Hi, Dolmar here. The fact is, “bird dogs” have been one of my best secret weapons in multiple markets I’ve been doing deals in for years now—routinely landing me leads on property deals that aren’t on any of my competition’s radar.
They send me leads, I cherry-pick the deals, and they get paid nicely for the service. It’s a beautiful arrangement.
Today, I want to shine a light on 7 ways you can legally compensate them, so you can stay safely out of any legal ‘hot water’ (it burns!) that many investors find themselves ignorantly swimming in.
What is a Bird Dog?
I remember so well that late night (yeeeears ago now) when I whipped up my first Craigslist ad looking for anyone who might want to get paid a little for sending me a solid tip on a property I might want to buy.
My real estate deals tap was bone dry, and I figured this was just a crazy idea—a long shot really.
The next morning, after getting the kids breakfast, I checked my email and was blown away. Not only were several actual people asking to become bird dogs for me, but one of them already had 3 good property leads for me.
To find good deals, a consistent source of property leads is critical. And thanks to my crazy little experiment, I suddenly had more leads than I could easily manage by myself—dozens of them—all coming from other people’s time and resources.
Within a month, I closed a deal that came from one of my new bird dogs.
The second month I closed seven.
Mind Kinda Blown.
So… how do you pay bird dogs?
Over many years of doing this now, one thing I’ve realized is that many people shadowing my footsteps with this don’t really understand how to go about paying their bird dogs without accidentally dipping their toes into some legal hot water.
Truth is, there are lots of ways you could compensate them—many are totally legit and 100% legal, while some are… well, not so legal.
Clearly, we all want to know how to do it right, so let me just demystify it for you right now.
FACT: Regulation on compensating bird dogs is most often governed by state real estate commissions and therefore will vary a bit from state to state.
While I do a good bit of business outside my own area, I don’t do deals in every state and don’t pretend to be a legal expert in any of them. However, in most states, legal experts seem to say pretty consistently that it is illegal to pay an unlicensed individual any form of “commission” contingent upon the purchase of a property.
Now some will say this is illegal on the level of bandit signs, jaywalking, or driving 55 mph in a 50 mph zone – in other words, rarely enforced but technically illegal nonetheless.
In other states, certain real estate agents or state board workers regularly watch for violations and you’re at greater risk for a “cease and desist” on your strategy or maybe even legal action with a monetary penalty attached.
Regardless of how high or low you feel the legal risk might be in the area or areas in which you plan to invest, I say just play it safe and keep things completely above board.
You can easily compensate your bird dogs without paying them a “commission”, but the wording and execution of the compensation are key.
Here are a handful of payment structures that I’ve either used or seen other investors use. Some methods are free upfront with payment on the back end, while others pay upfront. You can choose whichever makes the best sense for you.
Please, carefully read through each model and carefully consider the model that’s best for you. Also, please consult your attorney before making a final decision.
7 Ways to Legally Pay Bird Dogs:
1. Pay Before the Sale
With this structure, you pay a flat “marketing fee” or “photographer’s fee” only for leads that have a very good chance of turning into a deal. You’d make the payment when the offer is accepted or at some point before closing.
Positives: No payment until the deal is nearly done, which may help you steer clear of commission laws in some states.
Negatives: Requires careful wording and execution, potential legal issues, last minute circumstances may mean the deal doesn’t close, even though you’ve already paid your bird dog’s fee.
2. Contingent Upon Sale (Non-Principal)
This is the simplest, most convenient form of payment, but also the most likely to get you in trouble in most states.
With this structure, you’d set a flat fee – $1,000 or more for the best response – and simply send your bird dog a check after closing for leads on properties that you purchase.
This very much resembles a commission and should not be used unless you’re sure it is legal in your area.
Positives: Simple, convenient, no payment until the deal is done.
Negatives: Potential legal issues, as it could be deemed paying a real estate commission to an unlicensed individual. Check your state real estate code.
3. Contingent Upon Sale (Principal)
This is very similar to the above structure, in that you’re paying only for deals that actually close. But there is one key difference: Your bird dog is actually a “principal” in the transaction.
This is accomplished by establishing an Option Agreement between you and your bird dog. He/she will actually receive a check not from you, but from the title company after closing.
Positives: You pay nothing unless the deal is done. Also no fear of paying an inappropriate “commission” to an unlicensed individual since your bird dog is now a part of the transaction with you, with equitable interest in the property.
Negatives: Requires knowledge of how to use an option agreement, which may seem complicated to a bird dog if not explained properly.
4. Marketing Structure
With this approach, you’d pay a small amount – between $2 and $10 – on a per-lead basis depending on how much info the bird dog submits.
For example:
You can also try building your own fleet of bird dogs. With this approach, you’re using magnetic car signs as a strategy to generate leads. But the signs go on your bird dog’s car rather than your own.
By placing magnetic “I Buy Houses” magnets on their car, they essentially become moving bandit signs for your business.
You could compensate them with a $50 gas card monthly, and quickly dominate a market with an entire fleet of bird dogs doing this. You would set up a toll-free phone line and give each bird dog a unique extension so you could track individual leads to them.
Positives: Can quickly dominate a market with your presence.
Negatives: Requires an up-front financial investment into signs and gas cards with no way to guarantee bird dogs are keeping your signs on their car.
5. Mentorship Structure
This works best with bird dogs who have an interest in learning real estate investing.
You can train them to make offers on properties themselves, and then simply assign the contract to you at a higher value, receiving compensation as an “assignment fee” on the settlement statement at closing.
You could then turn around and wholesale the deal or purchase the property.
Positives: Requires no payment out of pocket and you have the opportunity to educate.
Negatives: More thorough training is necessary. May conflict with state commission laws. (check with your state’s real estate code)
6. Employee Structure
Here, you’d essentially bring the bird dog on as employees, pay them a small amount on a regular basis, and then give them a bonus when you close a deal.
Positives: Pretty straightforward; may help you avoid commission laws.
Negatives: Costs you money up front, more things to consider with contracts and employee law and general employee overhead.
7. Got Carrots???
No, not literal carrots. I’m talking about incentives. And this final strategy isn’t so much an alternate method for paying your bird dogs, but more a way to ‘plus’ the whole experience for your bird dogs and make them even more eager to score solid leads for you.
Some Solid Gold Carrot Ideas:
- Free Gas Cards (huge today)
- Gift Certificates
- Get to Shadow You for a Day
- Free Trips
- Free Investment Courses
- Membership in Local REIA
- Per-Lead Payments
- Cash Bonuses Every Few Deals
No matter which program structure you choose, keep in mind that creating an attractive, rewarding program is key. If what you’re cooking doesn’t make mouths water, then why would anyone want to eat it?
So get creative. Put yourself in your bird dog’s shoes, and design a program that would make you want to find property leads if you were a bird dog.
The most successful programs I’ve observed include strong compensation plans, along with bonus incentives or fast cash options.
Which investor would you rather find deals for?
No question, right? I’ve seen investors offer everything from $500 to $10,000 per deal. I’ve seen bonus incentives from free gas cards to a Jaguar XK8 convertible!
So, get creative, and don’t be the $500 guy.
How to Pay Bird Dogs: The Bottom Line
An effective bird dog program can really amp up your real estate investing endeavors.
When set up and run well, it should require very little of your time on a day-to-day basis, and will likely end up as one of your highest-ROI lead generation strategies.
While not complicated, the details do matter here, and nobody wants to get their well-oiled lead machine brought to a hard stop by a legal gaffe like this.
So, use what I’ve shared here as a solid guide, and you should be golden.
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