Real Estate Agent called me and said what I was doing was illegal

Wholesaling
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Real Estate Agent called me and said what I was doing was illegal

Scott Anthony
Wholesaler · Texarkana, TX · Member since 2013 · 45 posts · 3 votes

Hello. I have a comment, and then a question. I have been asked by a couple to try and sell their house. I had advised them that calling an Agent was probably the best way to go to get a good price for it. (In my area houses tend to stay on the market for a few months before selling.)

They wanted to sell quick and were willing to sell for their payoff. This seemed like an OK deal, with some profit available, and no rehab (well not much) was needed. So, I emailed and called a few "investors" on my short Buyer List. No takers. So I advertised the house for sale on craigslist, facebook, zillow, etc.

I get a call this weekend from an Agent, who says his client is interested in seeing the house. So I told him I just had to arrange it with the owners. He started getting really fidgetty.... "Wait, YOU'RE not the owner? You can't advertise to sell someones house, unless you own it, or are a Licensed Agent."

It went back and forth, I explained what it was that I was doing, and that lots of people do that..... He said he had never heard of anyone doing that before.

So...... My question: Am I doing anything wrong by advertising this house for sale, and I'm not a Real Estate Agent?

Answers, comment are all welcome. BTW I'm in Texarkana, Texas, if that makes a difference.

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Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y

Like others have said, it's collecting a fee or commission that makes it brokering without a license. In situations like this, I prefer a straight option contract. It gives you the option to buy but doesn't bind you. In my experience an option agreement is clear to sellers as well. There doesn't need to be a weasel clause. The option agreement can contain clear language about assigning it. The sellers understand and agree that you are going to look for a buyer and are planning to sell your option for a profit.

Why not tie it up with an option? The option references an underlying purchase agreement with the loan balance as the purchase price, and any other terms. If you find a buyer, the buyer pays you a fee to buy your option and then performs on the purchase agreement.

All that being said, you'll still run into agents and others who won't understand option agreements. The difference is that options are totally legal, unlike shopping around a deal where you aren't a principal.

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  • Josh R.
    Wholesaler · Fort Worth, TX · Member since 2011 · 163 posts · 45 votes
    13y

    Unless you are a principal to the transaction (your name on a purchase contract with the seller) then yes, technically illegal. If you are just trying to help a friend and are not receiving any gain (money or other consideration) then I wouldn't worry about just trying to help them put it on the Internet to attract a buyer.

    Also, DO NOT help these people negotiate or assist in the transaction in any way as this can be construed as practicing real estate without a license.

    If you are worried about it consult an attorney. None of my advice above is to be considered legal help in any way, just my thoughts.

    0Reply
  • Dion DePaoliPro Member
    Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
    13y

    What you are doing requires a license.

    You are missing a critical step in the Wholesaler's world. You do not have an “equitable interest” in the property. That interest is usually created with a contract to sell between the owner and the Wholesale person.

    What you are doing is advertising the sale of real property you don't own. You can't sell what you don't own. So therefore you are then broking. In order to broker real estate, you must have a license.

    Simply goto the owners and have them give you a contract that you can work with maybe assignable or something and then you are fine.

    3Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    13y

    Ditto, Ditto. If you are receiving a fee, or participating in the negotiations, you are practicing without a license.

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    Like others have said, it's collecting a fee or commission that makes it brokering without a license. In situations like this, I prefer a straight option contract. It gives you the option to buy but doesn't bind you. In my experience an option agreement is clear to sellers as well. There doesn't need to be a weasel clause. The option agreement can contain clear language about assigning it. The sellers understand and agree that you are going to look for a buyer and are planning to sell your option for a profit.

    Why not tie it up with an option? The option references an underlying purchase agreement with the loan balance as the purchase price, and any other terms. If you find a buyer, the buyer pays you a fee to buy your option and then performs on the purchase agreement.

    All that being said, you'll still run into agents and others who won't understand option agreements. The difference is that options are totally legal, unlike shopping around a deal where you aren't a principal.

    4Reply
  • Eric Claxton
    Multi-family Investor · Marietta, GA · Member since 2011 · 40 posts · 6 votes
    13y

    Totally agreed.

    Originally posted by Josh Rogan:
    Unless you are a principal to the transaction (your name on a purchase contract with the seller) then yes, technically illegal. If you are just trying to help a friend and are not receiving any gain (money or other consideration) then I wouldn't worry about just trying to help them put it on the Internet to attract a buyer.

