How do I structure a contract to make sure buyer don't end-run me to the seller?

Question

I have an opportunity to wholesale a 20 unit apartment complex between Long Beach and Huntington Beach, within 1/2 mile of the beach. I met the seller's broker who agreed to give me a "marketing fee" if I come up with a buyer that closes. I'm an investor, not a licensed agent.

My question: Before I disclose any contact information or address to the buyer, how do I make sure I ensure I receive my agreed fee?

My question:   Before I disclose any contact information or address to the buyer, how do I make sure I ensure I receive my agreed fee?

Tom Gimer · Answer

That’s not a wholesale structure… it sounds like brokering without a license and in that context it is really difficult to enforce payment of an illegal commission through the courts, regardless of the existence of an agreement or who prepared it.

Ned Carey · Answer

@Rob Pattison I don't know FL law but in many if not most states it is illegal for a broker to give you a Marketing fee. If the broker agreed to give you the fee, then it doens't matter if the end buyer goes around you. Your fee isn't comming from the buyer it is coming from the broker. It is a matter of whether the broker keeps his word.

What contract are you talking about; A contract between you and the buyer; A contract between you and the agent?

Chris Seveney · Answer

@Rob Pattison

Another question

This property the seller already has a broker and you are gonna try and wholesale it?

Not for nothing but most people would probably do a quick google search it’s on the market and would just go right around you or if you had it under agreement wait till your contract expired.

If it’s listed publicly already it’s gonna be very difficult for you to get a fee

Bill B. · Answer

Ps. That seller should fire their agent if a person with no relevant experience or mls access can find a buyer the agent could not. Think of the commission involved. You would assume they’d get the best at that cost.

Adam Bartomeo · Answer

As a broker, I would not pay a marketing fee or any fee to anyone that is bringing a buyer or seller due to the laws and risk involved. The laws are clear and it may seem like you are brokering real estate without a license and the broker is allowing that. I believe the maximum penalty for this is a 3rd degree felony and $5000 fine. This is not something I would risk my license for nor would I ever want to put you or anyoneelse in harms way for a commission.

Rob Pattison · Answer

Great advice, everyone.   To bring you up to date, the seller's broker has verbally promised me 1.5% of the purchase price if I bring a qualified buyer that ends up purchasing the property.

That promise was made to me verbally on a phone call today.   I asked for her to reply to my email confirming our agreement in writing and have yet to hear from her.   Reading your feedback, I can understand why she may be reluctant to do so.

She said, and I thought, that a fee for marketing services would be legal for her to give.  This property is in California.  I may need to check the California legal requirements for real estate brokers.

My main real estate focus is buying non-performing notes in the red states and an airbnb rental in Costa Rica.   I personally know the owner of this 20-plex and have agreed to help.  The building is dilapidated, has some challenges, was built in the 60's and there will be a challenge to sell.   Similar apartment complexes of similar size in the general area have been on the market 4 to 5 months.

I'm guessing if I bring a buyer/investor who doesn't need an agent, then the broker can give me 1.5% of the purchase price.

Maybe I need to obtain my real estate license going forward, not specifically for this deal, but in general for when these occasional deals come up where I can work them time efficiently.   I do have a network of people who can buy a 20 plex in CA.

Bryant Brislin · Answer

Yea, sounds like a weird situation.  If the listing agent puts it on the MLS, Costar, Loopnet, Crexi or even just one or two of those platforms, it should be able to sell, assuming it's listed at a price that is within the ballpark of the cap rates that buildings trade for in that submarket.  Do you really have buyers for this type of deal? Do you really understand what the various moving parts are when it comes to selling a multifamily building? Do you understand how to determine the cap rate they are asking for and what it actually should be? Do you know how to get to the bottom of what the expenses are so that you can figure out the true ROI which is what the cap is based on? If the answer is "no" to most of those questions, I don't think you should work on it for the sake of just trying to work on any deal.  Also, listed/on-market deals are low-hanging fruit, amateur hour, honestly, so you can't have your cake and eat it, too, as far as, yes, you have the risk of a buyer going around you, and if you pitch an on market deal to a buyer, many them of them are turned off and feel you aren't really adding value by brining them something that anyone has access to.  Yes, I understand you may be thinking "Well if the buyer hadn't seen it before, it shouldn't matter", but it's a psychological hurdle for many of them nonetheless.

Eliott Elias · Answer

A marketing feet does not mean anything, get an agreement signed with the broker and explicitly state what you will make if you find a buyer. You’ll be lucky if you get paid not signing one.

Bob Stevens · Answer

Have your attorney draft and agreement, really not sure what else to say,

How do I structure a contract to make sure buyer don't end-run me to the seller?

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