How does commission work if you are a licensed real estate agent wholesaler?

Question

Hi everyone,

I  am a licensed real estate agent in the state of MA. I am in the  preparation stages of starting up a wholesale business. I have almost  everything I need to begin, basic knowledge, attorney's to ask questions  to, all the forms/contracts, etc., but there is still one thing that  confuses me. I am a licensed agent and I hang my license with a  broker, how would the commission work if I am the principal in these  wholesaling transactions? My first few deals I plan to use a long term  lease with an option to purchase to lock up the properties, and then  either assign the entire contract to someone else, or retail the  property to an end-user.

I spoke with my team leader about this, and got a very brief explanation about it. Basically he said that I would essentially be representing myself as a buyer's agent in the deal which would require the seller to pay me a commission. But I don't quite understand. Can anybody help me with a step by step as to how this process would actually work?

Michael King · Answer

Excellent advice. Thanks again for the info Shaun!

Michael King · Answer

So what do you think is the best way to find a real estate broker who is very pro-investor as opposed to retail sales based? I would assume they would want their agents to do a fair amount of retail sales in addition to their investing to make the liability of taking you on as an agent worthwhile, correct?

Shaun Reilly · Answer

They may very well want to get cuts of all your personal off market deals.

I have heard this before.

Basically if they are a pure retail office they don't get this stuff at all.  My broker is an investor as are basically all the agents so he gets it and never thinks about anything we do outside of the MLS and stuff the office is actually involved in.

Now I will say that if you aren't trying to buy any MLS places and aren't even considering relisting your own properties you will likely be on the block if they decide to thin the heard at some point.  Unless they have really high fees it isn't going to be worth it to them to keep you around if they never get any commissions out of you.

For your tagging question yeah if you do @ and start typing the name you should see a drop down list come up.  But keep in mind you can only tag people you are colleagues with or are already participating in the thread.

Michael King · Answer

I got-ya. Thanks for the information! That's why I was so confused. The stuff I was being told just didn't seem right to me. Guess it's time to investigate further.

On a simpler note, any idea how to tag someone on Bigger Pockets? Is it like other networking sites where you just use the "@" symbol?

Much appreciated.

Shaun Reilly · Answer

I have used other agents many, many times to resell my places.  I have rehabbed over a very big area and in places I didn't know great I felt it was better to have an expert.  Sometimes I think it was smart other times it seems like it wasn't worth the costs.  For the most part listing you own stuff is putting up a sign and posting it on the MLS then sit back and give out the lockbox code.  Even on a cheaper property and if you have a lousy commission split you can probably save a couple grand.

Not saying not to use other agents but definitely look at the cost benefit on that.

I would say same rule of thumb.  If it was listed but you buy it creatively then there would be a commission due.  If it is off market no different than putting in "cash" offers for wholesales.

Michael King · Answer

Thanks Shaun, that is exactly what I thought! I am planning on dealing with FSBOs and tired landlords (all off market properties), so I really didn't think there would be any sort of commission. And when it comes to assigning contracts, I figured that wouldn't involve any sort of commission either. Guess I'll have to see what my team leader was getting at.

If I decide to retail a property, I'll likely hire another Realtor to do the job so as to not tie up my own time. Really, I just got my license to have access to the MLS, but now it almost seems like everything is a lot harder to do if you have a license. Though the MLS is a great resource to have for doing due-diligence.

Perhaps I'll have to look around at other offices.

Hey Shaun, what about commissions when buying "subject to" the seller's existing financing? I assume that's the same thing, no commission if it's an off market property?

Thanks again!

Shaun Reilly · Answer

It isn't rocket science.

If you are making offers on listed properties then there is a commission that you can collect as a buyers agent, even if you are the buyer (Some REOs will not let a principal in the transaction collect commission).

If it is an off market deal there is no commission involved so nothing to collect.

On the end side if you are just assigning then again no commission involved.

If you end up selling this retail on the MLS then you are listing it and you will pay some amount of commission as a co-broke and whatever your broker will have as a minimum commission going to the office (In my case I do a reasonable percentage which I get my normal split on).

If your broker/team leader is trying to skim some commissions off your off-market deals they are probably not the best people to be working for if you want to wholesale.