So I got a great question in my email today from Mark Stauffer, as he was listening to the Saturday Workshop Sessions.
It’s one I’ve heard a lot before, so I’d say the answer’s worth a dedicated post.
Mark asks…
“…you’ve said on one of the audios that you are licensed in real estate. Do you disclose to sellers/buyers that you are a licensed agent when you are doing deals, making offers, selling, etc. Thanks and keep the instructional videos coming!” -mark
Well OK, fair enough question. So here’s the deal…
Many investors who are also licensed agents tend to be concerned about disclosing the fact that they’re licensed.They’re afraid that the other guy (or gal…don’t mean to be sexist here) might suddenly feel defensive or “on guard” against you now that he/she knows your a……trained real estate professional! (enter music from Psycho shower scene.)
Let’s start with what’s required…
The fact is, here in Tennessee agents are legally required to disclose they are licensed for any real estate transaction in which they play any part, whether officially wearing their “agent” hat or not.
So even if I’m a rehabber or a wholesaler or whatever…if I’m a principal in the transaction (buyer or seller) I’m still legally duty-bound to disclose my licensed status.
The reason being, it’s assumed you have “superior knowledge” you can wield like a loaded weapon against some Average Joe who innocently mistakes you for just another Shmoe like him.
The law dogs says it’s only fair that as early as practical you make him clearly aware of your superior knowledge, market prowess, powerful telekinetic abilities and cat-like reflexes.
Now admittedly it’s been a while since I first got my license, but I believe the board of Realtor’s code of ethics makes it even more specific, saying we should immediately notify any seller or buyer during “first contact” that we are licensed agents, and that “resistance is futile”.
They even provide us with a handy dandy form to do it all in writing. Yay!
So how do I manage all this disclosure as an investor/agent without scaring folks off or putting them on the defensive?
Well, the answer’s pretty simple. I just tell ’em. Just tell ’em, don’t make a big deal of it, and don’t worry about it.
The fact is, contrary to popular belief most folks just don’t care in the least if you’re licensed or not. And some folks actually seem to feel even better about it.
As in…
“Hey, you’ve got some fancy Realtor trainin’, so you must be awesomer than those other shady investors out there!”
Here’s what I say…
…And usually in my very first conversation with a prospective client (i.e. motivated seller whose house I’m scoping out)…
“By the way, I want to let you know that I am a licensed Realtor. So you know I’ve got a little formal training.
But also just to make sure we’re on the same page here I”m not here to try and list your house or anything like that… (smiling a little at this point) …I’m not here as your agent or anyone else’s other than my own. I’m here looking as a possible BUYER. Make sense?”
I usually say the whole thing with a little smile on my face, and I’ve never had anyone so much as raise an eyebrow. They usually just smile back and say,
“Oh yeah – sure, I know that.”
I also make sure the same kind of thing is clearly stated in any paperwork we put together. Sometimes I write it on the contract and have them initial it, and sometimes it’s included in my “Best Darn Sellers Disclosure CYA” document I use, which is based off an old form Joe Kaiser put out years ago.
The bottom line is…
…the rules for this may vary a little in different states. But probably not much.
Just play it safe and disclose it, verbally in your first conversation, and again in writing as a part of your paperwork.
Don’t make it a big deal, and it won’t be. It shouldn’t be. It’s nothing to be embarrassed by, and like I said, can even give them a little warm and fuzzy knowing you’ve got some kind of “real training” under your belt and didn’t just learn all this from that crazy late night infomercial guy.
(To any/all minions, groupies and cronies of the great and mighty Carlton, no disrespect intended. Please don’t hurt me.)
Hope that helps! What are your thoughts? Please share them in the comments below. I’d love to hear ’em.
How to Find Motivated Home Buyers in Today’s Market
Video: Advice to Investors Who Need Help Selling Houses Fast…
My feelings are that most likely seller’s won’t care that you are an agent when you disclose at the time of the offer either.
However, when Selling a property, I feel that it is advantageous to not disclose that YOU are in fact the seller. If you disclose such in the MLS or on Seller’s disclosures or whatever, I feel that you lose some of your negotiating advantage.
