another investor that i have been networking with has a possible deal they wouldn’t mind passing along. long story short they did all the research and almost had the property under contract. due to certain circumstances, the deal fell through because the other party wasn’t making any moves.
basically this investor chose to no longer pursue this deal and i asked if i could take a crack at it.
they don’t mind sharing the information but are concerned of how they could setup this type of agreement.
we’ve decided that if i (or another investor that i team up with) lands the deal, they will get a referal fee or percentage of the profit. they want to know how we could setup up this type of agreement and how they could track the deal if we were to get it under contract. in essence they want to know how they will not get screwed out of their entitled money (understandable)
anybody have any input of how we could set this up?
IMHO, most people vastly over estimate the value of a referral. If this was such a winner deal, why aren’t they pursuing. You already know the seller is rather unmotivated.
percentage of profit?..not a chance in my book. if they are proving something of value (like an inspection report), then maybe offer them $500 or $1000 when you close the deal. if they don’t trust you to pay out, then offer some smaller amount up front. don’t waste valueable time and effort on what might be a dog deal anyways. until its under contract, their referral is nearly worthless.
to be honest, they didn’t offer to refer the deal…this was my suggestion. they are new investors as well, so i just said…well if you are truly done with it…would you mind if i pursued it. i figured it couldn’t hurt and who knows maybe something could come of it.
at any rate, im still wondering how we could structure someting to satisfy their concerns
I have seen some agreement posted on other websites (you can google search for referral contracts), however, you need to verify that what ever you do is legal in your area.
Also, don’t go into business with someone you can’t trust, and if possible do a little reaseach on your potential partner.
In some states, like Texas, it’s against the law for an unlicensed person to get a referral fee or percentage of profit (commission). Better check your state statutes because referral fees and commissions are considered licensee activities.