    Also, DO NOT help these people negotiate or assist in the transaction in any way as this can be construed as practicing real estate without a license.

    If you are worried about it consult an attorney. None of my advice above is to be considered legal help in any way, just my thoughts.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    Just having an option or contract, you'll still need to disclose your position in advertising. You can't just say "House For Sale, call me".
    You can say the house is for sale with an assignment of interest of something short and similar, the general public won't really know what that is nor do they care, but others involved in RE may.

    As Dion mentioned, you can't offer something for sale that you don't own. And in wholesaling with a contract assignment you aren't selling the house but the right to buy the house. Any advertising needs to reflect that. :)

    0Reply
  • Scott Anthony
    OP
    Wholesaler · Texarkana, TX · Member since 2013 · 45 posts · 3 votes
    13y

    Thank you all, very good info. I was unaware of several points made, and I will adjust as needed.

    Thanks!

    0Reply
  • Adrian Tilley
    Residential Real Estate Agent · Broomfield, CO · Member since 2013 · 390 posts · 125 votes
    13y

    I'm an attorney, but practice in Colorado, so I have not idea if it's legal in Texas. However, I think the option contract suggested above is the cleanest option (pun intended).

    2Reply
  • Deborah Saddler
    Real Estate Investor · Cleveland, OH · Member since 2013 · 173 posts · 18 votes
    13y

    Hi I want to thank K. Marie Poe, Dion DePaoli & Bill Gulley this has helped me tremendously.

    1Reply
  • John Knappmann
    Landlord · Flat Rock, MI · Member since 2011 · 179 posts · 26 votes
    13y

    Like Adrian, I am also an attorney who does not practice in Texas, but in Michigan I would suggest the option contract.

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y
    Originally posted by Bill Gulley:
    Just having an option or contract, you'll still need to disclose your position in advertising. You can't just say "House For Sale, call me".
    You can say the house is for sale with an assignment of interest of something short and similar, the general public won't really know what that is nor do they care, but others involved in RE may.

    As Dion mentioned, you can't offer something for sale that you don't own. And in wholesaling with a contract assignment you aren't selling the house but the right to buy the house. Any advertising needs to reflect that. :)

    Have you got any code, law or case law to support your statement?

    A lot of people say what you've said above, but it sounds like opinion to me. "House for sale, call me" isn't any more false advertising than an agent posting a listing a craigslist. The MLS and realtor boards might have regulations about how a listing reads, but regs aren't law.

    3Reply
  • Paul Z.
    Investor · TX · Member since 2013 · 158 posts · 22 votes
    13y

    Just so I'm on the same page are we saying that it's ok to advertise as you'd like but when questioned we should have the home under a contract that is assignable so that we may find a buyer and sell our interest for a profit?

    0Reply
  • Wendell De Guzman
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    13y

    Yes Scott Anthony and Paul Zajic, you need to have the property under contract (either Purchase Contract or Option to Buy Contract) to be able to sell it...or you are a licensed real estate broker/agent and have a signed listing agreement.

    0Reply
  • Scott Anthony
    OP
    Wholesaler · Texarkana, TX · Member since 2013 · 45 posts · 3 votes
    13y
    Originally posted by Wendell De Guzman:
    Yes Scott Anthony and Paul Zajic, you need to have the property under contract (either Purchase Contract or Option to Buy Contract) to be able to sell it...or you are a licensed real estate broker/agent and have a signed listing agreement.

    Thank you for pointing this out, very clear and to the point. I have been doing this wrong, and not realizing that I was wrong. I hadn't ever used the option to purchase contract, and franfly, didn't know I could use an option like that to get the property "under contract" . I had been trying to figure out how to write some sort of "weasel clause" (as someone mentioned above) into my purchase agreement, but I like this better.

    I will be tying up the loose ends and contact my sellers and let them know that I need to have this option, in order to continue.

    Thanks again.

    0Reply
  • Belinda Lopez
    Specialist · Houston, TX · Member since 2012 · 579 posts · 301 votes
    13y

    I just dealt with two wholesale deals where, for whatever reason, my potential end buyer called a RE agent to call me on the deal. I explained that I had the properties under contract with the owner(s) and would doing an Assignment of Contract for a fee. Neither agent had never heard of this - though it is specifically in the Texas Association of Realtors contract, paragraph 22E that a contract could be Assigned to third party.