This is, of course, exactly what the laws were set up to do. “Curb” any negotiation advantage that a licensed agent may have over a non-licensed buyer. I for one prefer to have as much negotiating advantage as possible and set out on a quest to find a workaround to this.
The solution I came up with is as follows.
I have a partner, so we set up an LLC with two members. My partner and my wife. Wifey isn’t licensed you see.
So when I make offers as a Realtor, I don’t have to disclose that I’m an agent, because the LLC is the one making the offer (I’m just acting as an agent for the buyer) and I am not a member of the LLC.
On the sell side it doesn’t work so well. My attorney informed me that I WOULD have to at least disclose that “Agent is Related to Seller” to stay on the right side of the law.
Of course, just adding that little bit meets the requirements and if anyone asks HOW you are related to the seller you can tactfully decline to comment. The seller could be your Aunt, your Sister, your daughter…who knows.
If the other party wanted to be “Snoopy” the could pull the LLC registration docs and see my wife’s name on there…but again, they wouldn’t know if it was my wife, my mother, or my sister. They would only know that it was a female with the same last name.
You want to make sure you do things right. The devil IS in the details.
Earlier this year I closed a deal where my partner and I were both on the LLC and I did NOT disclose to the buyer my position.
It was uncovered days before closing and all hell broke lose.
It was a grey area because technically the LLC was the seller, not me and the LLC could NOT be licensed. Thus the question was “Would you have to disclose that you are the seller if you are a Member of the LLC?”
The buyer felt the answer was “Yes”, I felt the answer was “No” but they felt that they were right strongly enough to bring their attorney into the mix to rattle the saber.
So if you are reading this, you can always disclose everything to all parties, but if you want to preserve some negotiating power, make sure you check with your attorney and structure it properly because you walk a very tight rope where this matter is concerned.
@Brian Kurtz – Thanks for the awesome comments, Brian! A great follow up!
…jp
Hey JP,
Good article. And I pretty much handle dealing with sellers and buyers the same way since I’m a licensed real estate agent and a REALTOR 😉 in Pennsylvania.
In PA, agents are required to disclose that they are agents as well and it must be done in writing. I generally tell folks just like you did and I also include it in writing in the agreement of sale. Piece of cake.
And I agree with you that folks generally seem to look at me in a better sense then if I was just one of those “shady investors.”
Carey
JP,
I just put in the contract “Buyer is a licensed sales agent in the State of Maine.”, and that takes care of it. I’ve never run into resistance due to my being an agent.
@Tim (ME) – Tim,
That would meet the legal requirement for disclosure, yes. But I want to also ensure they can’t come back later and claim they thoughts I was their agent, which isn’t unheard of.
So I also have it in writing (and initialed) that they understand even though I’m licensed, I’m not acting as their agent in any way.
…jp
JP,
Great article!!! Being a fairly new licensed and investor, I have been worried on how to disclose the issue without getting in trouble or losing a deal. I have just been sending offers from properties on the MLS but on the contract I just put my name and dont mentioned I am a licensed agent… Is this wrong???
@Sandra – As you might guess, I’d suggest disclosing it. I don’t really see any reason not to. 🙂
In Minnesota all agency relationships must be in writing but that does not mean that if you act like an agent, the slip of paper will protect you. You need to walk the walk as well as talk the talk.
For those of us who are Realtors we are required to disclose that we are agents. And frankly I am a little disturbed about any cutsie actions with an LLC to get try and get out of that disclosure.
Most important, I have never found the disclosures burdensome or a problem with buyers or sellers. In fact, you can actually turn it around so that it is a benefit in the eyes of the other party. Afterall, we are held to a higher standard. Let them know that.
And I do my disclosures with a bit of smile myself. :>)
Question on Purchase Option.
When making a purchase option agreement offer, would you advise to have the contract done in front of a lawyer?
