options and never buying I can see a problem becuase you will not be the buyer, your buyer will take title from the seller. Giving up your commission is irrelevant (and I have done the same thing to have the listing agent push the deal too, so nothing wrong there).
Look at it this way, I;m the seller. My listing agent says he has another agent who wavied his commission as a buyer. In my state all contracts are assignable unless stated otherwise, so as the seller and my listing agent never suggests I address assignability. Then you go out and find a new buyer who pays you more and assign the contract.
Now look up the definition and intent of a net listing. Where a licensee sells for more than the seller is willing to accept and pockets that difference.
If you take title you don't have a net listing issue, you can buy low all day and sell for a profit, no law against that.
Next are disclosures required to be given by a licensee, even if you are not benifiting from a sale transaction, you must inform, usually at the first opportunity, that you are a licensee. No problem, disclose.
But, even if you did sign a dual agency agreement as a buyer, that does not limit your responsibilities as a licensee. Having a RE license you will be seen throughout the transaction as being a sophistacted buyer and the lising agent will not be representing you.
A listing agent who later goes into a dual agency relationship does not, at that point, represent either party, they can not, all they do is facilitate the transaction.
So, really, IMO, a dual agency would not be the thing to do. I would want the listing agent to represent the seller because if they do not and the deal blows up, whos fault would it be, there would be no responsible agent, no E&O insurance policy to cover certain acts or ommissions. I want the seller represented as it provides a deeper cut to carve out if legal action is ever required.
I would represent myself, but I can simply waive my commission and allow the listing agent (and broker) to get the entire fee.
On your side, you might check on your E&O policy as it may only cover closed transactions where a commission is paid, so you might be doing deals as an agent without coverage. Your broker will know how this aspect works. Then comes the issue of your broker having some risks involved with you out there doing dealsand not receiving any compensation, that is rather unusual, but some brokers will allow you to buy X number of properties for your own portfolio without paying the office.
Good luck
Let me rephrase! I'm not seeking a legal opinion or legal advice. Just opinions on that scenario, if you've done one, etc.! It seems like a cost effective way to find sellers, through quantity of offers..
As we discussed this, there is another issue and that is what's called a net listing.
Ifyou buy and then resell, I don't see a problem with that, don't know why you want to give the commission away and get that past your broker, but let's say you do. But realized another issue;
A net listing is illegal and could be seen if you don't take title and market the property at a higher price where you expect to net the difference, may be that's why you're thinking of having the listing agent act in a dual agency relationship, but the trick is not to market it at a higher price as a net listing.
Let's see how it plays out.
Let's face it, the listing agent is more inclined to get a deal done if they are acting as a dual agent.
If I'm able to get a deal done for 10k less, and my commision would have been 3k if I would have represented myself...well, there you have it...
You are recommending that I do a simultaneous closing as opposed to collecting an assignment fee I assume, so that I technically take title, correct Bill?
No one wants to give away their commission, but if you're getting a significantly better price than you would be representing yourself as a BUYER... you act.
I don't think it is illegal. Just wondering how common it is, or isn't. It seems to me that it would be difficult to get these at a steep enough discount, for most investors to act. These aren't REOs or foreclosures; they won't allow the assignment... Mostly properties that don't need alot of work, if any, but the seller was tired of waiting and accepted the wholesalers low offer.
Would you, as an investor, pay an assignment fee to a wholesaler to purchase a property at say, 20% of its value, then try to re-sell the house near what the listing agent had it listed for, if the home needed no repairs? Perhaps you made small upgrades here and there.
ie: Home listed on market at 100k. Wholesaler gets under contract for 80k cash. Would you pay a 3k fee to snatch this property, and attempt to re-sell around original list price @ 100-105? It just seems to me you'd be in the same boat as the original seller since it wasn't able to sell in the first place!
I'm just not seeing enough profit potential for most investors to act on a deal like this. This discussion came up with one of my buds the other day and this was my argument. Not so much if it's legal as my original post appears, but if it's a waste of time or not. This could make for a solid rental though, perhaps.
Seems like this strategy would be best implemented when you already know what your buyers are looking for.
If the deals are too skinny for investors to be interested, you may have to back out of the contract. That will upset a lot of people, and you would probably find out if its legal or not.
Personally, I wouldn't go for 20 on 80. I think many people may be looking for a better spread, but there are probably others who would go for that. You never know. Plus, you're saying that they would be in the same boat as the original seller, but a little lipstick on a property can work wonders. If there really is 20K to profit, you might find someone...
