I've always wondering why wholesaler's don't become realtors?
Sure there is more work involved but you can make 3 to 6% on most of your deals, which might be better than the 'assingment fee'. Also, you are able to reach retail buyers on the MLS who might be VERY willing to buy the properties you find because they are cheaper than most others.
Do more rules apply? Are the brokerage/operating expenses to high?
It just seems that after a while of people knowing that you are a person who finds really good deals, people that aren't "motivated" to sell would start using you as well. You can still contact motivated buyers and align them with your investors.
Any thoughts?
When you are a real estate agent you have to follow rules regarding advertising. They vary by state, but most require disclosure that you are an agent. So a bandit sign or ad would have to state the name the real estate agency to be legal. That would drastically reduce the effectiveness of the sign or ad.
There are a lot of other disclosure requirements as well and it would be a very difficult way to do business.
8)
Wholesalers are finding deals that aren't in the MLS, often through bandit signs and other marketing techniques. If they're in the MLS then they're typically being offered at retail prices, which wouldn't be interesting to investors. Keep in mind also that most agents are not brokers but must be sponsored by brokers and so are looking at closer to 1-2% after commission splits.
Yeah, I think you may have missed my point a little.
I'm not saying they should 'look' on the MLS for good deals. I'm saying why don't they use their marketing techniques (bandit signs, mailers, birddogs, etc) and then when approaching the home owner, tell them they are a realtor and that they have investors that only by from them. Then, once the property is listed, they email the listing to the investors and sell the property that way.
I guess some seller's might just want the property SOLD rather than LISTED, so that might be a reason.
Yeah, 1 or 2% isn't a lot, but its the same as $1,000 or $2,000 on a $100k deal. And you dont' have to worry about if there's "room in it for the wholesaler".
Sorry. I see your point now. Maybe wholesalers are intimidated by the licensing process and the committment to fiduciary relationships. There are some realtors that work mostly with investors, but not many. Still, it seems like most of the folks that reply to those marketing campaigns are past the point of the conventional methods. In many cases they're in trouble and should have listed their home with a realtor months ago but now it's too late.
When you are a real estate agent you have to follow rules regarding advertising. They vary by state, but most require disclosure that you are an agent. So a bandit sign or ad would have to state the name the real estate agency to be legal. That would drastically reduce the effectiveness of the sign or ad.
There are a lot of other disclosure requirements as well and it would be a very difficult way to do business.
8)
Richard is right ! here is what i posted to a similar type of post:
Hope this helps to clarify what I mean. :groovy:
See link of entire post : http://forums.biggerpockets.com/viewtopic.php?t=18771&highlight=
Getting a real estate license was unquestionably THE most important thing I did as a wholesaler. Actually getting the license was a pain in the butt, if you don't study you will fail. Keeping the license is also a little costly (around $1500 a year) but the benefits are enormous.
Here's a typical scenario:
I get a call from a new home builder offering to dump five inventory houses at 70%. I immediately sign the contract in my LLC's name and include myself as the referring broker. I secure the deal with my earnest money.
I then flip the deal to another investor at a 26% discount, keeping 4% as commission.
The real benefit is that I was able to effectively assign the deal for 4%, take no risk, get paid at closing and fully declare everything on the HUD 1. No hiding the assignment fee, no explaining my fee to the lender or struggling to get paid.
Real Estate Advocate-
Can you expand on that? Have you done this a lot? I just have to wonder, if fiduciary and ethical duty of the agent is to get the client the most the market will bear, how do you get by that to sign him at 70%? Isn't that a violation of what agents were intended to be?
Or are you then not representing him? Just buying the property? Then why is he calling you?
Are you advertising? Are you finding disclosure to not be a problem for you?
I am not questioning you, just curious because I am licensed and if anything it hinders me from being able to do what I like. If you have found a way around this - I'd love to hear about it.
Nice questions Minna
DITTO !!! :shock:
REAdvocate, in your example, couldn't that have been done without a RE license? I have a deal I am working on now for 4-plex units from a builder, I put them under contract via my LLC with earnest $ from my LLC and will assign some of the units I can not keep to my investors for an increased price/assignment fee.
As for the questions asked by Minna, I hope you can come back to the post and answer them. We all would like to hear what you have to say.
Speaking strictly for the state of CA, Having a real estate license binds you to the ethical standard of fudiciary responsiblity to the client in obtaining the most that you can for the property. As a wholesaler, you are looking first and foremost for a deal that you can move to another entity, and keep a spread. This is not in agreement with the code of ethics that a Realtor, or a Realtist are subscribing to.
