Working with Realtors

[Scott Willoghby]

Good morning,

I've been wholesaling for several months and have so far been working using the more "conventional" methods - marketing for motivated sellers, negotiating with the seller, and then assigning the P&S agreement to my cash buyer/investor.

Recently I considered using a Realtor who had a number of cash buyers on his list, however the transaction didn't come to fruition and I once again sold to an investor.

I'd like to clarify the situation regarding contracts and my "fee" when working with Realtors, so that I'm better prepared for when this situation arises again.

I'd like to ask:

• Is a "Licensed Realtor" required - in all situations - to use the state P&S contract (Florida)?)
• If a Realtor shows an interest in selling a property (which I already have under contract) to one of their cash buyers, will I be required to have my seller re-sign the Realtors (State) contract?
• Is there a method by which I can still use my own contract in conjunction with the "State" contract & a Realtor?
• Should I always choose to double close on these type of transactions?
• Reverse strategy: If the Realtor finds the property, how do I make my usual "fee" by introducing my own cash buyer (as I understand the legislation, I'm not permitted legally, to ask for a "commission", but does that include a "marketing fee" or "consultation fee")?

I'm presuming in the above "Reverse strategy" situation, a Realtor will not be happy seeing my "fee" (whatever it's called) for several thousand dollars? How do I work around this?

Any clarification or correction of the above would be most gratefully received.

Thanks

[Account Closed]

Wow!  You have asked a very comprehensive question that covers a lot of situations.  I'll do my best to give you a good answer based upon my 14 years of wholesaling experience.

Generally speaking, good wholesaling is just good business practice.  In other words, think about what makes good business practice and apply those principles.  In addition, bear in mind that in the words "real estate contract", the most important word is "contract".  By that I mean, you can't do something with a real estate contract that you couldn't do with a contract to buy an airplane, for example.  In other words, understand the elements of any contract, and you'll have the basis for u understanding a contract for real estate.

That being said, states have enacted laws governing real estate transactions to protect consumers so you have to be mindful of those.  If you want the best answers to real estate questions in your state, consult a real estate attorney.  Not just any attorney; one specializing in real estate.  If you don't know one, do what I do.  Go to the published guide that rates attorneys.  The are rated A, B, and not-at-all.  Pick one that is A rated.  Yes, you will pay more for his or her advice, but it is the cheapest advice you can get in the long run because 1) the attorney may charge more per hour but will take less time ultimately being less expensive, and 2) it will be advice that will save you from making costly mistakes later.

Needing a licensed realtor... you only need a real estate license if you are representing someone else other than yourself in a real estate transaction, i.e., you are not a party to the transaction. That means you or your LLC better have the property under contract before you try to sell it to someone else.

Some real estate agent will tell you at some time in your wholesaling life that you have to have a license to wholesale.  It's usually the new ones who just got his or her license the week before who tell you that.  Don't argue with them, if you have it under contract, just tell the agent that you hold equitable title to the property, and therefore, have an ownership interest and can sell that interest to whomever you please (the same as you can with any contract).  By all means, be nice about it.  You get him or her peeved, and the agent will tattle to some authority, and you'll have to be called in to explain yourself.  Not a problem, just a time waster and a hassle.

That being said, I always work with real estate agents who bring me deals.  It's only good business.  I make sure I understand how and how much they expect to be paid and get that clear on the front end.  I don't involve one on my own.  I only work with them when they involve themselves.  

A lot of times, I pay them more than they ask.  Why?  Because many of my wholesale properties are low end, and paying them a flat rate that is more than their 6% is good business.

To assign vs. a double close (aka ABC or A to B and B to C close)... that's your call.  If A and C (you are B) know what you are making or you don't care if they know what you are making, assigning saves closing costs.  I'm always cautious about that because people can get squirrelly.  They get more focused about the size of your piece of the pie rather than being happy with their own slice.  Simply, it's a judgment call.

The downstroke of an ABC close other than double closing costs is that most underwriters today require you "wet" the transaction.  You have to fully fund A to B before closing B to C.  You can't use the proceeds from B to C to fund the A to B.  If you don't have the cash, you have to use transactional funding, which will cost you a couple of points (at least) and adds one more variable in the transaction.  (I like as few moving parts as possible.)

In addition, you are in the chain-of-title.  Consequently, my practice is to provide a Special Warranty Deed to C in double closes.  In a Special Warranty Deed, I am only warranting the deed for the time I owned the property (which is maybe an hour?), limiting my exposure.

The answer to bullet point 2... I don't know of any "state" contracts.  States don't have a real estate contract, just laws about what must be in them.  The board of real estate for your area has one, I am sure.  Brokers always require their agents to use their contract (which is usually the board contract).  As far as whether or not you need to have a contract resigned when an agent is involved is determined by that agent's brokerage not the state.  If you use that agent, that agent and you will have to follow that agent's broker's rules.

The answer to point 3 - yes.  You simply write the elements in your contract you want to preserve in the Addendum to the broker's contract.  Just ask the agent for one if you don't see it.  They all have one.

Well, I've taken up enough of BP's space so it's someone else's turn.  I hope I helped!