What Are Real Estate Deals and What Aren’t Deals


With clear signs that the housing market is losing steam (e.g. sales of previously owned homes are at their lowest level in 2 1/2 years), smart investors are finding opportunities where there were few before. I just read a wonderful post in our real estate investing forums from our member Christy. I thought it was a great piece that should be shared, and here it is:

I would like to make a distinction between “investor types” because I have been getting too many calls and emails to mention from newbies who seem to be attempting to jump into this and can get themselves into a lot of trouble without realizing it. I’ve spoken to three people I have met through this site that have been “back-doored” by some people and one of the newbies I met from here, caused me to be cut out of my own deal because of inexperience, lack of knowledge, and their inability to say so. Thanks to them, I now have to sue someone to try and get paid, and guess what? It’s not the investor who backdoored everyone, it’s the guy who sent out the information on my deal after signing an agreement saying he wouldn’t. It’s the bird dog.

Let’s begin with a definition. Now much of this is subjective in the terminology, but there are some things that I do not consider interchangable. The first and most important.

There is a difference between a bird dog and a wholesaler. It is important that people understand what role they are playing in these deals. Especially those that come from this site, are networking here and are new. I define a bird dog as someone who has knowledge of a deal but has no real risk. For example, you see a deal on this site that someone else has posted. You then take that information to a possible buyer, or group of buyers. Your position in that deal is as a bird dog, NOT a wholesaler. The wholesaler is the person who actively has the property under contract, owns it, etc. In other words they are either the seller or as close to the seller as they can get. The wholesaler has put themselves into the deal legally. They have contracted the property in their own name, they have earnest money in the deal if required, they have paid for the appraisal, THEY are in direct contact with the seller if not the seller themselves. The wholesaler is the one with the risk. If the wholesaler cannot find a buyer, it’s the wholesaler’s ass on the line if the contract falls through and faces breach of contract, loss of earnest money, etc. The wholesaler and the end buyer are the two people with the risk. If you did not go out and contract or buy these properties, you are not the wholesaler. You are a bird dog. Many wholesalers, myself included, put ourselves into the bird dog position when contacted by other wholesalers looking to move their deals. That’s fine and dandy, and it’s not a demotion, it’s just your part in that deal.

It’s important to me that this distinction is made because I have run into instances where people contact me trying to move deals, misleading me into thinking they are moving their own deals, when in fact, they are not. Many people on this site are trying to move other deals that belong to other people while passing them off as their own. Let me explain how this hurts everyone involved. Most of the people on this site are in contact via email or phone only. Many of us correspond daily. WITH EACH OTHER!!! The new people I don’t think realize this, they hop on the site and begin emailing us telling us of these great deals and you have to gently explain to them that you have already seen it, or better yet, it’s your own deal. Embarassed I truly believe 99% of the time, this is not done maliciously, it is due to inexperience and lack of knowledge. Everybody wants a foot in the door to get rich quick with no money, no credit, and virtually no work. While real estate is great and is probably the closest thing you can do to come to actually achieving that goal, EVERYTHING takes time, some money and some risk.

I want to clarify that I love bird dogs. I use them all of the time and I consider them to be an invaluable part of this business. I am not slamming them. As I said, I often put myself into a bird dog situation, but the bird dog needs to understand some things. The bird dog needs to be able to identify a deal, valuate a property and get at least the basics of a deal before actually submitting it to buyers. Recently, I’ve been getting forwarded a lot of bad deals. Inflated appraisals are 90% of what I see. Again I don’t think it’s done intentionally, I think it’s because many people see an appraisal as just a number on the bottom of page 2. They think because that number is what they told their appraiser they wanted it to be, that makes the deal. That is very wrong, but that is a whole other topic. I simply would like to suggest, that you do a little research before presenting to your buyers. The theory of “if you throw enough crap at the wall, something will stick” does not always apply in this business and it most certainly doesn’t apply to me. I get emails from people everyday that I don’t even bother to read anymore. They get deleted because I cannot take those people seriously. Many of the others on this site know that when you send me a deal up front, I will always look at the apprasial or do some due diligence before sending it out to my buyers. I cannot afford to piss my buyers off and alienate them. I cannot afford to have my buyers not trust my deals because once that happens, there goes my bread and butter. Please, please, please, try to get a basic understanding of the deal, the value, etc. before putting it out there. You are only hurting yourself, because without realizing it, you become a joke. While there is a lot of business out there, remember networking is key. If you think you have only screwed over one person, you’re wrong. That person knows someone who knows someone who knows someone, and do it enough times…. and NOBODY will work with you. It’s not rocket science.

