Investor's Guide: Risks of Employing Unlicensed Wholesalers
Copyright (c) 2010 Deanna & Jim's GOLD Team, RE/MAX Olympic
Investors frequently seek opportunities to buy a low-market values. Systematically, repeatedly finding a stream of such opportunities requires investing in active "farming" of target-rich areas via direct mail, cold-calling (compliant with the do-not-call law), door-knocking, flyers and other means. Or you can seek referrals from the professionals likely to be involved with the people who may need to sell swiftly - divorce lawyers, funeral homes, etc.
Some investors simply attempt to hire out the research activity to so-called wholesalers. The wholesaler is asked to identify property meeting the investor's criteria. Then if the investor makes a successful offer to purchase the property they pay a referral fee to the wholesaler. This is a violation of civil statute in Virginia and many other U.S. jurisdictions.
The wholesaler is knowingly or unknowingly commiting an act of real estate brokerage by taking a fee for assisting the investor in identifying the specific property for purchase. Identifying general kinds of property, e.g. newer townhouses in zip code 20136, is not an act of real estate brokerage because it does not identify specific properties. Identifying 97182 E. Tulip St (fictional) in Bristow, VA, is specific. Identifying 97182 E. Tulip St for free is fine, although one could ask why the wholesaler is not doing something with their time that is paid.
Taking "anything of value" for identifying specific real property for purchase is practicing real estate brokerage. If done without a license it carries penalties from the state of Virginia.
So investors needing someone to bird-dog properties good for them to buy are not doing anything illegal, nor asking the bird-doggers to behave illegally, until anything of value is offered in exchange for identifying a specific property.
"Let he who has ears listen."
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