All valid good points IMO.
IMO, your strategy will be up to your broker first of all.
If you are using options and never buying I can see a problem becuase you will not be the buyer, your buyer will take title from the seller. Giving up your commission is irrelevant (and I have done the same thing to have the listing agent push the deal too, so nothing wrong there).
Look at it this way, I;m the seller. My listing agent says he has another agent who wavied his commission as a buyer. In my state all contracts are assignable unless stated otherwise, so as the seller and my listing agent never suggests I address assignability. Then you go out and find a new buyer who pays you more and assign the contract.
Now look up the definition and intent of a net listing. Where a licensee sells for more than the seller is willing to accept and pockets that difference.
If you take title you don't have a net listing issue, you can buy low all day and sell for a profit, no law against that.
Next are disclosures required to be given by a licensee, even if you are not benifiting from a sale transaction, you must inform, usually at the first opportunity, that you are a licensee. No problem, disclose.
But, even if you did sign a dual agency agreement as a buyer, that does not limit your responsibilities as a licensee. Having a RE license you will be seen throughout the transaction as being a sophistacted buyer and the lising agent will not be representing you.
A listing agent who later goes into a dual agency relationship does not, at that point, represent either party, they can not, all they do is facilitate the transaction.
So, really, IMO, a dual agency would not be the thing to do. I would want the listing agent to represent the seller because if they do not and the deal blows up, whos fault would it be, there would be no responsible agent, no E&O insurance policy to cover certain acts or ommissions. I want the seller represented as it provides a deeper cut to carve out if legal action is ever required.
I would represent myself, but I can simply waive my commission and allow the listing agent (and broker) to get the entire fee.
On your side, you might check on your E&O policy as it may only cover closed transactions where a commission is paid, so you might be doing deals as an agent without coverage. Your broker will know how this aspect works. Then comes the issue of your broker having some risks involved with you out there doing dealsand not receiving any compensation, that is rather unusual, but some brokers will allow you to buy X number of properties for your own portfolio without paying the office.
Good luck
Well said, Bill. I think you have assumed that the wholesaler will take title and do a same day closing with his end buyer. In this scenario, the wholesaler will just collect an assignment fee, possibly some up front, the rest @ close.
In this case, if it were myself, I would provide my POF to show that I'm a qualified buyer for the price I am offering, regardless of my intentions, and will explain to listing agent the "and/or assigns" verbage if they are unfamiliar with it, so their seller knows exactly what this means and that I could be the buyer, someone else could be the buyer, or a partner and I, etc
If and when I step out of this deal, and my end buyer takes over, Listing agent will become end buyer's agent (intermediary, or the "messenger") unless end buyer is already licensed or represented. This will also be explained to listing agent at offer submission, that "there's a good chance you may wind up getting both commissions in this transaction"...
The only moral or ethical issue I could imagine here would be that "my intentions were wrong from the start, and/or I have used my expertise to take advantage of someone." But if I have show POF, and have disclosed disclosed disclosed fully, and possibly even add further verbage in special provisions that not only am I a licensed Realtor in Texas, but "buyer has right to assign this contract." (which puts it in the contract twice!)
What do you think? Like I mentioned earlier though, this type of deal isn't rich enough for most investors to partake in, IMO. But you never know how motivated someone really is until they get an offer.
The only way this would work is to send out many offers a day on properties your buyers would buy, and just low ball & hope you get a bite every now and then. If you could get a deal or two a month by this, you would be able to cut way back on your marketing $$. If you have the time of course...
What do I think? What did I say? If you do not take title in your name do any kind of contract and step aside assigning to your buyer that may be a NET LISTING arrangement.
Inform and give disclosures to everyone in town or the entire world does not change the fact that you are netting a higher price on a property listed for sale between the ACTUAL buyer and seller. By the listing agent saying Okay, does not change that. Instead of running it by us here on BP, I suggest if you are dead set on this transaction, that you talk to your broker and a real estate attorney.
Why don't you get a buyer's agreement for 3 or 5% or even 10% in addition to any co-brokerage fee and have the buyer pay it?
Another option is to put your license on an inactive status with the state and send it in. Being a Realtor gives you many more options in RE in doing deals than any non-licensee investor, if it is not worth the trade offs, I'd say send it in and then you won't have to worry about things like selling RE with net listings.