I have a very hard time weighing this as a broker, and have come to the conclusion that I cannot wholesale properties because of the very ethics that I subscribe to. In the end it comes down to personal choice and I chose integrity and subscription to the code of ethics. At the end of the day, my integrity is all I really have and I refuse to jeopardize that for anyone, or anything. If you do not hold a real estate license, my belief is that wholesaling is fair game, and a very lucrative game at that.
Good Hunting!
Scott Cook
If REAdvocate buys the houses at 30% listing himself as the selling agent [the person who produced the "ready, able and willing buyer"], then his only fiduciary responsibility is to himself, right? This would be no different than finding a buyer for a FSBO house, and collecting a commission from the seller.
Or am I missing something here?
I am continuing to weigh this around in my mind and I would like to get some opinions of this from other RE licensees. It is my belief that wholesaling is against the Realtor code of ethics, but if you were to disclose the fact that you have interest in the property to all involved, it might be ok. I draw your attention to Article 4 of the Realtor Code of Ethics:
Article 4
REALTORS® shall not acquire an interest in or buy or present offers from
themselves, any member of their immediate families, their firms or any
member thereof, or any entities in which they have any ownership
interest, any real property without making their true position known to
the owner or the owner’s agent or broker. In selling property they own,
or in which they have any interest, REALTORS® shall reveal their
ownership or interest in writing to the purchaser or the purchaser’s
representative. (Amended 1/00)
What are your thoughts on this subject?
Sounds to me like that article says it all for agents.
Either disclose your involvement/ownership to all parties or be in violation.
Seems simple to me.
Good job on remaining on the ethical side TrustOne!
Just to be clear, I have never advocated hiding the fact you are a licensed broker. I only noted there is a position in the transaction where the broker's agency duties were satisfied.
Snice,
Point well taken, the fudiciary responsibility may very well be just with yourself, as you are not employed by the seller or the end buyer.
Again, I am looking at this from the ethical responsibility, and the Code of Ethics is not intrinsically clear regarding wholesaling as an agent or a broker.
Everone,
I have just shot off an email to the (CA) Orange County Association of Realtors Commitee for Professional Conduct to get their take on this as well. I will post both my email to them, as well as their responses when I get them back.
Scott Cook
Sounds good Scott.
We will look forward to reading the response you receive and post here.
Thnkas for your efforts and time.
I have just heard back from our professional standards committee..
First, My original email to them, and then their response.
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Mac,
I would like to get your take on wholesaling investment properties from a professional conduct standpoint. This is hypothetical, and I have not done this, but I know of other investors that do this without a RE license.
For instance:
Approaching a FSBO that is for sale and offering to purchase. On the purchase contract it would name me as the buyer, and or assigns, thus making it an assignable contract. I find x buyer to purchase the contract without representation by any agent including me. I disclose to all parties involved that I am a licensed agent thus meeting the requirements of Article 4 of the Realtor Code of Ethics. We do a double close through the title company and the property is passed through me to the end buyer. The issue is the spread that is created that would go to me. The FSBO is priced at $220,000 and I assign the contract to the end buyer for $235,000 effectively creating a spread of $15,000 for myself. The FSBO is adamant about not listing the property with a Realtor, and the end buyer is an investor that does not want to be represented by an agent. I cannot find anything in the code of ethics with the exception of Article 4 that pertains to this, and I believe that Article 4 requirements will have been satisfied by the disclosure to all parties.
Ref:
Article 4
REALTORS® shall not acquire an interest in or buy or present offers from
themselves, any member of their immediate families, their firms or any
member thereof, or any entities in which they have any ownership
interest, any real property without making their true position known to
the owner or the owner’s agent or broker. In selling property they own,
or in which they have any interest, REALTORS® shall reveal their
ownership or interest in writing to the purchaser or the purchaser’s
representative. (Amended 1/00)
Where does this fit in with professional conduct? What if any rules from the Code of Ethics could possibly be violated?
I look forward to your earliest response.
Thank you and best regards,
Scott Cook
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Hi Scott,
By disclosing that you are a licensed Real Estate Broker and that you were acting as a principle only not as a agent you would probably be adhering to the code of ethics in actuality. However you may not be adhering to the spirit of the code of ethics. That would depend on disclosures you shared with the seller to help establish the value of the sale as well as the disclosures you provide to establish the value to the buyer so that he will purchase the property in a short period of time.
I would also recommend that you consult an Real Estate attorney due to the fact there may be a requirement to disclose to the original seller the amount of money that you sold the property for to the new buyer since it was a pass through escrow.
