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OFFICIAL MAGAZINE OF THE NATIONAL ASSOCIATION OF REALTORS®



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  Tips for Keeping Referral Fees Legal

Michael Thiel, associate counsel at the NATIONAL ASSOCIATION OF REALTORS®, shares these suggestions for avoiding legal complications with referrals.

Q: Who can collect a real estate referral fee?

Thiel: The Real Estate Settlement Procedures Act prohibits the payment of any referral fees from one settlement service provider to another. That includes anyone involved in a closing transaction—lawyers, brokers, lenders, title companies, and the like. But there are important exceptions:

· RESPA allows licensed real estate brokers to exchange fees when they are acting as brokers. That includes cooperating brokers in MLS transactions.

· RESPA also allows brokers to offer consumers inducements such as airline miles or commission rebates because these are not referral fees. However, perks are considered "illegal inducements" in some states. Know the laws in your area.

· Larger companies that have title insurance or mortgage broker affiliates are not allowed to receive referral fees for directing business to their affiliates, but they do receive a return on investment that is equal to their percentage of ownership in the affiliate, whether or not they make any referrals.

Q: How do state laws affect referrals?

Thiel: State laws generally allow brokers to pay a referral fee to someone who is licensed to practice real estate in any jurisdiction. But payment of referral fees to unlicensed individuals or entities is a violation of state license laws. The licensure requirement applies to relocation companies, affinity groups, corporations, and individuals.

Q: How can brokers limit their risk?

Thiel: Referrals from unknown sources are the biggest risk. If you're unsure about the person or entity you're dealing with, get the referring party's name, company name, state of licensure, and license number. Then get written confirmation of an active license from your state real estate commission and retain those documents in your transaction file. Make sure all referrals are cleared with the managing broker.



What to Say to After-the-Fact Referral Fees

If your company is confronted with an after-the-fact referral fee:

· Explain the salesperson’s prior relationship and ask if the fee can be waived or reduced Put your case in writing, but only write to the corporation if you’re prepared not to do business with the relocation company again.

· Consider what relocation benefits the client might be losing—if the benefits are small, offer to have the company pay the cost.

Adapted from Real Estate Broker’s Insider, December 15, 1996


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