Gray Area with Referrals

[William Hochstedler]

Hi,

I'm looking for some guidance as to what constitutes a referral. Recently, I've been approached by licenses asking for referral fees after I (or my agents) have been working with a client.

Here are a few examples:

1. An agent refers a prospect (who he has never met, but knows through a third party) to a property management company as a tenant because they are not currently qualified to buy and must rent. After a year, the tenant thinks they can qualify for a mortgage and chooses to work with the agents at the pm co. Despite the tenant not even recognizing the name of the referring agent and responding "no" to the are you working with a Realtor question, the referring agent demands a referral fee.

2. An agent is sitting in the waiting room of his insurance agent and starts talking with another customer. The agent learns that the customer is looking to buy a house and sets up an appointment. The agent is then contacted by the insurance agent's wife who is an active license demanding a referral fee because the contact was made in an office of which she is a part owner.

3. An agent has been soliciting her sphere of influence which includes contacts from her former place of employment including employees and clients. It turns out that the agent's former boss has an active license, but is not using it to conduct real estate transactions. He is now demanding referral fees from all transactions conducted with contacts met while the agent was employed at his company.

I have been unable to find any clear language specifying what constitutes a referral outside of an agreement made at the front end. I want to maintain good relationships with professionals in my market, but when do these requests become ridiculous?

Thanks for any advice.

Wm

[Bill Gulley]

No, no and probably no, but....!

1. For a referral between agents, one agent having a business relationship with a client must give consent for another to act or represent that client and the other agent must agree to do so. This is done by written agreement and consent by the client.

2. A referral must be prearranged between the two agents, as to a prospect, look to basic contract law, an offer, acceptance, meeting of the minds, acting in good faith, beneficial and lawful purpose, that kind of stuff. What you have or need is a verbal contract, your referral of someone isn't real estate. You can certainly have a written agreement addressing referral fees, either way your agreement to pay a referral needs to be made before the referral is made or before that prospect is discovered. This is simply birddogging between agents, neither has a business relationship with the proposed victim (prospect).

If a prospect is in the public domain an agent can't claim any exclusive right to that person. If an agent doesn't have an agency agreement for representation they have no right to any referral fee.

If an agent has a valid written agreement to represent a party, they will be entitled to a referral fee, possibly more, to make that claim, the agent under contract must enforce that agreement with that client, not a third party. When that client disregards their obligation, claiming they are not represented and another agent acts in good faith on that representation made, that agent acting is not liable for fees from their work in assisting that client. Again, basic laws of agency, if a principal (client) rebuts or denies their position as to being represented that principal is liable for their actions, that client could have to pay both agents. Is this reality? No, usually these situations are worked out between the brokers if the agents can't resolve the matter. Brokers rarely sue a client in a small deal for fees, it's just bad public relations.

The fact that a prospect was on another agent's public place of business or property and that was the basis for the demand is laughable. How about, I met that guy last week and talked to him, I see you sold him a place, pay me. What you have here is a form of extortion, clearly unprofessional, unethical and a violation of the Code of Conduct for Realtors. Not only would I tell them to take a hike but if they opened their mouth again they'd get reported!

The office and past employee situation isn't clear enough, was that a brokerage that agent worked for? There can be issues with stealing clients (to a point) using confidential information held by an old broker. However, in RE, an agents customers go with that agent if and when they leave unless there is a written agreement otherwise. If that boss was her broker, he may well have a valid claim. If he was in the appliance business and she was an office worker and he had a license but no real estate business was conducted with those customers and she met the same customers, he has no basis to claim them as RE clients or customers if she later sells a place to those customers. He needs a written agreement with those customers to demand any fee. Another bit of extortion there.

Law suits are pretty common when an agent/broker leaves one brokerage and starts another, generally the personal business generated by the departing agent goes with them, other prospects gained while there by that agent go as well, what stays are those customers of the brokerage not accomplished by that departing agent. And, this doesn't last forever, if some builder is in the public domain and they are not under a current agreement being represented, that builder is fair game.

This happens to agents all the time, an agent will cart someone around for weeks in their car, they buy lunch, watch their kids, wash the prospects' car, feed his dog and fail to get a written authorization to represent them. Then the guy buys with another agent, well, guess what? Lesson learned, get a signature on an agreement to act as their agent!

Tell them all to take a hike. Your local BOR may hear the matter in an informal hearing, can be political but I'd go there if they insist. All can be reported, I'd report the insurance wife, that's really a stretch.

Oh, by the way, I'm not an attorney, I don't play one on TV either, but I come close in public forums and I was a RE broker . :)