A Brief Introduction of Bird Dog Real Estate Agreement
A bird dog, real estate agreement, is an agreement between a real estate investor and a person who performs bird dog services.
This leads us to the question “what is a bird dog in real estate” or “what is bird-dogging in real estate?” Bird dog refers to a person who locates certain properties that may have great investment potential. Such bird dogs find a property that is undervalued or that is a great real estate investment and pass on the information regarding such property to a real estate investor, in return for which they will receive a fee or a commission. Such bird dogs do not invest in the property themselves. They identify properties that have the potential for great returns, such as a distress sale or an underpriced property in a good location.
In the real estate bird dog contract model, the term bird dog is a reference to hunting dogs that used to assist the hunter in locating birds.
Who Takes the Bird Dog Real Estate Agreement
A bird dog agreement is entered into between a real estate investor who is looking to purchase the property and a person who performs bird dog services in the capacity of an independent contractor.
Purpose of the Bird Dog Real Estate Agreement
The purpose of this bird dog contract is to lay down the terms and conditions under which the independent contractor is hired by an investor. Entering into such an agreement has benefits for both parties.
A bird dog is a real estate firm that looks for investment into undervalued properties or a motivated seller looking to pass on a property for a fee. So your contract with a bird dog seller should include the scope of their work. You could mention the area within which they would work on locating properties. For doing this, they should call the seller and get the required information from the client. This requires an extensive network of operations.
The purpose of a bird dog contract is to have the information that is relevant to the client. So a bird dog investor should collect the information necessary and forward only that which is relevant to the client.
A written agreement always makes sure that the intention of the parties is put down in writing, which goes a long way in preventing any disputes between them.
Investors are always on the lookout for properties that they can purchase at a low price and later sell at a profit. However, it might not be possible for an investor to look for such properties on his own physically. Hence the need for this agreement arises. An investor usually enters into this agreement with multiple contractors in different locations.
A contractor may also have a network of investors to keep himself aware of the real estate bird dog opportunities. While there is no real estate bird dog training that is available for a person who would like to enter this field, the best option is to train under someone who has experience in this field.
Contents of the Bird Dog Real Estate Agreement
The bird dog, real estate agreement, must first identify both parties, i.e., the real estate investor and the independent contractor. The agreement must provide a description of the services that the independent contractor is expected to provide and the manner in which such services shall be performed.
A bird dog real estate agreement should include the information about the maximum purchase amount that can be offered to the client. If a client accepts any rehab properties, then the cost of those rehab activities should be included as well.
For a contract to be transparent, the formula that is used to arrive at the good investments should be made as clear to the clients as possible without violating client rights. Services such as getting the status reports from the investors, calling the sellers with the offers, and communicating seller’s acceptance or declination of offer to the buyer are all optional services. The contract should mention whether the consultant shall offer them as additional services or as part of the contract.
The payment clause in the agreement will lay down the fees that will be payable to the contractor for the services being performed by him. This payment clause will generally include the types of fees that will be paid to the consultant. Usually, the seller and the buyer pay the consultant a locator fees. The seller, through the buyer, may pay a referral or contact fee to the consultant. Usually, such contractors receive a fee for each property that they submit to the investor. The schedule for such payment or the time within which such payment shall be made by the investor must also be specified in the contract.
A clause must be included, which talks about the remedies available to the contractor in case there is any delay on the part of the investor in making such payment. The investor should be made to pay certain interest on the amount that is owed to the contractor
The agreement will also contain a confidentiality clause, which states that the contractor shall keep certain information such as the cost of the properties, the business affairs of the investor, and any other proprietary information that the contractor is privy to confidential. The manner in which the contract may be terminated by either of the parties must also be stated.
How to Draft the Bird Dog Real Estate Agreement?
The following are the steps to follow while drafting a bird dog real estate agreement:
- The parties will have to first negotiate among themselves regarding the terms of the transaction, such as the manner in which the services are to be provided, the fee that will be payable for each property, etc.
- Once all these details have been agreed upon, the agreement must be drafted by including all these details.
- The agreement need not be a lengthy one. It must only include all the clauses that are necessary to capture the understanding of the parties.
- The agreement must then be signed by both parties in order to make it valid and legally binding.
Negotiation Strategy
- The negotiations in an agreement of this nature will mostly revolve around the fee that will be payable to the contractor.
- An important clause that should be negotiated is regarding the client’s documents. Whatever records the consultant possesses that pertain to the client or the client’s business must be returned to the client after the agreement is terminated.
- The agreement should be such that it adequately compensates the contractor for the services being provided by him.
Benefits and Drawbacks of the Bird Dog Real Estate Agreement
The following are the benefits and drawbacks of a bird dog real estate agreement:
- Such an agreement helps the contractor earn a significant amount of money for each property that he submits to the investor.
- The investor can earn huge profits by purchasing the property at a low rate, renovating it, and then selling it at a higher price. This process is referred to as “flipping a property” in real estate.
- By hiring an independent contractor to perform bird dog services, the investor does not have to look for properties in an individual capacity. This can save time and resources.
- A possible drawback is that there aren’t many undervalued properties that a contractor can search for. Hence the scope for earning his fee may be reduced.
What Happens in Case of Violation?
There are very few instances in which such an agreement may be violated. One instance is where the investor does not make the requisite payment to the contractor or makes a delayed payment. In case of delayed payment, the investor shall be liable to pay a certain rate of interest for the delay. This rate of interest should ideally be mentioned in the agreement itself.
In case the payment is delayed for an inordinately long time, the contractor can stop performing his services under this agreement until the payment has been made along with the applicable interest.
The contractor may also have the option of approaching the courts and instituting a suit for the money that is owed to him by the investor(1).
In conclusion, an arrangement of this kind can prove to be helpful for an investor who is looking to purchase an undervalued property. It can also be helpful for the independent contractor as he can earn a substantial amount of money by bird-dogging.