My understanding is that in PA, you don’t need a RE license SO LONG AS you have an ownership interest in the property. If you don’t have a RE license and try to collect money in PA by telling someone about a property in which you don’t have an ownership interest, that’s brokering without a license and it’s illegal.
Nancy
Thank you everyone. I did speak with two lawyers. TOTALLY LEGAL!!! Just thought I would share. Thank you for all your input. But Nancy. That would seem to me that Bird-dogging would be eligible
Depends on how you define bird-dogging. If you don’t have an ownership interest in the property and you just tell someone about the property, you can’t get paid for that in PA without breaking the law. If you are on the purchase contract as the buyer and then assign the contract to someone else for a fee, that’s OK in PA because you’re the equitable owner.
Nancy
I am defining a bird-dog as someone that found a boarded up house and sent me the address. I put the house under contract and assigned it to my buyer. I then paid the bird-dog $500 for finding me the house.
Well, that’s a no-no in PA – for you to pay the $500 and for him to receive the $500. But here’s the good news: if you refused to pay the bird-dog the $500, and he tried to sue you to collect it, he’d be thrown out of court because the court wouldn’t enforce a contract (ie, your agreement to pay the bird dog) that was illegal.
Nancy
So there is no way to compensate people for finding properties for you?
If that someone signs a purchase contract and then assigns the contract to you for a fee, that’s OK. The point is, in PA the person has to have an ownership interest in order to be paid something. If they just whisper the property address in your ear, you can’t pay them and they can’t get paid in PA without breaking the law. I don’t know what the laws are in other states, but this is the situation in PA.
Nancy
hmmmm. There has to be some loopholes there.
Well, the “loophole” is that the guy has to either be a partner in the deal with you or he has to have a PA RE license. Simple as that.
Nancy
Nancy,
Could you please post a link to that specific law for PA, please?
I’ve yet to see a law that would prevent someone for charging for information, which is ALL that birddogging (or RE jobbing,or scouting, or whatever else that you wish to call it) is supposed to be, if done properly.
I can’t see how anyone could be successfully charged with ‘brokering without a license’ if they weren’t doing any brokering. If you ask me, “do you know of anyone that wants to sell their house” and I say, “yep, my neighbor does. Here’s the address and the phone number. If you buy it, I want $500 for the lead” where exactly did I do any brokering? I didn’t call up the seller and say that I had a buyer. I didn’t call the buyer and say I have a seller. I didn’t negotiate any terms or price or anything else for that matter.
Now, if someone does birddogging as it’s become now, then I’m sure that you can get hit with a valid charge because lately, what I’ve seen is “birddogs” that do call on sellers, make offers, research the data, make counter offers, etc before the investor actuallys steps in, if ever. Personally, I think that this is due more to lazy and/or inexperienced investors trying to use the birddog as a RE agent.
However, the term “birddog” comes from hunting. Hunters use the dog to track the birds. The dog when he finds them, simply ‘points’ to the location of the birds. It’s the hunter’s job to bag them.
Raj
Relevant portions of the PA Real Estate Licensing and Registration Act are quoted below.
“Section 455.301
It shall be unlawful for any person, directly or indirectly, to…hold himself out as in engaging or conducting the business, or acting in the capacity of a broker…within this Commonwealth without first being licensed…as provided in this act, unless he is exempted from obtaining a license…”
“Section 455.201 (definitions)
“BROKER” Any person who, for another and for a fee, commission or other valuable consideration:
(1)…aids any person in locating or obtaining for purchase, lease or an acquisition of interest in any real estate;
…
(4) represents himself to be a real estate consultant, counselor, agent or finder;
(5) undertakes to promote the sale, exchange, purchase or rental of real estate…;
(6) attempts to perform any of the above acts.”
“Section 455.302
No action or suit shall be instituted, nor recovery be had, in any court of this Commonwealth by any person for compensation for any act done or service rendered, the doing or rendering of which is prohibited under the provisions of this act by a person other than a licensed broker…unless such person was duly licensed and registered hereunder as broker or salesperson at the time of offering to perform any such act or service or procuring any promise or contract for the payment of compensation for any such contemplated act or service.”
