Strategy #4 - "Bird Dogging"...

Bird Dogging a/k/a "Scouting" a/k/a being "the mouse", is where an individual scouts out leads on opportunities that they believe can be converted into deals, and then turns over the information to an investor for a fee.

It is a very simple strategy, has huge UPSIDE, and very little financial risk on the part of the investor because in this type of relationship typically the "Bird Dog" finds potential deals, but does not put anything under contract, does not offer up any earnest money and normally is not a party to the sales contract between the Seller and Buyer. All they are doing is simply identifying opportunities and then getting paid by someone who then moves forward on the deal. One of the reasons why it is a great strategy for new investors is that it gives the "Bird Dog" an excuse to get to know other more experienced investors and learn their "business model". To be really good as a bird dog you must know what the investor is looking for and why certain deals will work, while others will not. To do this you need to "get inside the investor's head", and normally an investor is more than willing to invest time and energy training someone who truly wants to learn.

Bird dogging is a strategy that has close to zero risk associated with it, but not ZERO risk. I say close to zero because in some jurisdictions it may be "illegal". Not illegal as in "go to jail", but "illegal" as the same as a speeding ticket or j-walking fine.

So, why in the world would I even think about posting information on a topic that may be "illegal". Simple, I know for a fact that in some jurisdictions not only is it NOT illegal, it is protected by law. HUH??

The issue comes down to real estate license law, with the fundamental question being: "Can an unlicensed person receive a real estate commission for participating in the transfer of ownership of a piece of real estate". and the answer is of course - "it depends".

A long time ago real estate transactions and real estate licensing issues came under what was called COMMON LAW. For those who may not be familiar with "common law", common law is when a court looks to decisions handed down by other courts (both outside the state as well as outside the country) in trying to determine how a matter should be settled. When a state actually passes a law, unless the law has been found "unconstitutional" by a higher court, then the court of jurisdiction must look to the statute and the intent of the legislature in the drafting of the statute for interpretation versus the "common law".

Because of the power of the National Association of Realtors(R) and their local state affiliates, the period of time during the 1970's - 1980's was a period where many state legislatures got very aggressive and passed a number of real estate transaction and licensing laws. THEREFORE, in almost every jurisdiction real estate matters are controlled by STATE statutes, and not FEDERAL Law.

However, anyone who makes a blanket statement that is applicable in all 50 states, the District of Columbia and US Territories (such as Puerto Rico and USVI) regarding real estate licensing matters is going to be DEAD WRONG.

I have seen posts on very reliable real estate investor websites in which supposed experts write that "Bird Dogging is ILLEGAL", however this is not true. Case in point, in the late 1980's the District of Columbia passed a law (commonly known as the Peggy Cooper-Cafritz law) that allows UNLICENSED individuals to in fact receive compensation for participating in a real estate transaction, a/k/a BIRD DOGGING. So in DC Bird Dogging (depending upon what is actually done) is VERY MUCH LEGAL. In Maryland last year the legislature passed a law (commonly referred to as SB-761) which allows for UNLICENSED individuals to assist homeowners in financial distress to sell their property and mandates that they do in fact "disclose their compensation". Therefore, in Maryland if you do what the law says to do, and specialize in the niche of Foreclosure Consulting, you can in fact collect what amounts to a Bird Dog fee, and not have a real estate license.

Finally, most real estate laws specifically state who can and can not accept a commission, and in most jurisdictions the law is "plain spoken" enough to figure out that a licensed real estate agent can only accept a commission from a licensed real estate broker. Therefore, in most jurisdictions, it is illegal for a licensed real estate agent to pay a finders fee to any one else, licensed or otherwise. HOWEVER, in several jurisdictions (including Virginia) an individual can now obtain either a "temporary license", or a license prior to completing their mandatory 60+ hours of instruction. Therefore, there are some instances where in fact a broker can pay a fee to someone who is acting in the capacity of a bird dog.

What is NOT CLEAR, NOR UNIFORM through out the entire 50 states is the matter of unlicensed individuals accepting fees from home owners, or home buyers. Some states have flat out made this clear, others have not. Therefore, anyone who says or represents that they have both "read" and "understand" the real estate license laws of all 50 states, the District of Columbia and the US Territories is probably not telling the whole truth.

So not to muddy the water, but whether or not "Bird Dogging" is allowed in your state (or territory) depends on the law. Best place to get a read on this, if you are unsure, will be at your local real estate investor club meeting from one or more of the more knowledgeable (senior) members of the group.

To the best of my knowledge, in some states (like Maryland) only a licensed individual or a Maryland Foreclosure Consultant can accept something along the lines of a Bird Dog Fee, and in some states/territories (like DC) the law clearly states that Bird Dog type fees are acceptable. And I suspect, but do not know for a fact, that most states and territories fall somewhere in between.

I know, a very long post to a very simple concept. But my hope is that you make money in this business and to do so you need to go in with your eyes "wide open".