Can Someone Clarify This Concerning Options?
Hi,
I have read many post on here concerning using options to get control of a property and then find a buyer. I received this statement from someone and I am now looking for some clarification.
"In most States, you can't use the option to circumvent the real estate agent definition statutes. I'm sure a lot of investors are doing it and getting away with it, but if you are the one they want to make an example of it is at the risk of criminal violations with up to 1 year jail time. Read your RE agent statues and see if they list "dealing in options" as part of the RE Broker definitions."
Thanks
This will not be a legal opinion, I am not an attorney. I'd recommend getting one if you can't put your mind at ease on this, or don't use options as part of your investment strategy.
That being said; An agent gets paid a commission. When you excercise an option, you are not getting paid a commission, you are getting compensated for an equitable interest in the real estate you are dealing with. As soon as you have printed one flyer, or spent gas money to look at the house, and drive away with an option, you have "Equitable" interest in the property, and therefore in my personal opinion, do not therefore need to be a licensed real estate agent to conduct business this way.
Hope this helps
Jeff
I do not agree that just because you spent some gas money you now have equitable interest in a property.
From what I have heard, if you are a principle in the transaction, then you are not dealing as an agent. So the fact that you have the option you are a principle. Options are very common and very legal.
What you can not do is help your friend sell her house and get compensated. Supposedly bird dogs are also illegal. Because the birdog is acting as an agent and getting compensated.
Brenda
Brenda,
I possibly could have worded things a little different to make my point. My intention is to sell the property for more than my option. That difference is my "equitable interest", and yes, I agree with you. I would be a principal in this transaction.
Thanks for the clarification,
Jeff
Quote:
On 2004-03-19 13:35, bgrossnickle wrote:
I do not agree that just because you spent some gas money you now have equitable interest in a property.
From what I have heard, if you are a principle in the transaction, then you are not dealing as an agent. So the fact that you have the option you are a principle. Options are very common and very legal.
What you can not do is help your friend sell her house and get compensated. Supposedly bird dogs are also illegal. Because the birdog is acting as an agent and getting compensated.
Brenda
If I secure $100 earnest money to a property, held in escrow....
That would be the "equitable interest" that you are talking about also correct?
From the courses I've been taking, they talk about monetary consideration making the contract binding.
As far as being a principle in the transaction what do you mean by that? Showing up as an assignment fee on the closing statement?
JB
[addsig]
No,
I wouldn't show up as an assignment fee, There would be enough in it for me to excercise my option to buy, and then sell, or I wouldn't get involved. In Arizona, double closings are legal as long as there is full disclosure. If I close, there is no question.
Quote:
On 2004-03-20 11:32, jeff12002 wrote:
No,
I wouldn't show up as an assignment fee, There would be enough in it for me to excercise my option to buy, and then sell, or I wouldn't get involved. In Arizona, double closings are legal as long as there is full disclosure. If I close, there is no question.
Now with this, do you have to worry about being pegged with "dealer status", because you are actually taking title by exercising your option to buy and then sell?
Also, do you find it hard to accumulate properties with full disclosure to both seller and buyer?
JB
I heard that there are a couple states where you have to be licensed to "deal in options". I don't know any more about those states , but I imagine that they are referrring to buying and selling options as a business. I heard that Kentucky is one of them-but don't quote me.
Utilizing options is one of the most versitile instruments an investor can have in her tool box . When you use an option, you establish an equitable interest in the property. You have the right to transact as a principal without licensure less those few states mentioned above.
Dealer status relates to intent. If you intend to buy and sell in 12 months or less, you meet the definition of a dealer. If you intend to hold property long term you meet the definition of an investor.
There is no such thing as "dealer status." You don't get pegged with the by the IRS and forced to remain that forever. Each transaction may or may not qualify for "dealer status" (as sammy outlined). In the case of a double close, yes, it would be considered a dealer transaction.
A principle in a real estate transaction is either a buyer or a seller. A real estate agent basically acts as a principle "standin" and his rewarded by their commission.
