@Brendan Ashton here is an explanation of capital expenditures: http://www.noradarealestate.com/blog/routine-repairs-vs-capital-expenditures-capex/

It doesn't sound like you have much of a nest egg, no land lording experience while needing to borrow lots of money to purchase numerous properties that will provide minimal if any positive cash flow. 

If your criteria is "looking for a better applicant", that is not a very good explanation.

@GLENN SANTOS, There are numerous forums and blogs that have been written on this very topic on this website.

For example, Pennsylvania has numerous laws that apply when a seller sells a 1 to 4 unit property.

@Jim Johnson thank you for that clear explanation!

You said above I am analizing this wrong, do you still stand by that or were you confused with my explanation ?

I have bought properties many times with this method so I’m not looking for an explanation etc PLEASE.The thing that concerned me was the owner of the Note/ Deed OF Trust is a company that  I didn’t recognize called MSE SUB I, LLC.

This is a very basic explanation and again your contract should spell this out.The buyer would get their EMD back, and no realtors would get commission as the deal fell apart not different than any other reason a deal can fall apart.With all that said, CA may have different rules/laws.

Arrangements like the one you suggest (where the agent gets a share of the revenue or an equity split) are way outside the norm, and outside the scope of a listing agreement - you'd likely need an attorney to draft such a partnership or JV, you may need affiliated business disclosures and other documents to comply with numerous federal laws, and these are not deals a real estate agent can necessarily enter into without their broker's awareness and consent.