Brokering without a license

[Kelly1 0]

Someone else that I know that posts on this site has been trying to explain the Pure Option thing to me. He says he has been getting paid at closing off of the sellers side of the hud1 without it being brokering without a license, by using a release from contract (can't remember exactly what they called it). So if I understand this, and they are right, I can find the buyer and then have the buyer and seller do their p&s and I just get a release signed by the seller for a fee that would be the difference between option price and new sale price.

 

If this is correct is there any concern that a judge would look at this as just a way to try to get around being licensed and determine it is brokering without a license. It seems awfully close to me. He explained to me that he acts as a principal since he bought the option and has just as much right to accept a fee to cancel this option at closing as he would for accepting a fee to assign the option. And the fact that it is on the sellers side of the hud1 has nothing to do with it being brokering without a license. Is this true?

[Adam King (MI) 1]

Someone else that I know that posts on this site has been trying to explain the Pure Option thing to me. He says he has been getting paid at closing off of the sellers side of the hud1 without it being brokering without a license, by using a release from contract (can't remember exactly what they called it). So if I understand this, and they are right, I can find the buyer and then have the buyer and seller do their p&s and I just get a release signed by the seller for a fee that would be the difference between option price and new sale price.

 

No you cannot. If you find a buyer first and then go to "flip" the property EVEN while being a principle, you can be seen as brokering without a license. Think about it, what are you doing? Are you trying to find a buyer a house? Or are you simply looking for a property first? The first thing to look at is what state are you in and what are the laws? In MI, if I do a deal like the one you're talking about up top, then I MUST be a broker or USE a broker in the transaction. And I DO when I sell real estate. Buying is a totally different story. The biggest reason I do not get licensed is liability. Did you know there's argument that if an agent violates the DOS clause it could be a 5 year felony?!

 

If this is correct is there any concern that a judge would look at this as just a way to try to get around being licensed and determine it is brokering without a license. It seems awfully close to me. He explained to me that he acts as a principal since he bought the option and has just as much right to accept a fee to cancel this option at closing as he would for accepting a fee to assign the option. And the fact that it is on the sellers side of the hud1 has nothing to do with it being brokering without a license. Is this true?

 

He's right and he's wrong. Yes he's right all the way around the board if he "purchases first" and then locates the buyer to flip to. But again, if you are advertising that you'll find someone a house "just to find them a house", then you're brokering and need to take the proper actions to get licensed or use a broker. I have a locator program that I use to find people properties. But my intention is to PURCHASE or SUB LEASE to them. However, when I find a property and all the sudden find a good buyer to flip to, then I would use my brokers.

 

Now consider this, if you are a part time investor and are doing a sandwich lease option, then even in MI you can do up to 5 deals per year without worrying about the broker laws. However, if you are working full time for the "sale" of real estate, you must use or be a broker. Again, doing what he's talking about up top while acting as a principle usually does not require a license unless you do it all the time. Again, look at your state laws and see if you need to use a broker.

 

Bronchick did a good article about this: http://www.legalwiz.com/freearticles/doyou...roperties.shtml

 

The system used is not illegal in any shape or form. We MUST be in the middle of the transaction and when we think we're crossing that line, then it's time to use the proper professionals involved.

Hope that helps,

Adam

[Jonathan RexfordFL 8]

Don't know who Kelly is speaking about, but I somehow think its directed at me...maybe or maybe not. Let me make it clear. FINDING BUYERS FIRST and telling them you will find houses will get you in TROUBLE.

 

On the other hand if you OPTION to buy and then look for BUYER to either occupy or sell the property to is NO VIOLATION. YOU DON'T HAVE TO BE LICENSED.

 

By the way I am a Licensed Realtor.

 

PS ADAM.......I am never WRONG!!!

[Kelly1 0]

Don't know who Kelly is speaking about, but I somehow think its directed at me...maybe or maybe not. Let me make it clear. FINDING BUYERS FIRST and telling them you will find houses will get you in TROUBLE.

 

On the other hand if you OPTION to buy and then look for BUYER to either occupy or sell the property to is NO VIOLATION. YOU DON'T HAVE TO BE LICENSED.

 

By the way I am a Licensed Realtor.

 

PS ADAM.......I am never WRONG!!!

 

 

The order I was planning to do it in is as follows.

1St, Find the house and get a pure option on it.

2nd, once I have an option on the house I would then find a buyer for it.

 

Would that be brokering without a license. It sounds like it would by Adam's post but not by Jonathans. What if I became licensed and wanted to do these options. Would that make it legal or is there a problem doing options as a licensed agent. Jonathan, has being licensed helped you?

[Jason (AL) 1]

Seeing that all this option talk can be confused with "brokering without a license",

what is it that we, as investors, offer that a realtor can't?

Simply being a bit more creative in marketing?

 

What is it you've done to convince a seller that the way you

do business is going to be more effective that that of an agent?

...seeing that you're basically doing the same thing an

agent does when he or she lists it, looking for a buyer.

