Principal or Marketer?

Anyone who has been in the real estate investing arena for any length of time has heard phrases like “wholesaling,” “reverse wholesaling,” “direct wholesaling,” “quick-turning,” “flipping” and similar terms relative to getting control of a property and quickly turning it over to someone else while trying to make a profit in doing so.

Over the last few years, I have noticed a dangerous trend in that area. 

            More and more individuals are talking as if they are “marketers” working in an unlicensed capacity despite very clear statues in their states which regulate what types of activities can and cannot be performed by unlicensed individuals in the field of real estate.

I have heard people talk about using purchase and sales agreements to “tie up a property” so they can then “try to match that property with a prospective buyer.”  I have also heard people say that they used a purchase and sales agreement with a contingency that says they don’t have to close on the purchase until they find someone who will buy it from them. 

That kind of language is scary and smacks of acting as an unlicensed individual engaged in the practice of helping others buy and sell real estate.

This issue came to my attention due to a recent article published by the Ohio Division of Real Estate and Licensing in their quarterly publication of June 2014.  It caused me to spend time reviewing the Ohio Revised Code to recognize the differences between what a “principal” acting for his or her own benefit can do versus the conduct of someone who is acting for another.

There is no way I can even begin to adequately address all these legal issues in this email, but I can sum it up with this comment:

If you are truly a real estate investor or operator, your transactional paperwork, marketing information, and the way you position yourself in the marketplace will always indicate that you are working and acting on your own behalf to buy, fix, sell or lend on real estate, not on behalf of someone else.

Here are some ways in which you will be able to demonstrate that you are a principal acting on your own behalf:

  •     ~ You actually close on and take title to property.
  •     ~ You actually put up significant earnest money in the offers you make to buy property.
  •     ~ Any property you advertise for sale, rent or lease is something you own and control.

Reprinted with permission from Jeffrey S Watson, find out more about Jeff and his services by visiting his web page at Watsoninvested.com or joining his Facebook Fan Page.

** Note marketing a home for sale in the states of KS & MO for a third party is illegal with out a Real Estate License.  Marketing a rental for rent with out a license in MO is also illegal.