| You buy a property, you flip it, you profit. Does this | | | | Two important points are worth noting here. First, |
| require a real estate license? In most cases, the | | | | the court acknowledged that XARIN had "an interest |
| answer is "no". | | | | in the property" when it signed a purchase contract |
| Real estate brokerage is an activity regulated by | | | | with GAMBOA. As we will discuss later, having "an |
| states on their own terms, thus each state defines | | | | interest" in real estate allows you to sell your |
| which activities require a license. There is a lot of | | | | interest, which is specifically exempt from many |
| vagueness and ambiguity in some of the state | | | | state licensing laws. Second, the court made an |
| licensing codes, as well as "gray areas", which | | | | important point that that the XARIN did not have a |
| complicate the matter. Furthermore, if you vary the | | | | deal with BAKER in place when it made the deal with |
| techniques and your business practices beyond the | | | | the owner of the property. This is important because |
| scope of what I teach in my course, it is not always | | | | the reverse can also be true; if you make a deal with |
| clear how the state authorities might view your | | | | a buyer first, then find him a property, a good |
| practices. Therefore, this discussion is limited to the | | | | argument can be made that activity is brokering on |
| simple activity of buying and flipping as follows: | | | | behalf of the buyer. |
| 1. Sign a contract with a seller, assign it to a third | | | | Other states that do not use the "for another" |
| party | | | | language clearly identify specific exemptions in their |
| 2. Sign a contract with a seller, sign another one with | | | | licensing statutes. A good example is the South |
| a third party, then double close | | | | Carolina statute, which reads: |
| The large majority of states use the "for another" | | | | "This chapter does not apply to: |
| language in their state licensing statutes. The "for | | | | (1) the sale, lease, or rental of real estate by an |
| another" language means the law provides a laundry | | | | unlicensed owner of real estate who owns any |
| list of activities that require a license if you do it "for | | | | interest in the real estate if the interest being sold, |
| another." | | | | leased, or rented is identical to the owner's legal |
| A good example is the Ohio Statute: | | | | interest" |
| § 4735.01 Definitions. As used in this chapter: | | | | However, you must have an interest in the property |
| (A) "Real estate broker" includes any person, | | | | before you sell it. In general, a contract to purchase |
| partnership, association, limited liability company, | | | | property gives the buyer an equitable interest in the |
| limited liability partnership, or corporation, foreign or | | | | land. 27A Am. Jur. 2d Equitable Conversion § 10. |
| domestic, who for another, whether pursuant to a | | | | Thus, if you have an interest in the property, you |
| power of attorney or otherwise, and who for a fee, | | | | are basically exempt from the licensing regulations in |
| commission, or other valuable consideration, or with | | | | these states. |
| the intention, or in the expectation, or upon the | | | | A few states limit the real estate activity of ANY |
| promise of receiving or collecting a fee, commission, | | | | persons, even if you are acting on your own behalf. |
| or other valuable consideration does any of the | | | | SD, MN, WI, MI, MD & MN all have limitations on the |
| following: | | | | number and frequency of real estate transactions |
| The code then goes on to list all types of activity, | | | | you can do before you will need a real estate license. |
| such as buying, selling, offerings, leasing, negotiating, | | | | For example, Michigan law limits you to 4 transactions |
| etc. This type of statute would clearly exempt you | | | | per year, although it is not clear whether using |
| from doing any of the listed activity so long as you | | | | multiple corporate entities will be a workaround. |
| were doing it on your own behalf. The following court | | | | William Bronchick's Real Estate Success Library |
| case clearly delineates the difference between acting | | | | Volume 1 - Flipping Properties Course |
| on your own behalf and acting as a broker. | | | | There's few, if any, reported cases of people being |
| In XARIN REAL ESTATE v. GAMBOA, 715 S.W. 80 | | | | prosecuted anywhere in the Country for not having a |
| (TX 1986), an investor named XARIN entered into a | | | | real estate license. The issue of licensing is more |
| purchase contract with the owner, GAMBOA, then | | | | relevant in the enforcement of your profit. For |
| assigned his purchase contract to a third party, | | | | example, if you assign your contract prior to closing |
| BAKER. When the deal blew up, BAKER sued XARIN | | | | and expect the buyer to pay you at closing, he may |
| claiming, among other things, that XARIN was illegally | | | | stiff you and argue "you don't have a license". |
| acting as a real estate broker without a license. | | | | The bottom line is that if you don't ACT like a real |
| The court ruled that, "No evidence exists to show | | | | estate broker, the state agencies that license |
| that XARIN was acting for anyone but itself when it | | | | brokers will leave you alone. If you use the licensing |
| sold its interest to Baker. XARIN was shown on the | | | | exemptions to skirt the licensing laws, you will likely |
| sales contract to be only the purchaser and was not | | | | hear from the state licensing agencies. It is important |
| shown in any agency capacity... There is also no | | | | that you make it very clear to all parties in the |
| evidence that XARIN acted for BAKER when XARIN | | | | transaction that you are NOT a broker and are acting |
| acquired its interest in the property from the | | | | on your own behalf. |
| GAMBOAS. Generally, to establish that one person | | | | Click Here for more info for Do You Need a |
| has acted for another in an normal agency | | | | RealEstate Broker's License to Flip Properties |
| relationship, there must be an agreement between | | | | Written exclusively for by Attorney William Bronchick, |
| two persons and one must exercise some control | | | | Certified Registered Nationally-known attorney, |
| over the other." | | | | Author, Entrepreneur and Speaker. |