Now let’s talk about fees. As stated above, my definition of a wholesaler is somebody who has their rump in the pudding. They have risk in that deal. Those that have the most risk are those that should reap the most profit. Again, this is where inexperience and greed come into the picture and where many newbies shoot themselves in the foot and kill their careers before ever getting started. I’m going to use a recent deal I had with a new bird dog that contacted me. I had a good deal that he said he had a buyer for. The deal was at 65% LTV and had an $80,000 spread which included my fee already. As the bird dog, he has no way to get himself in the deal without a fee agreement so I ask him what he’s going to charge. Brace yourselves…..this moron says $50,000. Now I wouldn’t care but his greed cost him and his buyer the deal because HE sucked all the profit out of it to the end buyer. The end buyer is left with a $30,000 spread and an exorbitantly high risk at around 90% LTV. Again, greed and inexperience. Before you can really start working as a bird dog or as a wholesaler, you have to be able to identify a deal. When you get greedy, you kill your deals. Every time.

Most of us, meaning buyers and wholesalers as I do both, don’t care how much the middle people are making so long as our end profit is in line with what we are looking for. As a bird dog, with no risk, while you can and should profit, be reasonable. I have one right now that I acted as a bird dog on. I entered into a fee agreement with the wholesaler for $5,000 on a $450,000 spread. Why such a small amount? Because I know my buyers bottom line, and I respect the wholesaler who has the property and the risk. She’ll make $100,000 and she should. I could have charged a lot more, but to many of us that see this as a career and not just a way to pay the bills for a few months, I see building a relationship with her as more important than gouging as much as I can out of the deal, because the next deal there’ll be more room and I can charge more. I would rather do a bunch of good deals and get the volume going all the while making new contacts, getting more deals, etc. than one deal knowing she’ll never come to me again because I was unreasonable the first time. Remember every dollar you ask for is coming out of someone’s pocket. Keep the fee within reason based on your level of risk and the amount of work you’re doing. The only thing I did for that $5,000 was make one phone call and email some specifics. It took me all of an hour and the deal is under contract and going to close. Nothing. I’m basically making $5,000 an hour on that deal and that’s fine with me. I also have a very good investor who does a ton of business who will send me deal after deal after deal because she sees that I am honest and reasonable. On those big deals, collect your fee, make your money, but as a bird dog, please realize that you are at the bottom of the pecking order in that deal. Again, I’m not saying that to be condescending. I was at the bottom of that pecking order in that deal. I’m not insulted by that, it’s simply a fact.

Now let’s talk about how bird dogs can make sure they get paid, and make sure they don’t give away their deals. As I stated before, I had three calls and emails this week by newbies crying who put their deals out there and, low and behold, they didn’t get paid. As a bird dog in the transaction, you have no real legal place there unless you make one. THERE IS NO TRUST IN THIS BUSINESS. I say that broadly because, I’m sure we all have people we trust, my partner I do implicitly. I’m talking to those of you who are getting screwed because someone says they’ll pay you a fee and then closes a deal and you see nothing. People will tell you whatever they can to get the deal done. Let’s face it. There’s alot of money in this business. With money comes greed, backstabbing, etc. This is not a business for the faint hearted or the weak unless you’re a masochist and get off on it.

