Hey there, JP here, with an important question for you…
Did you know that most real estate courses teach that compensating bird dogs (aka property scouts) is illegal in most states?
So, most of the time, you CANNOT just pay a “finder’s fee” for deals they refer and you close on. Yep, it’s flat-out against most state real estate codes — unless your bird dog is a licensed real estate agent.
Having said that, I’m sharing 2 specific strategies you can use right now to legally compensate your deal finders:
- The option method
- Pay-per-lead
So, let’s dive into these 2 common compensation structures… and help keep you out of the clank. 😉
1. Option Agreement
This method is to simply write the bird dog/property scout into the transaction using an option agreement.
Basically, they would sign an option agreement with the seller, and then assign that option to you for the amount of their compensation — whether it’s $500 or $1,000 — then they simply receive their assignment fee (NOT commission!) at closing.
And, most bird dogs won’t even care to know how this works, as long as they get paid correctly.
2. Per Lead
Method 2 is to pay them upfront on a per-lead basis for the leads they bring you.
And, depending on how much information they bring you, you pay them a different amount. Here are some examples:
- They get you the property address, owner’s name phone number = $2 lead
- All that + # of bedrooms/bathrooms, square footage, year built = $3 lead
- All those + the owner’s reason for selling and his loan balance = $6 lead
So, with that type of structure, you’re typically looking at $500 upfront for 100–125 leads.
You might be wondering: How are these ok?
The reason method #2 works is because the compensation is not in any way dependent upon the purchase or sale of real estate. You’re only paying for a database of information.
It goes around any issue about practicing real estate without a license. See, the violation occurs there when someone is compensated for a real estate activity that has to do with the purchase or sale of real estate.
So if you say: “I’m not going to pay you unless I close on the deal,” — the person you’re going to pay has to be licensed (in most cases).
And this is why the first approach works…
The bird dog has to be an interested party in the transaction — meaning they have to have some kind of equitable interest — which is what the option agreement accomplishes.
I personally prefer approach #1. I’ve used it a number of times. It’s just “safer” to me. I don’t have any risk involved in terms of paying for leads with no deals coming out of them, so I really like that method.
So…
There you go — 2 solid ways to legally compensate property scouts.
Give them a go in your business today