As to taking advantage of someone. There is nothing wrong with taking advantage in a deal based on your expertise, jusgment, knowledge, skills or vision, it's when you do so in transactions that are illegal or unethical. There is a difference. Investors know when they are outright messing over someone and cleaning their clock as opposed to an ethical and fair profit...or least they should....sometimes I wonder!
You can't go hrough business only dealing with people that are equal to you in every respect.
So Bill, what you are saying here is that its completely legal if he double closes.
But if he wants to assign the contract to an end buyer he needs to consult his broker and a RE attorney for the laws in his state?
I know many licensed people down here still do assignment of contract. Its quite common actually. I dont see it as often from property on the MLS though. I guess that adds a different element to it.
Since you are a broker and not a Realtor, you are allowed to skimp on disclosures, right? Realtors are the 'higher standard' types... not brokers. I mean, a Realtor is obligated to disclose compensation, right?
But I would say that a pertinent fact is that your interest in the property is a self interest, motivated by profit for yourself and even the contract with your buyer is a pertinent fact that would need to be disclosed. Article 1-1, 4... Article 12-2... And the buyer you have... they are aware that you are putting your profit motivation ahead of their interests, right? I mean, they could buy the property cheaper without you in the middle... and you getting commission like licensed folk are 'supposed' to do.
I guess no one reads the Realtor code of ethics any more.
I'll bet you can find a Disciplinary Action case in Texas like the one I found in NC with similar circumstances to your deal.
I've posted about these conflicts elsewhere... as others have too. You just need to go in with expectations very clear. The RE Commissions will basically look at all your dealings. My decision, based on my legal council, was to take the class and not take the final brokerage test. The class experience was very worth while, but in my case the license is not.
Geeeeez!
Having a real estate license as an agent or a broker does not make you a Realtor. They all must comply with applicable laws, only Realtors have a code of ethics which is required by members of the National Association of Realtors.
Chris, there is absolutely no difference in any disclosure requirements between a Realtor, agent or a broker, the laws apply to all equally! The law holds any broker to a higher standard than any agent in every aspect of the business at all times.
Yes, the fact that a property is listed in the MLS can make a big difference as to agency relationships as opposed to a FSBO where a any licensee acts in a persoanl capacity. But even with a FSBO, a bet listing rule may be applied.
In every state, the reason a licensee is required to give notice that they are a licensee at the first opportunity with the public is to inform the general public that they have unique knowledge and expertise about real estate and that any licensee is preceived to be dealing at an advantage over any person who does not hold a licensee. While an agent could be dumb as a rock, not understand a thing about real estate, and only passed the test by pure luck, legally they are preceived to be an expert with an advantage over the general public.
It has nothing to do with your intentions, your profits, the color of your car or what kind of strategy you are pulling off.
Jimmy, I am licensed and I have collected assignments. It is legal. No bones about it. As long as you disclose your license, you can act as a principal as much as you want.
If you aren't in the National Association of Realtors, you are not a realtor, but an agent. We still put our pants on just like agents do. In no way does a license hinder your business, if you use it correctly. What is this fear of a "higher standard" about? It's no different than designations in other industries. Do what you're supposed to, and be honest. With any kind of license or certification you're held accountable and responsible. It's part of your expertise. Bottom line.
But I would say that a pertinent fact is that your interest in the property is a self interest, motivated by profit for yourself and even the contract with your buyer is a pertinent fact that would need to be disclosed. Article 1-1, 4... Article 12-2... And the buyer you have... they are aware that you are putting your profit motivation ahead of their interests, right? I mean, they could buy the property cheaper without you in the middle... and you getting commission like licensed folk are 'supposed' to do.
I guess no one reads the Realtor code of ethics any more.
I'll bet you can find a Disciplinary Action case in Texas like the one I found in NC with similar circumstances to your deal.
I actually agree with Chris in a round about way.... there is still a code of ethics regadless if your a REALTOR or not.... Anytime your a professional, your expected to act like one. Unlicensed investors will not be subject to disciplinary hearings, brokers reprimands, censure, fines, E & O claims, so there is a greater risk to agents than non-licensees.
I have written many posts discouraging being both an investor and an agent especially as a wholesaler. The risk is not that you cannot legally (in most states) do this type of transaction, but the risk is that the seller claims ignorance and suddenly feels like filing a complaint. Many agents assume that disclosure makes it alright... Your an expert pinned against a lamen and disclosure will not save you should judge or RE board find injury to the plaintiff.
