Ethics

[Michael Williams]

I have a dilemma that I would love to get an opinion about. I have an acquaintance I met in the past several weeks that is a wholesaler in Atlanta. He has a house under contract in an area of Atlanta that is a hotbed of investor activity. I had my real estate agent friend, who is also a broker, that works for a huge RE Company pull comps for this house and discovered that it can go for 50k more than what he is asking for it. The wholesaler has the house grossly under priced but does not know this. The house only needs about 20k-30k rehab to make it worth the number that the comps say the ARV should be. Even if the house needed 60k of rehab it would still give the purchasing investor a $100k profit After Repairs and if retailed.

My dilemma: Is it unethical to charge a potential buyer a $10k birddog fee to introduce this deal to him or her. Of course if he does not purchase there would be no fee? I would have him to sign “a subject too” agreement stating that if he (the investor) purchases the house then he would pay me the fee for introducing the deal. Because he is not going to purchase unless he sees the potential anyway. Is this unethical or am I just taking advantage of what can be seen as a creative real estate strategy? Be brutally honest.

[Rick Baggenstoss]

@Michael Williams  I think a bird dog fee is very fair for connecting two parties together.  However, $500 - $2k is typical on most investor to investor deals.  

$100k profit for some of the hotter areas in Atlanta is not unheard of, maybe even normal, when substantial renovations are required.

Ask your wholesaler acquaintance if you find a buyer if they'd pay you a fee and ask your buyer if you get them a great deal, if they'd pay a fee.  Together, you might get $3k.  

Last but not least, keep your pricing fair and you'll continue to work with these folks.  They are your business partners.  Do them right and you'll make a lot more than $10k over time.