    I also told them that I would pay them a flat fee, out of my proceeds to help their buyer and that all my fees were included in the asking price. One case was fine, in the other, the Broker went nutz b/c she had no idea what was going on. Since my original contract had no terms for a broker/agent I basically paying them out of kindness and could have just cut them out completely but if it helps my end buyers I was willing to do it.

    I was just floored when this Broker, who I have known for years, and who has been an active agent for over 20 years told me, "I've never heard of an Assignment of Contract." Wow, I didn't even know how to respond to her. It's certainly not part of their standard training to work with investors so I know many are wary, but seriously, that made me want to never work with an agent again on those type of deals.

    0Reply
  • Josh James
    Professional · Wichita Falls, TX · Member since 2012 · 124 posts · 70 votes
    13y

    Scott Anthony and K. Marie Poe I am in Texas and while I am not an attorney, I have found the Real Estate Center at TAMU to be very informative. Take a look here http://recenter.tamu.edu/pdf/1149.pdf
    at page 2 of the document, or page 8 of the pdf. Their department has compiled a list of activities you are required by law to have a license for. Also look on page 13 of the document, or 19 of the pdf. There is a list of activities which are not required to have a license.

    1Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    13y
    Originally posted by K. Marie Poe:
    Like others have said, it's collecting a fee or commission that makes it brokering without a license. In situations like this, I prefer a straight option contract. It gives you the option to buy but doesn't bind you. In my experience an option agreement is clear to sellers as well. There doesn't need to be a weasel clause. The option agreement can contain clear language about assigning it. The sellers understand and agree that you are going to look for a buyer and are planning to sell your option for a profit.

    Why not tie it up with an option? The option references an underlying purchase agreement with the loan balance as the purchase price, and any other terms. If you find a buyer, the buyer pays you a fee to buy your option and then performs on the purchase agreement.

    All that being said, you'll still run into agents and others who won't understand option agreements. The difference is that options are totally legal, unlike shopping around a deal where you aren't a principal.

    An assignable option to purchase that is non-exclusive. Here is a clause....

    Non-exclusive: If the Optionor, or Optionor's Realtor, produces a bona fide written offer during the term of this agreement and prior to Optionee securing a buyer, or purchasing, this agreement will be considered null and void at Optionor's written request and payment of release fee of $1,000. Such written request must be delivered to Optionee with a copy of the bona fide offer and release fee within three days of acceptance or this agreement will remain a valid and binding agreement.

    Nice post K Marie... :)

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    Brian: I've never used the non-exclusive clause. The way your clause is written, the seller can present any offer, even one that is lower than yours and still cancel on you. Why would you want this?

    0Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    13y

    K. Marie Poe the agreement is for sellers that usually do not have a marketing plan (fsbos).

    This merely states that I have an Option to buy the property for a negotiated price, but that I don't take the property off the market.

    The Seller can continue to market the property or even list it with a real estate agent, but I still have a right to buy the property at a certain price. The listing agreement says this.

    Since I didn't tie up the property, giving the Seller $10 is fine for the Open or Non Exclusive Option.

    You can put an Option on just about anything, but the best thing to wholesale is a property needing major repairs.

    Since it isn't costing you any money, you should Option everything you can get your hands on.

    Some will sell and some won't, but you have absolutely nothing at risk but $10.00.

    0Reply
  • Tj Hines
    Specialist · Tampa, FL · Member since 2012 · 933 posts · 492 votes
    13y

    The first thing you could have done on your end is, was get the property under contract with the seller once you've realized you had potential deal, that could yield you a nice spread. This way you would have control the deal and explain to the buyer you have this property under contract to either buy and sell it.

    Tell the buyer this once you have it under contract: I have this property under contract with the seller. I have the option to either buy it and sell it. Depending on the price you are looking to offer on it.

    If you want to be even more transparent with em' Let him know what you are expecting to make if you decide to sell it. If he is still getting a good deal does it matter if he is buying from you or the owner? If he wants to buy directly from the owner have him pay you an assignment fee(finders fee) anywhere from 5-10K if the spread allows. Your buyer will see on the HUD 1 settlement where he is purchasing the property directly from the seller and you will be on the statement being paid as an assignment depending how your title company words it.

    Hope this helps!

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