Being a licensed agent means the law doesn't apply to you?

[Ronald Perich]

Let me preface by saying I have a genuine interest in the answer and I'm not trying to stir up the passions more. I'm really just trying to understand where my logic is faulty.

Here's the scenario.

The big thread right now is http://www.biggerpockets.com/forums/93/topics/1847...

Several on the the thread stated that you get into trouble if you are brokering a property without having an ownership interest in the property and you are not licensed.

In this scenario, I advertise "I Buy Houses Fast". As a side note, I have my license but I don't advertise that on my bandit signs. (I'm stirring a bunch of passions up here, aren't I)

A person, we'll call him Brian Gibbons, calls to discuss a property he wants to sell right away.

As he describes the situation (he needs the money right away to buy an alpaca farm), I realize I want to buy this property and make him an offer that's 50% of ARV. He is so impressed by me that he decides 50% ARV is too much - why not go 45% instead!

Our contract clearly states I am a licensed agent, but in this transaction I am acting as a principle. It clearly states in big bold letters that my intention is to make a ton of money off this thing when I sell it. It clearly states I am going to begin to market the property for sale immediately after Brian signs. And it clearly states I have the right to assign (sell) this contract to another party at any time without recourse. And my earnest money is $1.

I go onto Craigslist, Backpage, Facebook, Instagram, my personal website, and every other site I can think of to advertise this property for sale. I put up bandit signs all over the neighborhood (this time with a tiny * that says I am licensed but acting as a principal) advertising it for sale. 

Joshua Dorkin is driving along looking for bandit signs (one of his passions is taking pictures of them to hang in his basement). He sees my bandit sign and wonders if this could be the property he was looking for. We meet and he buys my sales contract for 75% of ARV.

If I understand what everyone was saying, because I am licensed I have committed no foul. If I wasn't licensed, I would get into all sort of trouble.

Maybe my logic is flawed, but I think the law allows agents to broker transactions where they shouldn't be able to.

1) I have clearly stated I am acting as a principal, not as a licensed agent. (I essentially give up any right to act as an agent).

2) If you are not an agent, you are not allowed to broker transactions.

Therefore, as a principal I am not allowed to broker a transaction on the property.

So in the scenario above, I have broken the law. I have no ownership in the property, I have clearly given away my rights to act as a broker, yet I brokered it anyway.

However, the law is written in a way that says I can do this. It gives me a privilege others do not have. Kind of like the "accredited investor" Bryan Hancock writes about.

I think Ben Leybovich had it correct. The industry is all-powerful and with deep pockets and will protect their interests at all costs. It may not be fair, but it is reality.

So my logic must be flawed, my understanding of the law is flawed, and I readily admit I am flawed in a bunch of ways. Please help me understand where my flaws exist.

[Christian Carson]

There are a couple things going on in Ohio. Remember, we're operating with a backdrop of ground zero of the real estate foreclosure crisis, where shysters descended in masses to buy up cheap properties for speculation and letting them rot (without paying their property taxes!) The government is simply responding to the excessive amount of fraud and deceit that has arisen in the market in the last ten years. "Scheming" is not looked upon with kind eyes here.

Wholesaling is an activity that is very often done with the intent of deceiving the seller (and sometimes, the buyer) in order to collect an excessive commission. I wrote a BP blog article recently describing how a relatively mundane wholesaling transaction could get the wholesaler in trouble for fraud. "We Buy Houses" signs not only often violate city ordinance, they can also be misleading if you are not the end-buyer in the transaction.

Ohio has a fairly strong Consumer Sales Protection Act ("CSPA"), where any kind of bait-and-switch activity or deceit can land a business in very hot water. Even sending a mailer out that deceives the customer into thinking it's something other than an advertisement is a violation.  Selling a service that a consumer can get for free is also a violation. The law authorizes the Attorney General to go after persons and businesses violating this law, because the unsophisticated consumer may not be able to defend his/her rights as effectively as a state government. Since the enactment of the CSPA, the state has managed to effectively shut down thousands of scams.

The catch for wholesalers -- and the state -- is that the CSPA exempts real estate transactions. This prevents the state from using a significantly effective tool in regulating the amount of fraud and cheating that occurs in the industry. The perceived solution is to try to control it using the division of real estate -- require people dealing in real estate to obtain a license. Then additional ethical standards must be followed, and discipline is easier to mete out through an administrative proceeding.

This is not just some kind of draconian measure designed to promote market protectionism -- it's one of the only ways the state can effectively regulate the real estate marketplace. Just reading newbie posts on BP can give you a strong indication that fraud and scams are absolutely rampant among wholesalers, not to mention the emails I have in my inbox of wholesalers trying to sell me properties that were already listed on the MLS!