So, what you proposed in your OP is to deflect your expertise onto the listing agent encouraging him/her to assist you in decreasing the sale price just enough so you can mark it up and resell to a legitmate buyer. Sounds a little like passing the buck to me...
Wholesaling is a very gray area in real estate investing because many times there is no value being added by the B in the transaction. In fact, value is being subtracted through price negotiations. Had B not been in the transaction, then A could have received those monies (wholesale fee) instead. When B is an agent, encouraging the seller's representative to assist you in taking money out of his/her seller's pocket, I would call this collusion. At the very least, disclosure should be made and acknowledged by the seller that B has reduced the effective purchase price below market value as set by the ultimate purchase price by the C buyer. Should seller agree to take a discount in order to sell the property now, then that his her right. The key is to give an accurate representation of the scenario and should the seller consequently agree, then your risk is geatly diminished.
As I have said in my other posts, if your an agent wholesaling, then take your comission from the seller instead of a fee. If you want more margin, then buy the property yourself, rehab, then resell for a profit. Commissions vs fees, is it really worth the risk?
Scott, great insight. I have a few points here that I'd like to pitch in about agents wholesaling..
A few things of note:
*When going into an appointment (FSBOs), I know that I can either walk out with a listing or a purchase contract. I explain both, and break down fees associated with listing it @ "highest and best price" vs. buying it now. I can't go in and list a property at a steep discount, because I'm not doing my due diligence to the seller. If they need to sell NOW, well they have that option too. I show proof of funds and explain and/or assigns and also follow up in an email that they DO understand everything so I don't have an "ignorant seller" , so I've got documentation. I file away. Document & Disclose.
They don't really care if it's you or Joe Schmo from Kentucky that closes on the property, as long as it closes. . they usually are not alarmed with the and/or assigns tag. I've got more cards to play because I have a license. If they'd rather "try" to list it first to "see", well more power to them and good luck. I'm happy to be your realtor.
*If B isn't in the transaction at all, the seller may never sell the property @ all. Who's to know?
*your quote -- "When B is an agent, encouraging the listing agent......" -- Yes, if B the agent encourages the listing agent to get this deal done because she will get double commission, then obviously a line has been crossed. If B strictly notifies LA about a "possible" dual agency if in fact I AM NOT the purchaser. There's no swindling this way. I guess it's the way you make it come across. But like we have all said, those of us held to a higher pedastool realize that, thus we are more careful than if I was just an investor. You rise to the occasion.
We all walk in a different light, some brighter than others, that's what you signed up for!
If you want to seem like a sneaky, clever agent trying to turn a profit on a vulnerable seller, then yes you probably will be questioned and looked at. If you present yourself as a professional with solutions, you are respected. Make it how you want, you're in control. I prefer the latter.
A few things of note:
*When going into an appointment (FSBOs), I know that I can either walk out with a listing or a purchase contract. I explain both, and break down fees associated with listing it @ "highest and best price" vs. buying it now. I can't go in and list a property at a steep discount, because I'm not doing my due diligence to the seller. If they need to sell NOW, well they have that option too. I show proof of funds and explain and/or assigns and also follow up in an email that they DO understand everything so I don't have an "ignorant seller" , so I've got documentation. I file away. Document & Disclose.
They don't really care if it's you or Joe Schmo from Kentucky that closes on the property, as long as it closes. . they usually are not alarmed with the and/or assigns tag. I've got more cards to play because I have a license. If they'd rather "try" to list it first to "see", well more power to them and good luck. I'm happy to be your realtor.
*If B isn't in the transaction at all, the seller may never sell the property @ all. Who's to know?
*your quote -- "When B is an agent, encouraging the listing agent......" -- Yes, if B the agent encourages the listing agent to get this deal done because she will get double commission, then obviously a line has been crossed. If B strictly notifies LA about a "possible" dual agency if in fact I AM NOT the purchaser. There's no swindling this way. I guess it's the way you make it come across. But like we have all said, those of us held to a higher pedastool realize that, thus we are more careful than if I was just an investor. You rise to the occasion.
We all walk in a different light, some brighter than others, that's what you signed up for!
In your case, I like the fact you plan to explain the seller their options as this gives you ways to create activity which is key.
Should the seller feel the need to sell and do not want to go through the trouble of showings and open houses, then you can offer them a quick closing assuming you have an end-buyer in mind.
When wholesaling, I separate myself from the seller (FSBO) and recommend they use a listing agent. If they choose not to, then I have them sign an acknowledgement stating I otherwise STRONGLY encouraged them to do so.