Everyone on this site that has dealt with me in the past knows that before I even give you an address to a property your’re siging a non compete and non disclosure. This is a form that basically says, this deal is mine. If you back door me, you’re paying me anyway. If you show it to someone else without getting them to sign and they back door me, YOU’RE PAYING ME ANYWAY, etc. This form is the catch all and fully protects me to see that I get paid. To put it bluntly, you contact a buyer and give them the appraisal, address, property information, rent rolls, etc. You have just given all leverage you ever had. As a bird dog, you don’t have that property under contract. You don’t own that property. So now that you’ve given the buyer all of the information he needs to do the deal, what value are you? NONE. You’re an expense that’s easily eradicated because now the buyer can go directly to the seller and do the deal. Many bird dogs are new and blindly trust. They get excited and when that closing date comes they sit and click refresh on their bank’s website just waiting to see the wire that’s never going to appear. Because you have the least amount invested, the only way to make sure you get paid, is to enter into a Master Fee agreement and make sure you get paid.

I, personally would never do what I just described above because I think it’s bad form and what goes around comes around. If you screw enough people, it’ll come back and bite you eventually. I have always made sure my bird dogs are paid whether there is an agreement or not. 90% of the other investors out there will not. Money is money and I cannot tell you how many times, my buyers try and convince me to cut me people out of the deal because they see that as money out of their pocket. PROTECT YOURSELF. While you have the least risk, you are the most vulnerable when it comes to collecting on anything. Seriously, are you going to stand in front of a judge and say, ” but I sent him an email!” As you’re laughed out of the courtroom, that legally binding Master Fee Agreement is what will make sure you are paid what you are earned.

The calls I got were because people did just what I described. They found a great deal that another wholesaler had, or that they heard about but did nothing about securing it themselves. They sent the buyer all the information he needed to make a decision (which is what you should do but not until after the agreement is signed) and the buyer, not needing them anymore did jump on those great deals, and the bird dog got nothing.

One of these bird dogs asked for a list of my available properties which I sent him AFTER emailing and having him sign the Non disclosure non compete. He didn’t read the agreement apparently, just signed it and then turned around and proceeded to email the appraisal and all other specifics to several potential buyers trying to find one. He found one alright. The guy loved the deal so much, he contacted my seller and did the deal directly with him cutting everyone else out of the deal. The guy even had the audacity to call MY APPRAISER and ask him to change the borrower name on the appraisal I PAID FOR into his name. At least my appraiser was loyal, told the guy to take a hike and then promptly called me to see if I knew what was going on. Of course I didn’t, so my appraiser gives me the guy’s name and number. I talk to him and find out where he got the specifics of the deal. He got them from the bird dog who had signed the NDA with me but that never had the buyer sign the NDA. The buyer was a complete jerk and told me there is nothing I could do to him. And he’s right. I didn’t have any agreement with him, it was with the bird dog who stands to lose a lot of money. Granted, the guy has no money, but I lost over $200,000 on that deal. It’s beyond personal so I may just make sure that he doesn’t have any money for quite a long time with a judgement and any garnishments I can get. I don’t think the guy did it on purpose, but you need to read what you are signing, and use some common sense. When you take $200,000 out of my pocket, I tend to get a little cranky. Not Very Happy.

I’m sorry for the novel, but I really felt this needed to be said. I love this site. I love the people I have met and will meet in the future, I’m sure. Everybody can succeed and make money and we can do it being up front and straight with each other. I promise, if you simply tell me you don’t know how to do something, or you don’t understand something, I’m not going to hang up on you, or write you off, and I hope when I say and have said those things to others, they don’t write me off either. Not everyone knows everything. I learn something new everyday. Rather, I learn about a million new things everyday. In this business, knowledge is power, so if you don’t find it, get it. Ask. Cover yourself and realize that you could be hurting people other than yourself as well as the above example proves.

Thanks for the advice Christy!

About Author

Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded BiggerPockets.com when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.


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