To be clear, Is paying a bird dog $500 for a closed property illegal?

[Tim Oppelt]

I am a real estate wholesaler in Delaware and I advertise on craigslist: "Investor pays $500 per property lead that closes". So bird dogs bring me a bunch of leads, and if i wholesale one of those, i will pay them since they brought the lead to me. Someone informed me this may not be legal. I have been reading on the web and this forum but surprisingly can't find a clear answer. Is paying a bird dog commission based on the purchase of real estate illegal? And if so, why is it illegal? Also, what to do about it?

[Bill Gulley]

Paying it is a cost of acquisition paid out of closing, if it's not disclosed on the HUD or settlement statement then it is a violation, it also throws your tax filings off, it throws the depreciation off, it causes tax issues and violates settlement procedures.

The birddog gets nailed for collecting it under the conditions mentioned.

Why not put your birddog in your LLC, a limited member or employee and pay them for work accomplished, close in the LLC name and declare the cost on your books.

There are usually viable alternatives to achieving a mission legally and ethically with just a bit more attention and effort. :)