The dilema here is if the seller chooses to take your advice and retains a listing agent, then it may put your deal in jeopardy since the listing agent representing the seller should recommend the seller instead list the property in the MLS for a possible higher net. However, if the seller bought your sales pitch, they can insist the listing agent accept your offer.
In my opinion as well as in the opinion of several attorneys I spoken to over the years, if a licensee is acting as a principal, there should be one degree of separation between you and the seller. That separation may be a listing agent, attorney, or other fiduciary. As long as you have a fiduciary in place, then your unlikely going to get into trouble.
Despite your affirmation of your intent to disclose and in the event the seller elects NOT to have independant representation, the fact that you have expert status and the resources pinned against a seller gives you an unfair advantage despite having disclosed. If you profit too much or your C buyer gets a ridiculously low price, it could be argued the seller's disadvantage caused injury.
In reality, you will probably never have an issue, but just one incident could cost you great loss. It is better to be safe than sorry.
I still haven't mastered the advanced quote reply so here..
"When wholesaling, I separate myself from the seller (FSBO) and recommend they use a listing agent. If they choose not to, then I have them sign an acknowledgement stating I otherwise STRONGLY encouraged them to do so. "
From this -- I'm assuming you a licensed? If not, why do you choose to do this? You're there to help the seller and make a profit yourself. Why give them other alternatives, barring you are not licensed?
There are many investors with licenses. It's common. You rep yourself in the buy, and pay half commish when you sell. It's a smart idea.
Sure there are endless scenarios that COULD play out, that's life. I don't necessarily feel we need to expand on the negatives, when the positives are much stronger. You can pick at anything and turn it into a negative.
But like you said, all it takes is one time, so you have be ready for it, and accountable at all times. And when you're in RE school, you're brainwashed that over and over.
Your last line says it best. "Better safe, than sorry."
You better have your ducks in a row if you want to carry a license and flip for a profit! And most of us do, we aren't all that bad! :)
"When wholesaling, I separate myself from the seller (FSBO) and recommend they use a listing agent. If they choose not to, then I have them sign an acknowledgement stating I otherwise STRONGLY encouraged them to do so. "
From this -- I'm assuming you a licensed? If not, why do you choose to do this? You're there to help the seller and make a profit yourself. Why give them other alternatives, barring you are not licensed?
There are many investors with licenses. It's common. You rep yourself in the buy, and pay half commish when you sell. It's a smart idea.
Sure there are endless scenarios that COULD play out, that's life. I don't necessarily feel we need to expand on the negatives, when the positives are much stronger. You can pick at anything and turn it into a negative.
But like you said, all it takes is one time, so you have be ready for it, and accountable at all times. And when you're in RE school, you're brainwashed that over and over.
Your last line says it best. "Better safe, than sorry."
You better have your ducks in a row if you want to carry a license and flip for a profit! And most of us do, we aren't all that bad! :)
My license is not active, but I am still considered an expert. Once licensed, you cannot lose that tag which is why I urge investors who plan to wholesale to seek advice from counsel before getting licensed as real estate law and association rules vary from state to state. My attorney still keeps me abreast of all the actions taken against agents and investors. One of the most common mistakes made by agents with FSBO's is not offering agency as we discussed earlier. This is specially true if the seller is potentially losing their home.
I am very conservative in my investing approach as I have too much to lose. So, I agree that you should not focus on the negative.
A bit off topic: Personally, I believe many agents are suffering from an indentity crisis. Every agent and investor should read "The E-myth" by Michael Gerber. Many small businesses fail becuase they lack focus as the entrepreneur is saddled with activity instead on focusing on productivity (my over simplified recap).
Focus on the one which makes you passionate. For instance, you want to be a listing agent, then apply your energy to become the best listing agent in your market. The success will follow.
Waffling between being an agent and an investor can be counterproductive. Your dollars will be chasing pennies.
Doubt me? How many top producer agents are also successful investors in their ownright? I mean SUCCESSFUL and not the ones that are holding ten or less properties or doing fewer than 20 transactions per year as investors. Same with investors.
Jason, I wish you much success.
Thanks Scott, that's a great point! A few years ago, when the market started to collapse, I found my niche in representing investors and offered them a discount listing opportunity for the sell. After awhile, I realized I was making peanuts compared to the profits they were making. I slowly began to make the transition, and I thank this site for alot of FREE great info. I guess this a testimonial for Josh's article!
Best wishes.