[Adam King (MI) 1]

What if I became licensed and wanted to do these options. Would that make it legal or is there a problem doing options as a licensed agent.

 

Agents do options all the time. You may not need an option unless your commission is much higher than your average 6% or so.

 

On the other hand if you OPTION to buy and then look for BUYER to either occupy or sell the property to is NO VIOLATION. YOU DON'T HAVE TO BE LICENSED.

 

For MI, you are wrong. Laws are more strict here NOT TO MENTION we have had this SAME conversation before. Don't know if I copied or pasted this though.

 

But before I go into this, I have to say something in Jonathan's defense. This is not a simple answer with states like MI. There's much more to the equation than simply acting as a principle. If you are part time doing deals like a sandwich lease option, then you are WAY under the radar and may not have to even read this post. HOWEVER, if you are full time like me and buy and SELL real estate, then just cover your butt within those grey areas.

 

I have highlighted the main issues.

 

 

R 339.22319 Licensure required for owner of real estate engaging

in sale as principal vocation; acts constituting principal vocation;

sale of real estate owned by broker or associate broker; licensee to

reveal ownership or interest when selling property licensee owns or

has interest in.

Rule 319. (1) Licensure as a real estate broker is required of an

owner of real estate who engages in the sale of real estate as a principal

vocation, unless the owner engages the services of a real estate broker.

Acts constituting a principal vocation include any of the following:

ADMINISTRATIVE RULES, REAL ESTATE

BROKERS AND SALESPERSONS

 

(a) Engaging in more than 5 real estate sales in any 12-month period.

( Holding one’s self out to the public as being principally engaged in

the sale of real estate.

© Devoting over 50% of one’s working time, or more than 15 hours

per week in any 6-month period, to the sale of real estate.

(2) A sale of real estate by a real estate salesperson, other than his or

her principal residence shall be deemed to be done as a principal

vocation of the salesperson and the sale shall be through a licensed

broker.

(3) Sales of real estate owned by, or under option to, a broker or

associate broker are subject to the provisions of the code and these

rules.

(4) In selling property owned by a licensee or in which a licensee has

any interest, the licensee shall reveal the facts of his or her ownership or

interest and his or her licensure to the purchaser, in writing, before the

offer to purchase is signed. Satisfactory written proof of this disclosure

shall be provided by the licensee upon request by the department.

 

We could also argue the "investor" clause. That is, that we are "investing" in real estate and not in the business to sell or sell for other people. But the MI law states clearly that if you work more than "x" amount of hours or hold yourself out to the public to be engaged in the sale of real estate, then you need to be or use a broker.

 

I do want to say one last thing before I finish this post. My answer is not mine alone for MI. This is what my two real estate attorney/brokers and I have come to resolve with my investing and my students investing. When in doubt, pay a broker to overlook your transaction. Do this outside of MI? I don't know, should you? Should you use a broker in MI if you "buy" 100 house in one year? I don't see anything saying you need to be licensed? Do you need one if you buy and sell 5 deals in one year? Doesn't say that either.

Regards,

Adam

[Adam King (MI) 1]

Seeing that all this option talk can be confused with "brokering without a license",

what is it that we, as investors, offer that a realtor can't?

Simply being a bit more creative in marketing?

 

First off, we need to think in terms of "investor" and not agent. It's the wrong question to be asking. An investor "is" a buyer. An agent has the position of, it ain't my ass on the line.

 

The biggest thing that we can do is purchase on terms making the sale with the seller MUCH faster. This makes it easier for us if we can sell on terms such as LO after we purchase. This opens us up to the ENTIRE market and not just those who are pre-qualified. The other plus is that if there's enough equity for the investor there's more than likely going to be a much quicker and "true" sale.

 

The other thing is that an agent can usually only work for one side of the fence. As an investor we can do just about anything we want without violating any code of ethics.

 

What is it you've done to convince a seller that the way you

do business is going to be more effective that that of an agent?

...seeing that you're basically doing the same thing an

agent does when he or she lists it, looking for a buyer.

 

Again, the question if flawed.

 

Agent: We can sell your house. I'm aggressive in my marketing and can hopefully move it for you.

 

Investor: Holy crap you'll take that little for it!?! Let me put an option on it and see if I can make myself some money! I'm going to be busting my ASS to move this property!

 

Which one sounds better to you?

 

Think like an investor not an agent. This isn't an agent site is it?

Adam

[Jonathan RexfordFL 8]

Okay we all can agree that this is Michigan. Each state has different licensing laws regarding Being an agent or broker. Florida we do not have a limit rule. I did not get a Real Estate License (Salesmans) License to do options. I just got the license to list my own properties and it does give credibility. The only thing I have to do is DISCLOSURE. Not a big deal.

 

PS Adam, you need to move. Its too damn cold and with laws like that I would find another country.....lol.

 

PPS: I do consider Michigan my second home. Got family in Tawas.

[Kelly1 0]

"SD, MN, WI, MI, MD & MN all have limitations on the number and frequency of real estate transactions you can do before you will need a real estate license."