A few years back there was quite a bit of this type of thing going on and it caught the attention of the legislatures and if I recall right there were some laws passed for full disclosure purposes.
Sometimes it is easier to be an unlicensed investor then a licensed one.
Hope this helps
Any further questions please don't hesitate to contact me.
Mac
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I still think that we have some ambiguity here. Any RE Law professionals on the site want to chime in as well?
A. Advantages of getting an RE license
1. Save on commission/fees for your house
2. Home builders may sign a commission contract with you based on your popularity/marketing reach, so you can bring clients to them
3. You will even get marketing commissions from loan agents/companies.
B. Disadvantages of getting an RE license
1. You have to be strictly ethical in keeping the party's interest at the forefront without being selfish, get the best deal possible
2. Study to get the licence (go thru the process), renew license, zero complaints
3. Disclose your RE license in advance for your houses for sale. Most of the times, this is a turnoff for buyers.
Bottomline
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Clearly, the advantages outweigh the disadvantages, at least prima facie.
That's why, we see a lot of new investors getting an RE license. How successful they are on capitalizing on the advantages is totally up to them. The ones that don't have an RE license, act as a principal, are thinking of just the A1 commissions (3-6%) OR are just not ready for the hassles. Another reason being, they make enough on their core transactions and don't have to worry about the peanut commissions. This is especially true for established investors.
For an investor, money comes first. Also he has to decide, if he's gonna make that money ethically or not, maybe in-between.
Mina, sorry it took me so long to reply but I haven't been to the site for a while. ...
The point about getting your license is that it gives you an amazing tool to structure deals as a real estate investor. I'm a real estate investor first and foremost and almost never use my license to act as a traditional broker. I don't take listing agreements or act as a buyers agent. This eliminates any fiduciary duties and any jurisdiction of a the Realtor's code of ethics.
When I buy houses I essentially act as a principal in the deal as I'm buying the property through my LLC. I don't act as an agent.... therefore no fiduciary duties.
However when I flip the property I sometimes act as an agent for my LLC. I don't represent the buyer and owe no duty to the buyer.
As an aside, when you buy new houses you don't act as an agent of the seller. New home builders designate you as a referral agent as they complete all the paperwork. This means that when I flip the property they usually rewrite the agreement directly with the new buyer and designate me as the referral agent.
The second point I want to make is that this is an extremely effective way to de facto assign contracts and avoid problems with double closes, seasoning and wasted costs. This is very relevant to new home sales as most new home contracts prohibit assignments. Having a license solves this problem and allows you to assign agreements through the back door.
There's absolutely nothing unethical about this so long as to make the applicable disclosures. As an example, in Colorado I'm required to disclose that I have a real estate license when I buy or sell real estate in my own name or an associated entity. this is easy to do and has zero impact on the negotiation.
I want to touch on the other comments made about "fiduciary duty" "ethics" and "spirit of the law". Most of the comments have absolutely no relevance to this scenario as I'm not acting as an agent in the transaction. As long as you act as an investor and act as a principal in the deal there is no ethical grey area. The moment that you act as an agent and negotiate the purchase or sale for another, you've crossed the agency line and need to comply with the full code of ethics.
As a final point .... whether you're an agent or a principal in a deal, you need to act with honesty and integrity ... code of ethics or not.
Fiduciary responsibilities?
OK the realtors who post here will likely FRY me for saying this:
We are in officially "Declining Markets" in many parts of the country
right now, do realtors tell Asset Manglers I'm going to get you that price
on the BPO (when they know they can't)? and then when they find
a buyer they say, "You know this is a 'Declining Market' you are buying
into so expect this house to drop in value and whatever down payment you've put up to evaporate." I as a buyer have talked to many REO
Realtors and the conversation runs to other subjects instead.
I'm gonna duck now and run for cover, maybe I can avoid the frying pan .....
If you are assigning contracts for only $1,000 then you are leaving money on the table. You should be making much more than that.
Going back to the original post. Wholesalers in my opinion have to business minded people to be successful. Wholesalers need to work for every penny in regards to negotiation, finding buyers/sellers, etc. Realtors, I don't know so much because I am not one. Wholesaling is a REAL Business and you need a entrepreneurial spirit.
All you have to is disclose you are an agent and not working for them. Also disclose that you are buying at a discount for business reasons and you are fine.
The license is an issue if you screw people over
Most "wholesalers" are wannabe's who end up meeting the state licensing agencys at one time or another :)
I am currently studying to receive my license. I was wondering how soon after you receive your license and choose your broker, that you can receive access to the MLS?