Mental Magic: “You Should Probably List Your House with a Realtor Instead”
Honest questions worth answering:
- Do you have to be a licensed Realtor or broker to wholesale real estate?
- Do laws in one state apply to you—even if you live in some other state?
- Is there ever a “right time” to sell a motivated seller they should list their property with a Realtor instead of going with a real estate investor like you?!
- Why do they put Braille dots on drive-up ATM keypads?
Things that make you go hmmmmm…
Quick setup: I recently shared a short-but-compelling conversation with Joe McCall kicking around an important topic right now in the US real estate investor arena: Is wholesaling real estate now illegal in Illinois?
In case you didn't know already, a crazy, new law was just passed that has the U.S. real estate investing all abuzz because of some pesky, legal constraints applied to property wholesalers—and since laws passed in one state often tend to trend-set for other states, it's something we're all paying attention to, not just Illinois investors.
Well, right after that, we got another great question from an Illinois wholesaler nervous about the whole thing, and wondering—Could I possibly just skirt the whole issue by only doing deals remotely in other states instead?
As always, Joe's answer was insightful and also led him to share to some of his best “pro tips” on the remarkable mental magic he routinely uses in his motivated seller conversations—It's genius, I tell ya!
One of the biggest gems (for me at least) was hearing a very clever-yet-subtle tactic of suggesting they should just list their house with a Realtor instead of selling it to him.
Seems counter-intuitive, I know 🙂
You can hear all about it in our short video conversation below, plus answers to the other questions I started with above. And you really should!
Joe's just got a natural gift for these kinds of things, but that doesn't mean we can't learn a thing or three to sharpen our seller conversations. You'll hear it's not what he says… but it’s how he says it that makes all the difference.
Other ingredients of our short conversation include:
- What exactly is “brokering” anyway?
- Double closing: Sometimes or always today?
- What the real estate commission will do if you wholesale without a license
- Referral commissions—huh?
- Must have ingredients for wholealers: INTENT and MEANS
- What you do and don’t need a license for as a real estate investor
- Be careful: DISCLOSE
- The real reason Joe doesn’t like Chicago :/
Behold the Mental Magic of Joe McCall…
JP Moses: Well, Mr. Anderson, you've got a fantastic house and it's really in a great neighborhood. It needs a little repair, but I really think you'd make more money if you fixed it up and listed with a Realtor yourself. Have you ever thought about that? That's exactly the counterintuitive conversation that my friend Joe McCall has every time he sits down with a seller now, and it works brilliantly for him. How does it work? Let's talk about that.
Steven H says: I'm an Illinois and not a licensed Realtor currently, while studying to become a broker—are you aware if I can work outside my state and still do deals without being a licensed Realtor in Illinois? If so, why would I ever get an Illinois license?
Joe McCall: That's a great question, so if you believe, which I do, that you don't have to have your real estate license to do wholesaling, then you can certainly go out into any state in the United States and do deals there.
Again, just remember this: for wholesaling, all of the states have very similar laws that say you can't represent somebody else for a fee when you're doing a deal. So, you can't go out and say, “I'm gonna put this buyer and the seller together.” That's brokering. You can't do that, right?
But if you go to any state in the country and you approach a seller and say, “Hey, I want to buy your house,” you can do that. Then you'd give them a contract, you buy their house, then you have the right—Contractual Law 101—to assign that contract to somebody else, unless the written initial contract says “no, you can't assign it,” you can assign it unless it prohibits you from assigning it.
Assign the contract or you can double close.
So, different states have different laws. Could I, from Missouri, start going into Illinois and wholesale without a license? Well, the Real Estate Commission in Illinois is probably going to say, “no, you can't. And if you do, we'll go after you.”
So, what does that mean? Well, I can't do wholesaling in Illinois. That's fine. I don't like Illinois anyway. I hate the Cubs. I hate the Blackhawks. I hate the Chicago bowls. I'm just kidding. But, I don't like Chicago because they have a horrible baseball team, and they're trying to knock the St. Louis Cardinals out of first place in the division right now.
So anyway, I don't want to do deals in Illinois. But guess what? I’ve got 49 other states that I can do deals in. And there's so much opportunity in Missouri, which has the St. Louis Cardinals and the Kansas City Royals. Why would I want to do deals in any other state? We've got the St Louis Blues, national champions, Stanley Cup hockey… let's do deals here in Missouri.
JP, you're making me feel dumb! These are really bad jokes.
JP: I'm not a sportsy guy anyway.
I think an important subset in an answer to this question for Steven is: if I do deals in another state, are the laws in my state about what I can and can't do in deals, in any way interacting with that?
My non-legal opinion, this is not professional legal advice… what you have to worry about is the laws of the state that you're doing business in.
For example, if in Illinois they have specific requirements of how documents are notarized, then you've got to follow those rules if you're doing business in Illinois, even if you're doing it from Missouri and vice versa. It’s not that you have to make sure and check all the boxes from Missouri for deals you do in Illinois. Is that true?