 

Sounds like if you live in one of these states it would be wise to research the heck out of how to do and option. Luckily I, like Jonathan, am not in one of those states. So from all I could find it appears that as long as I am not going out and findind buyers and finding them houses I am OK. Ofcourse, as long as I have an option or a p&s that I will assign. Otherwise my understanding is that whether I assign the option or get a release from contract from the seller is irrelevant. Either will work and neither one is closer to brokering without a license than the other. And the side of the hud1 that the fee is paid off of also does not appear to have any relevance to being brokering without a license or not. I would equally be within my rights to assign the option to a buyer or be paid from the seller to release him from his obligation to sell to me.

 

That is what I have determined from reading the laws. Jonathan, is that pretty much what you determined as well?

 

Thanks for all the advice on this subject. Though it is rare to end up in court on this matter, I do not want to be that one exception.

[Jonathan RexfordFL 8]

Kelly I am low key. I know several investors that are in MI that do 20-30 deals per year that aren't license.

 

But as mentioned Option Flipping is going to be the last way I buy any case.

 

Unless I am doing out of area deals with other people.

[Rich08 0]

Kelly I am low key. I know several investors that are in MI that do 20-30 deals per year that aren't license.

 

But as mentioned Option Flipping is going to be the last way I buy any case.

 

Unless I am doing out of area deals with other people.

 

I always make sub2, cash offers and sometimes even Ca's before getting an option to buy. I am not licensed so I can not get a listing, plus my options are always far more profitable than a listing would be anyway. With that said, I love the pure option. I have been moving around 1 a month for a while now, and plan to increase that. They seem to be really easy to get when there is not enough room for me to buy it any other way. But there is often still enough room to make 10 -25k selling a little below fmv. I just made 20k on one last week. I could easily make a living on these without doing anymore sub2, cash offers or any form of rehabs ever again. So I am getting less low key with each passing month. But I feel confident that as long as I have an equitable interest in the house I can market it to others. And I see no evidence what so ever that it matters what side of the settlement statement the fee falls on. My state has no limits on the number of houses I can do before I need to be licensed, thank goodness. However, right in my states course to become licensed it spells out that options are legal and can be assigned. This is not to say that real estate agents will not say that it is illegal. But, any job that does not even require a g.e.d. is bound to attract plenty of people that are not capable of understanding what we do. Because people think it is harder than it really is to move these things most investors shy away. It seems to be virtually an untapped resource. And with a little creativity and lots of networking it is not that hard and really pays off. I find no evidence it is illegal in my state and believe it is certainly worth the risk of being accused of something by someone that just does not, or is not capable of, understanding what we do.

[Jonathan RexfordFL 8]

Our state is getting pretty crazy about licensing requirements. I am sure someday it will require a BS degree....lol

[Rich08 0]

Our state is getting pretty crazy about licensing requirements. I am sure someday it will require a BS degree....lol

 

 

My state is too. They now require a ged to be a broker. Whats next a high school diploma for brokers and 6th grade for agents. When will these unecessary educational requirements come to an end.

[Jason (AL) 1]

Agent: We can sell your house. I'm aggressive in my marketing and can hopefully move it for you.

 

Investor: Holy crap you'll take that little for it!?! Let me put an option on it and see if I can make myself some money! I'm going to be busting my ASS to move this property!

 

 

I, myself, think in terms of investor. Plus, I've

had my rants about how agents act toward us creative type.

But, in all actuality, these 2 phrases are saying the same thing.

The words are different, but they're the same...but only given if you're

talking about using an option as an investor. Also, not all

agents "bust their ASS". So I'll give you that one.

This is leaving terms, sub2, and other creative ways to buy and move

property out of the equation.

 

This goes back to my original post here.

You're pretty much doing the same thing a realtor does, and

what advantages/"tricks" are there that we have that can beat

what an agent does day in and day out, when we're implementing options?

 

I know we're considered to be more creative 'n what not, but

just thought I'd spark some conversation.

It's late and I don't feel like turnin' on the PS2.

 

Nite..............

[Brian - L.V. 0]

I understand what you're saying about it seeming like what we do, as investors, to be similar to real estate agents on certain occasions. Not that I want to blur that line, but I think when we talk about doing options there are a few major differences, with the largest being that we don't try to find a buyer for the seller. With an agent, they list the house at whatever they feel the house will sell for with A PERCENTAGE OF THE SELLING PRICE TO BE PAID AS COMPENSATION. Whether that price gets raised or lowered, not a bad way to get paid for certain types of people.

 

As investors, WE TYPICALLY GET PAID ON THE DIFFERENCE BETWEEN OUR PRE-NEGOTIATED SELLING PRICE (OPTION PRICE) WITH THE SELLER AND OUR END BUYER. It doesn't matter what the house sells for since we essentially absorb the profit/loss through the end negotiated selling price with the buyer.

 

The buyer doesn't want to pay our asking price based on our option? Nobody cares except for whomever holds the purchase option! Not that I don't think the difference is clear, by any means. Worst case, nobody is stopping us from dropping a couple hundred bucks to get the license. Hope that helps!