In Texas the law it very clear. Receiving a fee to find a property is a crime and the birddog can pay thousands in fines and go to jail for year.
How do you find birddogs under this law?
Under Texas law helping someone to procure a property for a fee requires a license. Making a referral is considered procuring property under Texas law. A fee is defined as something of value.
This is on their site:
What are the penalties for unlicensed brokerage activity?
A: Practicing real estate without an active license is a criminal offense, specifically, a Class A misdemeanor punishable by confinement of up to one year in a county jail and a fine of up to $4,000.00. In addition, TREC may assess administrative penalties not to exceed $1,000 against any person who engages in unlicensed activity. If the person charged with a violation was engaged in unlicensed activity and was not licensed as a broker or salesperson in the four year period preceding the date of the violation, TREC would be authorized to consider each day the violation continued or occurred a separate violation for the purposes of penalty assessment.
This is covered in a huge thread last week on the Austin Real Estate Networking club yahoo group.
Here was the problem, the guy posted this ad on Craigslist:
[i]My name is x. I am an investor who buys and resells houses quickly. In an effort to find leads for my investing business, I offer a $500 commission for finding properties to buy. I am seeking houses, vacant lots, town houses, condos, duplex, triplex, apartment buildings and commercial property. If you know someone who may want to sell their property and is not listed with an agent already, please tell me their information. If I buy their property, I will give you $500 cash when the deal closes.
All you have to do is give me a name and phone number for the referral commission. It will be easier for me to work on a deal if you provide more information, so please be as thorough as possible if you have more information.[/i]
He used the word “commission”, which I’d warned him about before. I told him and others that they cannot pay “referral fees” or “commission” because that would be considered using real estate without a license. It is not simply “marketing”.
He is only paying at closing, which is a form of commission.
Bird dogs need to stick to marketing, which is taking pictures, driving by properties, etc. Once you start paying only if it closes, based on percentage (basically a commission), or use the wrong terms, you step over the line.
From TREC
"TREC will not allow a person or entity, even as a principal, to pay someone that is not licensed in the manner that we discussed. You are limited to a non-cash amount of $50 in goods or services. Any items that can be converted to cash are also disallowed.
What you may be thinking of is if the person receiving the payment is a principal in the transaction, then it is treated by TREC as a rebate, which is allowed."
I used to offer people $10 a house if they brought me a picture and other information. I was laughed at by other real estate investors who say no one would ever work for that kind of money. Well, in some neighborhoods I have driven around and found 10-20 properties in an hour. That’s not a bad salary for an hour. People have told me that I should offer money at closing…but if I were a birddog why would I want to get paid weeks after I did all the work and how would I know that I would be getting paid at all. Iwill stick to offering people $10 a property for a photo and address.
I am curious to see how this is successfully accomplished. I have tried to recruit people at $10 per address with photo. They laugh at me and tell me “are you kidding me?” Then I offer them the $500 if I close on the deal. They laugh at me and say “so you may or may not pay me and I may be doing this all for nothing?” and they hang up. This is why I do the birdogging myself.
:cool TERRYALL i agree as every one wants to get money but they have all got very greedy !! AND with all the laws all over now how and when do you know you have crossed the line ?? I think and i have realtor friends that the real estate bussiness from the state and realtors has got to something i am not sure what to call it but they sure do not like investors making in most cases more money then them this i do know
Which is why I don’t like to deal with realtors…and I have plenty of realtor friends. There is nothing wrong with realtors. It’s just that many of them (not all of them) don’t understand wholesaling and how I do business.
I have not grown my business yet to the point of needing additional help so I will cross that bridge when I get to it as far as someone birddogging for me. At this point I prefer to find my own deals and do it all myself. I have control and keep all the money.
If someone brings me a deal I will give them some money when I close and it will be called nothing but a thank you gift.
Sounds like you haven’t birddogged or worked with one. They typically provide the contact info, address, and have talked to the owner or at least tracked them down. It’s not just a random name of a person.
Real birddogs are diligent and usually have the property under contract. They’re like little spies and get properties off market, so will know comps. They make more than $500. Read Steve Cooks article from this site . http://www.reiclub.com/articles/breeding-bird-dogs
Ummm…you make it seem as if these are rules that real estate agents or REALTORS® created. The National Association of REALTORS did not create and do not regulate real estate laws. Each state has a real estate commission that regulates the industry, including inspectors and property managers. Anytime there’s a real estate law that inhibits investors, people want to blame real estate agents or REALTORS® when they should talk to their state legislators.
The Texas Real Estate License Act was created decades ago and is part of the Texas Occupations Code. It spells out what is and is not a licensee activity. If you advertise that you are paying a “commission”, you are in violation of the act since only licensed brokers can receive “commissions”. The state law protects citizens from the acts of unlicensed people illegally performing licensee activities without being licensed.
This law has been on the books forever and is not new. You may have just heard about it, but people birddog every day and do not have problems. You just need to know how to structure your contracts and advertise so you’re not violating the Texas real estate license act (TRELA). http://www.trec.state.tx.us/formslawscontracts/rules_codes/RELA.asp
I don’t know if you are talking to me or not…but just so you know I don’t do birddogs so I don’t care what the rules are.
Secondly, I don’t live in Texas hence I don’t really care what the rules are for Texas and I don’t care how the laws are structured. Unless I go live there or work there it’s a moot point with me.
I never said that the laws were created by and for realtors. I merely stated that I don’t like working with realtors because of the questions I get regarding wholesaling.
The fee is not illegal because you don’t call it a referral fee??? If I rob a bank but call it an alternative withdrawal process does that make it legal? NO IT DOES NOT! If it walks like a duck and quacks like a duck it is a duck.
Here is the Texas law. Please tell me how birdgog fees get around this? As you can see with the $50 rule the “gift” cannot be advertised or expected. It also cannot be conditioned on the sale. This was put into the law so an agent could give a good faith “GIFT” to someone who helped. If you want to buy a list that is legal but as soon as money is paid because a property closes then you have crossed the line. If a realtor breaks this rule their license is at risk.
OK. Here is the Law.
535.20 Texas Administrative Code
Procuring Prospects
(a) Referring a prospective buyer, seller, landlord, or tenant to another person in connection with a proposed real estate transaction is an act requiring the person making the referral to be licensed if the referral is made with the expectation of receiving valuable consideration. For the purposes of this section, the term “valuable consideration” includes but is not limited to money, gifts of merchandise having a retail value greater than $50, rent bonuses and discounts.
(b) A person is not required to be licensed as a real estate broker or salesperson if all of the following conditions are met.
(1) The person is engaged in the business of selling goods or services to the public.
(2) The person sells goods or services to a real estate licensee who intends to offer the goods or services as an inducement to potential buyers, sellers, landlords or tenants.
(3) After selling the goods or services to the real estate licensee, the person refers the person’s customers to the real estate licensee.
(4) The payment to the person for the goods or services is not contingent upon the consummation of a real estate transaction by the person’s customers.
Real birddogs are diligent and usually have the property under contract.
This does get around the license problem but in Texas if the investor does not buy then the birddog is still on the hook for the contract. This is true even if the contract is assigned. If the seller finds out the birddgod did not enter in the contract in good faith the birddog can be sued for damages.