Originally posted by "mach":
maybe someone who knows what I'm talking about can chime in. I have heard in states like NC, SC you have to pay by the lead or your acting like a Realtor without a license. example you can't pay the bird dog when you close the deal but you can pay them for every lead. maybe $2 a lead. Am I completely wrong?
Sorry in advance if this is a bit too long...
Actually you will find that being a birddog is illegal in all states that have licensing for RE agents. That said some operate legally and call themselves birddogs. Let me explain.
In states that have licenses RE agents the rules largely say that if you are matching a buy and seller PLUS you expect to be paid a fee if a deal happens you need a license.
If you are just introducing them and receive no compensation (free lunch, fee, commission) you are fine.
If you provide leads and get paid for the leads but not on the success of the deal (selling mailing lists, etc) you are also fine as you are making money for brokering a deal.
Yes, this is not what people expect based on what they read.
Note that in some states the person committing the crime is the birddog and in others it is the person paying. It might also only be a civil matter in some states. I am not a lawyer and I can not speak for each state.
Wholesaling and flipping is legal and you can make money based on the deal completing. The logic is you are a principal in the transaction. You have something at stake.
If you listen to some of the replies here you will hear getting things under contract. They are folks who negotiate a deal and have a binding contract. They are selling their position when they flip or wholesale the deal. They are involved in the transaction, have something to lose if the deal does not go forward (they contract if nothing else).
A person who finds sellers but does not get a deal under contract and then expects a fee that is based on the deal closing is operating illegally if you check the regulations in states that have licenses RE agents. They can sell the lead but not for a fee tied to if the investor buys the property. Folks who only have leads are selling more or less are selling contact details and nothing else. It is worth what ever a lead is worth like buying a mailing list.
I know this is controversial. I know that some make a good bit of money being a birddog and they are not principals. I know investors pay such folks. Just like speeding on the highway. If a lot of people are doing it and you have gotten away with it before that does not make it legal. The judge will not accept such a defense.
A problem with a birddog getting a deal under contract. The investor might not like the terms that were agreed. So some investors really would just like a lead and not an agreed contract if they feel they can negotiate a better deal than a birddog (most birddogs are new and not that good at negotiating a RE deal as they are learning).
A variation that can work if there is a bit of trust....
The spotter finds a hot prospect. They pass it on to the investor. The investor negotiates the deal and buys the property using an LLC. The spotter is a member of the LLC so gets a stake in the deal. As a member they can be bought out of their position. The spotter is both able to be compensated based on the deal going forward (skin in the game) while at the same time the investor has control of the negotiations and the deal mechanics.
Note that user English case law (used in 49 states) there is the principal that is something walks like a duck, talks like a duck it is a duck. Hence the above structure is not perfect in all states. If a state attorneys general wants to claim that the paperwork is an attempt to hide what is really a brokerage relationship they might succeed in court. It has been tried before in OR and there was a partial victory.
Bottom line. Be a principal. If that means partnering with an investor where you are part of their team then go for it. Just know the laws and do not assume that prior success at speeding means you will not get a ticket.
John Corey
