I recently answered a ‘lease option needed’ ad for a nice property I own in Frisco and want to get leased. The reply was from a bird dog who was representing the potential tenant/buyer. This guy wanted what I considered a ridiculous fee based on my admittedly minimal experience with bird dogs.
I searched the archives here and on another board and could not find any general rule of thumb for fees other than they should vary in relation to the profit in the deal. Does anybody have any market-proven guidelines that creates a win-win for investor and bird dog?
Here’s the numbers on this deal for reference (L/O terms reportedly were OK with tenant/buyer):
One year lease/option for a brand new 4/2/2 with many upgrades. Rent of $1500/mo. with a $200/mo credit toward purchase price of $170k. Option consideration of $5k down plus 1 month security deposit. Buyer thus has over 5% equity after 1 year from combo of $5k down, $2.4k rent credits, and $1.7k security deposit–should be enough to get him financed as credit problem was due to one time event beyond his direct control & he makes a good salary.
The bird dog wanted half of the option consideration plus half of whatever additional down payment the buyer made at closing after one year. That’s a minimum of $2500 upfront and $2050 a year later if/when tenant exercises the option. Assuming the buyer saved another ~5% cash to reach 90% LTV, the bird dog wanted half of that as well–another $4250. His total fee thus is about $8,800. I politely told him he was about 10X what I thought was fair and we broke off discussions.
Yes, I agree with you this person is high. However, it depends on your market and your situation. I paid someone half the upfront of a 4k option fee in early March for bringing me some TBers. It was worth it at the time to me and might be again as I tire of the carrying costs. Prior to that I had never paid more than $500.
I’ve also filled props with buyers through licensed agents on several occasions. I pay the agent a 70% leasing fee initially and offer them the remainder of a sales commission on the backend if the TBer exercises.
An investor friend of mine here in town and I will help each other out with sellers and buyers and our standard fee is $500 per. I normally pay $500 for a closed transaction with a regular bird dog.
It’s likely this bird dog may be bending some of the licensing rules in your area as they don’t have your property under contract and thus, are not a principal.
So, as you probably surmised, there’s no “right” answer and it’s best generally to follow your gut.
I pay 5% of my profits on any deals that I wholesale, plus an additional 5% on any houses that my property locators help me sell. Meaning that if they bring me a qualified buyer that closes a deal with me, I give the property locators a referral fee. Doing this increases the number of voices that I have out there spreading the good word and finding buyers for me.
If I sold my position in a contract and the figures were solid, I wouldnt mind walking away with a $5,000 profit. If someone has a problem with what you make just do a double closing. That way neither person knows how much you are making.
Let me get this right… you would walk away from a $30k profit on a deal, because a birddog asks for $5,000?
Yeah Right! lol I’d probably close that deal in a second. But a birddog getting that much would have to do a little more than sending me the referral. I’d make him/her work for that $5K. It wouldn’t be too much, but the time factor would be fair for both of us. A simple referral for $5K will not do in my book!
I look at at it as if that bird dog gets me a deal then they should be taken care of. If they consistently provide leads then I up their fee. I don’t just mean sending me an address but them actually prequalifying the buyer to know that they are motivated. This takes most of the work and time out of the deal for me. I’m not going to be greedy and short change someone who could provide me with numerous deals going forward.
I found a house! the seller thinks it is worth a $100k, and willing to sell it for $70k… It needs carpet and paint… similar houses on the market selling for $140k! I will give you this lead, but I want more than $500!