"Finder's" Fee Legal?

Question

Hey all--

Did a search and I was shocked to not be able to find an answer to this. If I partner with a property management company that manages HOAs, am I allowed (in NY) to offer a "Finder's Fee" to their on-site property managers who have leads on houses that are going up for sale? Specifically, if at their next board meeting the on-site property manager suggests using my firm to handle any and all real estate transactions, and in return I'll give them 5-10% of the commission. Is that legal, and if not, are there any similar options I could pursue?

Thank you all--exciting times ahead!

Grimly Foret · Answer

Hi Todd,

If the property managers are licensed real estate agents then you are good with the referral/finders fee or any other name you decide to call it.   😂

Ivy Wang · Answer

It depends on your state. In CA, licensed agents may pay a Finder's Fee of up to $500 to non-licensed individuals. It's most common in commercial pocket listings.

If you were to give them a cut of your commission after splits, you would have to give them a 1099, otherwise, you'd be paying that tax for them.

Mike Cumbie · Answer

@Todd Cohen

Actually a better idea is find just one that wants to, he would be your best salesman. "I am the property manager over at XYZ...... The great company you have come to know..... expanding to also offer....." So make an offer for just one of them to take the whole territory and find your best candidate.

Mike Cumbie · Answer

@Todd Cohen

Yeah in that case I would find an agent that wants to park there license and send them around to request an audience with the HOA Boards at their next meeting. "Same great company, same above and beyond service.....". (Give them a 5 minute elevator speech or presentation) Make an agreement with them, for each one they get Z% they schedule 5 meetings a month and are done.

Because your current onsite people do not want to sit for the test, I would just leave them to change locks and replace faucets. If you try working around it and one of them sits at a bar and mentions it within earshot of the wrong person (Pretty much any agent), it's your girlfriends license at stake. They didn't want to let you pay for their test, you accommodated them and now your girlfriend is in hot water. I will say some agents are cutthroat and if they get wind they will go right to the board (Not me so much it's like going and telling the IRS, best to just keep your head down and do your gig)

Good Luck in whatever you decide!

Todd C. · Answer

@Mike Cumbie -- the problem is that none of them want to sit for the exam. And of the ones who do, they want to be splitting commission 50/50 with the broker (understandable). This was a potential solution we came up with that still incentives them to promote the realty side of the business, while not having to put in the 'leg work' to get their license. Appreciate all the insight.

Mike Cumbie · Answer

@Todd Cohen

If the on-site property managers are licensed, then just issue a referral fee and all is good.

If they are not licensed you cannot issue them referral fees or commissions etc (I wouldn't even try sneaking around it)

Solution: Have the on-site managers take the online licensing course ($100) sit for the test ($50) and then sit for the state test ($50). Then park their licenses under your girlfriends arm of the company. They can then issue referrals and receive commissions. They can even send friends and relatives to you guys and get a commission (or put ads in the paper/online looking for buyers and sellers)

Now they will not have MLS access or be on the board, can't use the REALTOR designation, but will be licensed agents and can receive fees.

DISCLAIMER: Not a lawyer so no legal advice given if I am missing something.

Good Luck!

Todd C. · Answer

@Mike Cumbie -- Thank you for that. Here's the scenario--I'd be interested to get your take on it. My girlfriend's father owns a property management company that manages HOAs. He created a shell for a realty company years ago but never did anything with it. My girlfriend is now a broker and will be the broker for the company.

The thought is to utilize the property management's on-site managers to approach their community's board members about using the company's newly established realty arm. To incentive these on-site managers to do this--we were thinking of somehow providing a "Finder's Fee" of sorts in the form of a bonus. Would it be legal to allocate a % of the commission to the property management side of the business to be used as a bonus for the on-site property manager later on? If not, do we have any similar options that you could think of?

Mike Cumbie · Answer

@Todd Cohen

If you mean giving the property management company a referral fee that is fine. As long as they are a licensed brokerage (Which is required in NY). They can refer you sellers or buyers, I often get/give 25% for that.

If you are talking about offering a return to the HOA or to the seller or some board member (Anyone non licensed), then that is not in the realm of what you want to be doing.

Todd C. · Answer

Hmmm, is there any way around this? Perhaps something related to their job, hypothetically reflected in their end-of-year bonus?

"Finder's" Fee Legal?

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