Brokerage fees for Wholesaling if licensed?

Question

Hello folks,

I'm experienced in rehabbing and flips and was a Realtor for several years. Because I'm just getting a new start into RE, I'm looking into wholesaling as a means to generate some capital for eventual buy and hold.

Regrettably, I gave up my license several years ago and since then, my State requires a Broker's license now, which means more $ and time. Because of this change, I'm weighing the pros and cons of re-licensing.

I've listened to nearly every podcast on BP and don't recall anything specifying a brokerage fee for conducting wholesale deals. By that, I mean, as a licensed broker/agent, your license has to hang somewhere and that establishment charges certain fees for transactions and affiliation. If I closed a wholesale deal as a licensed broker/agent, would the establishment where I hang my license take a piece of the deal?

I realize that wholesaling is essentially "brokering a deal" and if you do too many without a license, the state attorney general may crack down on you. I definitely want to do business ethically and legally, so I was wondering if someone could enlighten me.

The reality that wholesaling isn't a get rich quick strategy is not lost on me. That is why I'm trying to gather as much info as possible before I start my marketing campaign.

Thanks for your input,

Matt

Chad Benedict · Answer

@Matt Santos

Without wading into the debate over whether you need your license or whether you should even get into wholesaling at all (this has been discussed ad nauseam in the BP forums, just search for it and you'll finding plenty of threads), I can offer advice if you do decide to get your license. You should find a flat-fee broker and not a commission-based broker. There are likely several of these in your area; just google and you can find some. They simply charge a flat fee per transaction and don't take a cut of the realtor commission or assignment fee if it's a wholesale deal. They don't provide the same level of service to realtors as other brokers do, but you don't need the other bells and whistles. With my broker I pay $65 a month just to hang my license there, and then I pay a flat transaction/E&O fee of $330 for every closing I have, doesn't matter if my assignment fee is $1,000 or $10,000. (I think it's normally $280 for regular realtors, but because I'm a principal in the transaction, it's slightly higher because there is more risk.) Plus I pay quarterly membership fees for access to the MLS, etc. It can get expensive, but you can see the appeal these brokers have to normal relators who make large commissions and get to keep their entire commission.

The fees and setup obviously differ from broker to broker and state to state. There are other brokers in my area that charge less expensive fees, but I like my broker so I'm fine with them. If you do get your license, and if you do wholesale a deal where you're just getting an assignment fee and no commissions and you're not representing either side, you'll still almost always have to pay a broker's fee/E&O fee of some sort to mitigate your broker's risk in the transaction. As mentioned above, if you do have your license, you actually have more liability when you're a principal in a transaction than if you don't have your license. It can be managed easily, you just have to be completely honest and disclose everything to all parties upfront.

Best of luck whatever you decide to do!

Chad

Account Closed · Answer

I can't tell you how many times I read or hear "I'm getting into wholesaling".  Every seminar guy out there is promoting wholesaling as "easy money".  (Doesn't that sound suspicious to you?) Meanwhile, the extent of the knowledge or experience most of these guys "teaching" have is their own "canned", white label program they bought from somebody who creates those things and resell under their brand.

Wholesaling is serious business and a niche in and of itself, and your question proves my point.

You don't learn it from a podcast.

What you are seeking to do IS brokering, and you should get your license to do it or work with someone who is licensed.  Approaching it the way you are, at some point, someone is going to feel burned, and when they do, they will complain to the authorities complicating everyone's lives, including your own.

If you don't want to get a license, then JV with someone who makes wholesaling his or her business, someone who is experienced.  Better to give up some of the profit then keep 100% of the potential headache.

Matt Santos · Answer

Awesome response Chad! Thank you very much. I really appreciate your time.

Donna Long · Answer

Hi, I'm not sure of anything myself! Only that You need all of the facts that is right for you and your family to succeed with your future! I suggest that you talk to a business attorney that knows about these things, like a RE attorney, or a CPA maybe? Someone that can give you clear and concise facts and not fluff!

God Bless to you and your family!

Matt Santos · Answer

Thank you Patrick! Great points.

Matt Santos · Answer

Thank you Ned! I appreciate your incite.

Ned Carey · Answer

Normally a broker is only be entitled to a cut of your commission. If you assign a contract, i would not think a broker would be entitled to a cut of the assignment fee. If you double close I don't think the broker would be entitled to a cut of your gains. That is a matter of the contractual agreement between you and the broker. That is a negotiable contract and a broker could negotiate a cut of that income.

Now a more important issue is, it legal to wholesale as an agent? This will depend on state law and quite possible court precedents.  Unfortunately those court precedents may not exist yet and you could be the test case.

As an agent you are require to be honest and forthright with all parties. You are also held to a higher standard. It is legally presumed you have a negotiating advantage over the public at large. It is illegal in most if not all states to do a net listing. I think it is safe to assume all of those factors apply, even acting on your own behalf and not acting as an agent.   All of those factors add up to a big risk for agents that wholesale.

I know there are many here that say it is best if you have a license to wholesale. I don't think those that say that, have truly thought it through, and considered the issues I bring up.

PS: How you go about wholesaling and how you present your self to sellers and buyers is a big factor. This is true whether you are an agent or not.

Matt Santos · Answer

I'm not looking to circumvent the rules at all, merely trying to see if wholesaling deals false under commissioned income. I'd like to know in advance if wholesale deals will be split so I can manage my expectations. One knows going into it that Realtor commissions are split or paid a fee to the brokerage.

Brokerage fees for Wholesaling if licensed?

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