Or will a Purchase Option agreement (NAR or Investor’s) Form both signed by buyer and seller be sufficient to make the contract valid/binding? Please advise. Thanks. ev
@EV – EV, first off, I assume by “purchase option agreement” you’re talking about a regular old “option to purchase agreement”. Seems like it to me, but correct me if you’re talking about something else.
I would see no reason to have to sign it in front of an attorney — not any more than you need to have an attorney present to sign a regular purchase/sale contract.
I mean, if someone needs to have their attorney present in order to feel comfortable signing, that’s their business. But for me, I see no reason for it at all, and I’ve never had anyone ask it.
The enforceability of the agreement has nothing to do with whether or not an attorney’s present when they’re signed. It has to do with whether or not the agreement is congruent with local laws, whether all parties understood what they were signing and weren’t under duress or inebriated, etc.
Some folks will go the extra mile to have contracts notarized, so the other party can’t claim it wasn’t really them that signed the documents. But personally I’ve never done that for anything that wasn’t going to be recorded at the registar’s office. It’s a little over the top in my opinion.
Hope that helps!
…jp
In NC and VA if you are a licensed agent you have to tell them that you are. One way to get around this is to work with someone who isn’t. I with with my mother how is a licensed agent, so I do all the calling and talking. That way you don’t have to worry about it. I really don’t think that it’s a big deal if you are a agent and not say anything. Because at the time you are not working as a Real Estate agent, you are working as a Real Estate Investor.
Hey, Awesome article as always!I have been visiting your blog from quite a long time and I must admit your articles are truly very helpful and informative. I am sure you will continue the same way.
Great Post!
Funny, because I’ve been researching this exact topic for the past few weeks trying to decide whether or not to get my license.
A broker/investor I know advised against it because of the disclosure. But if that’s the only reason, it doesn’t seem all that bad. Just make it a habit.
Are there any other reasons besides the disclosure? Does your creativity in doing deals disappear?
Brooks´s last blog post..17497 Seldon Street
Out here in California, the rules are the same – you gotta disclose and you gotta do it early.
I often go out house hunting for myself and I too have never had a problem. Even worse, I am a broker with an active real estate company operating. I just let them know pretty much what you said, I am not looking to list their home or pummel them with my real estate mojo. I have never had anyone react strangely to me pointing out my status as a real estate broker.
R
Robert Whitelaw´s last blog post..CYA 2008, Hello 2009!
“Realtors” are not licensed. The State licenses the real estate licensees in each individual state, called “licensees — (states do not license “realtors”) National Association of Realtors is a member (annual dues required) association – it is a “trade organization,” like a union and members are allowed to use the name “Realtor” (no licensing involved — “realtor” is not a license) — you can be a licensee in any state without being a Realtor- these are two distinctly different things & licensees should be clear in explaining that to
consumers. People who are in the business should have clear understanding of these
differences. Many, maybe the majority of individuals holding real estate licenses are also members of the National Association of Realtors & a local affiliate realty board but state licensees do not have to be Realtors.
Also I think it is state real estate law (rules & regs) that require (legal requirement) disclosure that one is a state real estate licensee — so enforcement agency would be
the State Real Estate Commission & not the National Association of Realtors — in case any consumer ever wanted to make a complaint — anyway that’s the enforcement agency with the real teeth & not any local real estate (realtor) boards — as far as I know.
Bottom line would be to check out with the State Real Estate Commission about disclosing licensee status (what’s required by state real estate law in your state) or check with a good real estate attorney — knowing what’s really legally required is “key” here (as we do live in a very litigious society) — better to be safe than sorry.
Question as a Realtor and an investor can you operate out of one LLC for both
Good morning
I have a question I have started a business as investor but I am also a real estate agent must I disclose in my business cards of investor that I am a real estate agent? If I must disclose that in my business cards as an investor, than what would be a good example to write it? As well If I contract people that aren’t licensed as a real estate agent and I provide them with business cards should I list them as an independent investor representative or what would be a better name for some who isn’t licensed as a realtor agent but works for my company as a representative investor? I am in the state of Florida.
what about if you are a property manager, without agent license but with a property manager license. Do you need to disclose that? Anyone know of any laws that state that is required?