Unlicensed “property finder” charging tenants one month’s rent?

Question

Is it allowable for an unlicensed “property finder” (unconnected to any brokerage) to charge tenants large commissions to find them luxury homes to rent?

Here’s the detail:

Last year, we were tenants looking for a very specific luxury property (we needed an owner that would permit us to sublease when we were away travelling). Impossible to find, and no luck through our broker.

We were approached by an unlicensed “property finder” (not connected to any brokerage) who convinced us to let her search for our home.

She found us a home that hit our specs (including a wonderful landlord allowing us to sublease) and charged us a finder’s fee of an entire month’s rent (18k). At the time, it was worth it. But we now know that many of these unlicensed finders are not following the rules.

Is it even allowable for an unlicensed “property finder” to charge tenants like this?

I know the rules for how licensed brokers can pay “unlicensed finders” is clear, but what about when tenants are the ones paying?

We were under the impression she would just find the property for us and let us take it from there. But she inserted herself heavily in the negotiation, even after we asked her not to. We had no agreement with her that she could negotiate on our behalf. Isn’t this a licensed activity?

We learned later that she was asking for a commission on both sides, asking an additional 18k from the landlord’s broker! She had no interest in getting the rent down for us, and was playing both sides. Of course they didn’t pay her.

She made us sign an MOU where payment was contingent on the lease being signed. Doesn’t that go beyond what a finder can do, which is simply to connect two parties?

We pay her in chunks over the course of the 3 year lease. If what she was doing was offside, I don’t want to be doing this.

Finally, please don’t judge - we know we were too naive at the time, and we would only ever work through licensed brokers now. She was a master convincer, saying her role and fee was completely permissible, and we trusted it.

Steve Vaughan · Answer

Meanwhile in 1st-world problem land...

Judge Judy would not sympathize.   So you willingly spend $18k a month on rent, agreed to pay a 1 month finder's fee and are now worried about a technicality? Finding for the defense.  Next!

Bill B. · Answer

So you were happy with the service until you found out she might need a license? If you do find out she doesn’t need a license you’ll be happy again? If you weren’t happy you shouldn’t have used her. It is a compliment to say she could do something quickly and easily that your broker said was impossible. Personally I can’t believe she found you a “high end” property that would let you sublease. I wouldn’t let a tenant sublease my lowest end property.

Karolina Powell · Answer

I don't know CA law so don't quote me but I'm familiar with a case in Ohio where someone was found to be brokering deals without a license.  It did not make the contract they had signed with the landowner invalid.  All that happened was that they could not use the court system to enforce their contract after they did not get paid.

Rob K. · Answer

Cal. Bus. & Prof. Code § 10131

A real estate broker within the meaning of this part is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others:

… (b) Leases or rents or offers to lease or rent, or places for rent, or solicits listings of places for rent, or solicits for prospective tenants, or negotiates the sale, purchase, or exchanges of leases on real property, or on a business opportunity, or collects rents from real property, or improvements thereon, or from business opportunities.---

Cal. Bus. & Prof. Code § 10139

Any person acting as a real estate broker, real estate salesperson, or mortgage loan originator without a license or license endorsement, or who advertises using words indicating that he or she is a real estate broker, real estate salesperson, or mortgage loan originator without being so licensed or without having obtained a license endorsement, shall be guilty of a public offense punishable by a fine not exceeding twenty thousand dollars ($20,000), or by imprisonment in the county jail for a term not to exceed six months, or by both fine and imprisonment…

Russell Brazil · Answer

Sounds like you got taken for a ride. That person is brokering without a license. A quick search shows the penalties are up to $20,000 and 6 months in jail in California

.

Bruce Lynn · Answer

Sounds like illegal unlicensed activity to me.  Check with CA department of real estate.

How did she find you?Are you sure she doesn't work for an "apartment finder" service?  These are licensed typically and the agents are licensed agents.  They just tend to focus on rentals vs buy/sell.Was there a company name? or just an individual with self produced contract?

In most places licensed brokers cannot pay unlicensed finders.

Seems like there is way more to the story and we're missing something.

Theresa Harris · Answer

If you agreed to pay her one month's rent to find you a place and she did, then she held up her end of the contract.  By signing the contract, you agreed to pay her to find the place.  If you don't pay, she can always take you to court.  Who knows if it would hold up.

Matt Devincenzo · Answer

I think the answer is in who the guidelines apply to, licensed brokers/agents. You as a tenant can't be governed by rules that were written by a licensing body to govern their licensees.

The State exceptions for unlicensed finders apply to them as a whole, the additional guidance is to licensed individuals as to how they can compensate them legally.

Jade Smith · Answer

Hi Bruce,

Thanks for your response. Nothing more to the story here. She found us via a real estate Facebook group. And no she is definitely not an apartment finder or associated with any company or brokerage. She operates under her own one-woman consulting company. We were so naive.

The regulations are very clear about how brokers can/cannot pay unlicensed finders, but what about tenants?

I’ll call the dept of real estate but am hoping someone may know the answer to this one sooner.

Unlicensed “property finder” charging tenants one month’s rent?

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