Birddog legality question :: brokering?

[N/A N/A]

I have found a significant amount of info that leads me to believe that birddogging is not really legal since it brings buyers and sellers together. Doing that is highly regulated, and would be the equivalent of contracting without a license the way I understand it.

Please examine the verbiage below, and tell me what I am missing on this topic. Being a Manhattan real estate agent, I am acutely aware of the law and code of ethics that we have to adhere to, but the REI side of me wants to know what you guys think about whether this could be legal, and/or if it is a function of a loophole I don't know about.

Thanks! Terrence

PS the text below is not my writing.

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License laws
A lot of “real estate investment” techniques I hear about sound suspiciously like brokerage. This is one of them. One guru said he was “just a middleman” when he does flips. That kind of talk would make good evidence against you in an unlicensed-practice-of-brokerage prosecution.

To do a brokerage deal, you must have a brokers license or be a licensed salesman and be affiliated with a licensed broker. Laymen tend to believe that they can finesse that by simply not calling themselves brokers. Not true. The law has a doctrine called “substance over form.” It says that the courts will look at what you do, not what you call it. If what you do looks more like brokerage than investing, they will demand to see your license and hold you to the standards of behavior of brokers—most notably a fiduciary duty to the client. Flipping looks a lot like bringing a buyer and seller together for a commission. That’s brokerage.

Furthermore, it not only looks like unlicensed brokerage. It looks like a “net listing.” A net listing is one where the seller says, “Just get me X dollars. You can keep any amount above that.” Net listings were illegal in New Jersey when I was licensed there. They are ethically questionable everywhere because of the powerful conflict of interest regarding the setting of the asking price. Normally, the broker has a fiduciary duty to recommend no less than market price to the seller. But in a net listing, the broker has a strong temptation to recommend less than market so he can increase his take.

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[Ryan Webber]

Most states real estate licensing laws are very similar. Now in reference to Texas' real estate licensing laws, here's the text directly from the Texas Real Estate Licensing Act for what a broker is:

"a person who, in exchange for a commission or other valuable consideration or with the expectation
of receiving a commission or other valuable consideration, performs for another person one of the following . . .

. . . (viii) aids or offers or attempts to aid in locating or obtaining real estate for purchase or lease;

(ix) procures or assists in procuring a prospect to effect the sale, exchange, or lease of real estate; or

(x) procures or assists in procuring property to effect the sale, exchange, or lease of real estate . . ."

Now there are a couple exceptions, if you are directly employed by someone who has an interest in it or if you are doing it for a close family member then you are exempt.

By the technicalities of the law, bird dogging is a violation of these laws. Wholesaling, in which you have an equitable interest in the property, is not regulated by the state's licensing laws since you are technically selling your own interest in the property.

Now there is another side to the whole birddog argument. Investors normally use birddogs that are people with occupations that will bring them into contact with vacant properties (i.e. cablemen, utility company employees, newspaper delivery people, etc.). Investing is not their job and the likelihood of someone like this being prosecuted for referring properties to someone would be very unlikely.

I have seen some discussion about the legalities of someone offering a referral fee for deals, and I would say technically it would violate the RE laws if you pay that fee to an unlicensed person. Now as the laws read, the one in trouble is the person receiving the fee and not the one paying it, and again I would be surprised to see any actual legal action taken against anyone in these circumstances.

With all that said, I am not an attorney, and I would recommend that you consult a qualified attorney in your state about these questions.

P.S. I pay $1,000 referral fee for properties. :D