Joe: Yeah, for sure. You have to obey the laws in whatever state you're doing the deals in. But, a lot of 'em—I think all 50 states—have rules with each other for the real estate licensees where you can get referral commissions. So if I refer as an agent, a client to another agent in a different state, their laws allow me to get a referral commission for sending that client to another Realtor. So there's some kind of “intra-state” laws regarding that kind of stuff.
But obviously, almost every state has licensing rules that say you can't broker without a license. So it's the same thing—you'd go into that state and you make an offer to buy a property and here's what's important: then you turn around and you sell that property, you close on it, you sell it when you're coming into any kind of deal.
This is important in all 50 states—you have to come into the deal with the intent to actually buy the house, and you have to have the means to actually buy the house. So if any state commission looks at you and says, “Wait a minute, it's the intent and it's the means… you've wholesaled 50 properties in the last year, did you really have the intent to close on those deals? You just assigned them.” So that's wholesaling to a real estate commission—who, by the way, is full of Realtors.
What are they going to do? You could argue until you're blue in the face, “Hey, I have an equitable interest. I'm a principal in the transaction. I can do this.” They're not going to care what you think. They want you to get your license.
But if you come into the deal where you have the means and the intent, you actually close on it… there's nothing wrong. There's no law in any state that says you can't turn around and sell that for a profit.
I've been on the phone with several different state agencies, real estate commissioners from different states asking them that question: Is there any problem with me getting a property under contract, closing on it and immediately turning around a second later and selling it by owner to somebody else? Do I have to have a license to do that?
They've all said no.
Now Illinois may be different. They're still trying to figure that out. They passed the law. Now the real estate commission is trying to figure out how to interpret it. I guess because it's really vague. It's weird how vague it is.
So, get a license but then buy it for sale by owner and sell it for sale by owner and you'll be fine. And by the way, this is important too because I do deals sometimes where I use Realtors’ contracts… in the section where it says all the broker stuff that you have to put down, I write down in a big black Sharpie: non-brokered transaction.
I disclose that I'm an agent, but on that paperwork, I'm going to write on there really bold: non-brokered transaction.
Another thing you’ve got to be careful of if you're doing deals as a licensed agent, but you're doing it for yourself: Disclosure is everything.
Disclosure is super, super important. What I like to do when I'm talking to a seller, by the way, I'm always telling them:
You should probably list your house with a Realtor. If you really want the most money possible, you should list it with a Realtor because I'm not going to give you the highest and best price for this property. In exchange for speed and convenience, you're going to give me a good price. So I'm going to give you speed and convenience. I'm gonna close fast. You're going to give me a good price. If you want more money, you should list it with a Realtor. You should put it on the MLS.
Then, you need to disclose that you're going to make a profit. I have a friend in California, on his contracts he says, “I'm going to make a lot of money on this deal.”
I don't remember the exact language, but: “I might make $100 million on this deal.” Something ridiculous. “I'm gonna make a lot of profit on this deal. And you are okay with that.” And he makes them initial it.
JP: The other thing about putting a big number on there, he makes it a fun and funny kind of experience too for them to check the box.
Joe: It basically says, “Ypu don't have any problem with me making a profit on this deal. Even if it's $100 million dollars, are you okay with that?”
JP: Super smart.
Joe: Then the other thing he tells him is: “I am a Realtor. You understand that I'm not representing you, I'm only representing myself.” You’ve gotta be careful too—sometimes Realtors might get in trouble if they are accused of lying to the owner and telling them that their house really isn't worth $200,000, it's worth $150,000.
So, if you want to cover yourself even more, you could give the seller—as part of your contracts—all the comps. Go ahead and print a 2–3 pages of comps and give that to the seller with your paperwork and contracts and say, “I just want you to know that here are the comps of what properties are currently selling for.”
And you could even tell them, “I think if you fix your house up, you could probably sell it for $250,000, I'm going to buy it for $150k.” But this is why I always tell sellers they should list their house with a Realtor. I always tell them that because then if they say, “No, I just want to sell it, I’ve got to get rid of it. I don't want to take the time and the hassle of fixing it up,” they can never come back to me and accus me of taking advantage of the seller…
Because I told them to list it with a Realtor. I gave them the comps, I told them I was gonna make a bunch of money on it and I disclosed that I'm a note a Realtor. And I'm doing this by owner.
So disclosure, disclosure, disclosure—it's okay to disclose to a seller that you're going to make profit on this deal. It's totally okay to do that. And you better do that because that's gonna save you a lot of trouble and hassle down the road.
What say you?
What do you think about Joe's mental magic here? Seem legit? Risky? Ever tried anything like this with a seller? Are you on board with this approach or not so much?
Would love to hear from you if you'd drop a quick comment to us below. Please and thank you! 🙂
(NOTE: Want to closer look at Joe’s awesome sauce? Take a look at our “deep dive” sessions with Joe (only 4 videos really) and learn more of his REI ninjery.)