“Section 455.305
In addition to any other civil remedy or criminal penalty provided for in this act, the (PA Real Estate Commission)…may levy a civil penalty of up to $1,000 on…any person who practices real estate without being property licensed to do so under this act.”
“Section 455.303
Any person who shall engage in or carry out the business, or act in the capacity of a broker…within this Commonwealth, without a license…shall be guilty of a summary offense and upon conviction thereof for a first offense shall be sentenced to pay a fine not exceeding $500 or suffer imprisonment, not exceeding three months, or both and for a second or subsequent offense shall be guilty of a felony of the third degree and upon conviction thereof, shall be sentenced to pay a fine of not less than $2,000 but not more than $5,000 or to improsonment for not less than one year but not more than two years, or both.”
The text of the statute and regulations can be found at http://www.dos.state.pa.us/bpoa/cwp/view.asp?a=1104&Q=433107
Nancy
So then I pay this person to hand out flyers AND if he find a property along the way… I know… treading thin line
Let me add one thing. You could make the finder of the property in PA a sub-contractor that would work for you free lance. Give him a 1099-misc and he would be working for you as a sub. This would pass the test WOULD IT NOT?
Omah,
That won’t do it. The exclusion from the statute doesn’t apply to independent contractors or for that matter, to employees except corporate officers (max. 5) or 5 partners of a partnership. The guy has to be in the deal.
Nancy
I have written a post on another thread which may be helpful.
http://www.reiclub.com/forums/index.php?board=24;action=display;threadid=18382&start=0
Flipping, if done with proper disclosure and in the proper manner, is according to all the legal experts I’ve consulted NOT illegal. But the way many investors practice flipping very well may be illegal. Real estate is serious business and it is always wise to get an attorney who is knowledgeable on creative real estate investing and who does NOT try to bend the law so to speak, to review your methods and ensure how you conduct business is fair, ethical, in accordance with good legal practice, and is not in any way, shape form, or fashion fraudulent. If you explain how you’re planning to do business to a few respectable and knowledgeable attorneys and all frown upon it and warn you it could be crossing the boundary, then realize that even if it is not you could still end up in a world of hurt. Just because something is not technically in violation of statutes may not keep you out of hot water if the powers that be decide you’re in the wrong and pick you to make an example of (note – I’ve seen this first hand with investors I know meant well, may not have been actually breaking the law (not for me to decide), and thought they were following sound advice from a ‘guru’ that is well known in these forums).
Note – I’m NOT an attorney but I have researched all the methods I use exhaustively, have consulted with many attorneys including the real estate commission in my state (NC) and I have done enough deals over the years to learn this game well enough to clearly understand the ins and outs.
Best of luck with your investing.
Hey Folks,
Here’s an article that covers the legal or not issue
very well:
http://www.rehablist.com/Flipping_Houses-83.aspx
Fear is what stops most people. Real estate is a commodity.
If the commodity was a watch we wouldn’t worry about “flipping it”.
We just have to get educated to do it right.
Be well,
MC
A little more clarity here.
Nancy is right about BIRD DOGing.
99% of every Guru and website tells you it is legal to pay someone to
find properties for you …it is not. Not in any state in the union.
You can sell LEADS. But you cannot be paid to “bring” someone a deal.
What you can be paid for is to get a property under contract and to ASSIGN that contract to another person or entity(usually your investor) for compensation. No real estate licence required.
The assignment is one of the most powerful documents in the law. You can assign any contract or legal document unless it is expressly prohibited in the document. You can assign leases, lottery winnings - you name it.
Here’s the rub however. The difference between a bird dog who “finds or brings” a property that is not under contract and a true wholesaler who got educated enough and took the educated risk of getting the property under contract is the contract itself. The wholesaler has a legal document to sell.
Once you understand all this you’ll also see that, done correctly, there is almost no risk in contracting properties to wholesale. ( you may have noticed I’m not a big fan of the term “flipping”).
I’m a wholesaler. Every distribution chain in the world has wholesalers in it. We are no different.
We just have to do it right.
Best of luck.
Be well,
MC
Wholesailing is 100% legal. Assignment of contract has been around for a long time. Look at a title policy. and/or assigns. Use an Assignmnet of contract.
Good luck!
The attorney may not be educated enough on real estate investing. A lot of people in real estate question due to lack of knowledge. They only know what they are trained to do. Expand your context and content!