Paying bird dogs as a licensed agent in Texas?

Question

As an investor/agent, am I legally able to pay a bird dog a flat fee or a percentage out of my profits ? If it's possible to do so, how would I go about doing that ? Do I need to get a separate contract drawn up? I've heard of people doing it 'under the table' but what's the best way to do it for both parties?

Alex Gaw · Answer

Yes yes yes. It is an extremely bad idea to try to crowdsource legal knowledge. Knowing the law is rarely as straightforward as reading the statute plus any available commentary. A knowledgeable attorney will know the statutes AND case law surrounding the issue. They likely have even already answered this question for others. I don't mean anything against the sterling members of this site, but I absolutely wouldn't build my business around any "loopholes" in the law offered by someone on the internet whose credentials I don't know and who risks nothing by saying whatever they want about legal issues. You can vet attorneys and they have to consider the consequences if they give bad advice. An attorney might cost you $300, but taking bad legal advice could cost you a lot more.

Further, what's wrong with paying the wholesale fee? An experienced wholesaler knows how to find deals good enough for them to get their fee and leave enough for you to make it worth your while. I'm new to this, so forgive my ignorance, but it seems to me like a "bird dog" is just a wholesaler who's being taken advantage of. If I'm wrong I hope someone will clue me in. It's important to me to act ethically, and it seems like one of the major goals of this site is to foster a community of investors that reflects well on real estate investment as a whole.

Dmitri L. · Answer

You are asking legal questions and your best bet would be a quick consultation with a knowledgeable real estate attorney in your state. The fee should be relatively small compared to the investment in a meaningful direct mail campaign.

You may also want to chat with a few title companies about what kind of transactions they'd be comfortable with. Although they don't represent you, they should have the legal expertise available to guide you in the right direction. You'll need a title company lined up anyway before you get your first deal under contract since you need to move quick after that.

Hope this helps

D

Cathi Cross · Answer

"...crowdsource legal knowledge...." Love it. Yes, "bird dogging" and wholesaling are basically the same. The reason it is legal, with some assumptions, is that the person engaging in it is a principal acting on their own behalf. A non-licensed person can buy or sell their own property without an agent (e.g. via a "sell by owner" listing.)   As an example, if I negotiate a contract as a Buyer directly with an owner, they become the Seller in that contract. Now, if I write in my "Name and/or Assigns" in the Buyer field, I can then go sell my equitable interest, i.e. the right to purchase the property under the terms of the contract, to someone else. If I succeed, I am then the Seller in a separate contract, and the person purchasing my interest is the Buyer. After I am paid for my interest, my transaction is complete. The original Seller, i.e. the owner of the property, is still the Seller in the original contract, and the person who bought my interest now becomes the Buyer.   Two critical components are key to legally performing the above scenario. 1st, there must be consideration for a real estate transaction to be valid. In most cases, this is money. (Rarely, almost always limited to family only, consideration can be "love.") Using the above example, if I convince the Seller to sign the contract, but give them no consideration, i.e. money, I could potentially doom the deal, and myself. I have no "skin in the game." At that point I might be considered to be engaging in brokerage with my role reduced to a "lead generator" for my contacts/employers, the Buyers, who are essentially paying me a finders fee. This is illegal. It may seem like semantics, but the point is that I do have the right to buy and sell interest in real estate as a principal with all of the risk that entails.  The 2nd component is disclosure. In every step I must fully disclose what I am buying and selling, i.e. in this case an equitable interest (the right to acquire title upon specific performance under the terms of contract). The recent laws regarding this are as follows:

Sec.1101.0045.EQUITABLE INTERESTS IN REAL PROPERTY. (a)

A person may acquire an option or an interest in a contract to

purchase real property and then sell or offer to sell the   option or

assign or offer to assign the contract without holding a   license

issued under this chapter if the person:

(1)does not use the option or contract to purchase to

engage in real estate brokerage; and

(2)discloses the nature of the equitable interest to

any potential buyer.

(b)A person selling or offering to sell an option or

assigning or offering to assign an interest in a contract to

purchase real property without disclosing the nature of that

interest to a potential buyer is engaging in real estate   brokerage.

Again, using the above example, I must explain to the owner what I am going to do, i.e. purchase the right to complete the purchase of their home on my own, or assign that right to someone else for a fee.

Carl Richardson · Answer

I totally agree. I have heard of a lot of investors using bird dogs, so I was just curious to how it all

works if the investor is a licensee. In my opinion, having bird dogs is a MAJOR advantage to an investor.

Alex, I was looking at it from a wholesalers perspective. If a bird dog takes a huge assignment fee, it would make it a lot harder to work with  for a wholesaler(unless the bird dog is assigning to a investor,thus becoming a 'wholesaler'). in my opinion, a bird dog is not just a wholesaler that is taken advantage of. Bird dogs go out and find property, they don't put it under contract or do any of the other work that's involved. Well actually, I've heard of some situations where bird dogs do actually put it under contract, in this case, the investor usually will pay the bird dog more than he would normally pay him vs if he just 'referred' the property.

Carl Richardson · Answer

One more question, do you think i would be able to advertise for bird dogs on my social media out to my followers/friends?but have my partner actually pay them for the referral ? Or does that violate ?

Carl Richardson · Answer

Hey Shaun,

That sounds like a good work around. I think i will end up doing that !

Carl Richardson · Answer

So that means an Unlicensed Investor has the advantage over an licensed investor? The thing i see about having a bird dog assign contracts, is that now they can make the assignment fee whatever they want, making it harder on you. I feel like i would be kinda hard for everyone to make money that way.

Fred Heller · Answer

"Under  the provisions of Section 1101.002(1)(A)(ix) and (x) of the Real Estate  License Act a person making a referral of prospects or property for the  sale or rental of real estate must be licensed under the act if the  referral is done with the expectation of receiving valuable  consideration. In August 1999, TREC amended Section 535.20 of the TREC  rules to provide that for purposes of that section, the term "valuable  consideration" includes, but is not limited to: 1) money; 2) gifts of  merchandise having a retail value greater than $50; 3) rent bonuses; and  4) discounts. If the referring party does not have a real estate  license, then no referral fee could be paid to that party by the broker  receiving the referral. Under the amended rule, a broker could give an  unlicensed person a gift of merchandise having a value of no more than  $50 and this would not subject the unlicensed recipient to a charge of  unauthorized practice as a broker, nor result in a violation of TREC  rules by the broker giving the nominal gift. 						 - See more at:  https://www.texasrealestate.com/for-texas-realtors/legal-faqs/category/referral-fees#sthash.uiki9VdF.dpuf"

Paying bird dogs as a licensed agent in Texas?

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