When you are selling an option, you are a principle in the transaction because what you are selling is the option agreement (which you paid for), and not the property. The easiest way to not show up as an assignment on the actual closing is to collect your fee upfront, upon assigning, and let the new buyer and seller close for the price of the option. As Sammy said, there may be laws in certain states limiting your actions in this.
If a birddog does what a birddog is supposed to do, then it isn't illegal. A birddog finds a potential deal, and refers it to an investor. It is up to the investor and the seller to discuss the terms and conditions of the sell (the normal function of the agent). A good analogy of it is a waitress. The cook prepares the food and you eat it. The waitress simply brings it to you. Yet, if it is good, you give the waitress a bonus tip. Same concept.
Roger
I think I may be getting lost here...maybe not
When we're saying "option agreement", we're talking about something like.....
"Seller allow buyers 30 day exclusive option to purchase subject property"
And then assigning that option to your buyer.
JB
if I'm way off let me know..just getting confused.
[addsig]
That's basically it.
Roger
Hi,
As I side not to my original post. I am talking about an exclusive or non-exclusive option also. Some additional information that was shared with me today. I was told the once you find a buyer you are walking a thin line if you refer the buyer to a lender you work with to get them approved. Anyone have an opinion on this. It just amazes me how many different way people view this stuff. I mean it should be if you can do it, just do and not well you can don't make to much money or you will walk a thin line with people starting to ask questions or don't lead them to a good sub-prime lender or you may get in trouble on some deal. Everybody is doing the same thing, but it is view differently. Oh well
Jim
Who are you talking to exactly? Why would referring a lender/mortgage broker be "walking a thin line?" What line exactly are they talking about?
If you're walking down the street and someone asks you for directions, is it illegal for you to give them? If they ask you for the name of a good loan officer, would it be illegal?
What I'm getting at is that I know of no state or federal law that makes it a crime to give out information. If someone asks you where the nearest drug dealer was located you gave them the location, you've still done nothing wrong. Didn't sell the drugs, didn't buy them.
Roger
A real estate broker gets paid by the seller to "deal" in real estate. I.e. to find a buyer and negotiate the transaction. Like other professions (including lawyers) certain kinds of activities are prohibited to persons not licensed by the State to engage in them. So, one cannot say, "I am not engaged in "dealing" in real estate because rather than negotiate a contract for the sale of the property I negotiated an option to purchase the property."
Clearly this is not the position of most of the people who are part of this forum. They are not getting paid to negotiate between other parties. They are one of the parties.
In the same way it is not, as a rule, illegal for me (a non-attorney) to give legal advice. It is only illegal for me to get COMPENSATED for giving the advice. You cannot sell legal advice without a license.
Even as a person who is not a licensed broker I can assist buyers and sellers in negotiating contracts and/or options all day long. As long as I don't get paid to do it. However I will not avoid the regulation regarding getting paid by the simple expedient of calling the document I negotiated an option rather than a contract. Nor should "paid" be read to mean, got money. Compensation (they gave me a car) of any sort requires the license. Unless someone is paying you for your services in the negotiation of the sale of their property you probably do not need to be a licensed broker.
Mark,
A real estate agent gets paid a commission fee because they were contracted to procure either a buyer or a seller and negotiate the transaction to the benefit of their buyer. Their commission is usually based on the successful close of the transaction.
Every active investor "deals" in real estate. That doesn't mean that every investor should go out and get a real estate license. Anyone who is a principle in the transaction, which is either a buyer or seller, can "deal" in real estate without a license.
If you get an option on a property, paid money to obtain it, then you have an equitable interest in the option agreement. You can actively market and sell that option agreement without any kind of licensing requirements. Thats where this confusion is stemming for, though. When you have an option contract, and you sell it, you are selling the option, not the property that was optioned. The new optionee (your buyer) will now close directly with the seller.
Roger
Roger,
Absolutely right. and exactly the point i was trying to make, sorry i was not completely clear.
Mark