Finder's Fee for Non-Agents Illegal?

[Account Closed]

Hi you guys. I'm a wholesaler out in the Milwaukee area. I was recently talking to a real estate agent about an REO property he had listed. I asked him if I found an investor that would be interested in buying it would he be able to pay me a small fee. He said no, because I'm not a real estate agent.

But I've blogs  that said that I could get a fee from an investor friendly real estate agent.

What's real and what's fake you guys. Or am I missing something? I get leads and I have good contacts. Can wholesalers get paid for my referral services in a way that I don't know about?

[Paul Ewing]

I think in most states it is illegal.  I know in Texas it is.  Look up your states rules for activities requiring a real estate license.  Many you have to have a full Brokers license not just a Sales license.

[Dawn Anastasi]

Find properties that are not listed on the MLS for the world to see, get them under contract, then assign the contract to an investor for a markup (but a list price that makes sense with the amount of repairs needed).

This is not an easy job.

[Brian P.]

Check with your state department of real estate. I know in California it is legal and the state acknowledges it however it does restrict the finder to basically introducing the parties and they can not participate in negotiations, etc.

[Chris Martin]

In the context of your post, licensed agents generally can't compensate non-licensed "people" (humans or non-human entities). This is generally true throughout all 49 states... and California.

[Brian P.]

@chris martin

What you don't know you don't know and I do know California. As an investor there since 1955, and a real estate broker since 1965 and paying finders fees that passed the occasional department of real estate audits during those years, you will need to amend your opinions regarding California and a few other states. Humans can be paid a finders fee in California. 

[Chris Martin]

@Brian P.  Thanks for the clarification.  Licensed brokers in NC can't pay finders fees for unlicensed people (e.g. bird dogs) in NC. So at least one state fits. Interesting that in CA brokers can pay bird dogs and other unlicensed people.

[Wayne Brooks]

Florida specific, and aome other areas----Perhaps an over looked dinstinction:  I, as an agent (or a non agent) can pay a referral fee for a Lead, but it can Not be dependent upon whether a sales transaction occurs.  I can Not pay a fee dependent upon a property closing, nor can a non licensed agent receive such a fee from anyone.  However, as discussed adnauseum before, it is not specifically illegal for a non licensed person to Pay such a fee, but it is illegal to Receive such a fee.

[Robert Taylor]

As far as I remember, the answer at least here in WI is a solid NO! They even have very tight rules as to what our assistants can and can't do, such as if I were to hire a non-licensed secretary or whatever. I'm sure if you sent an email to the WRA (WI Realtors Association) they'd give you the run down!

[Chris Martin]

Wisconsin (where Vanessa is from) statute seems clear to me.

https://docs.legis.wisconsin.gov/statutes/statutes/452.pdf

452.19 Fee?splitting. No licensed broker may pay a fee or a commission or any part thereof for performing any act specified in this chapter or as compensation for a referral or as a finder’s fee to any person who is not licensed...

The statute in this great state even cites relevant case history.

[Wayne Brooks]

@Chris Martin Why do you constantly insist on confusing the issue with facts and excerpts from the relevant state statutes, huh?

[Account Closed]

Thank you guys all for your feedback especially @Robert Taylor. I feel solid in knowing that from another real estate agent. I guess I'll just let my dream of being paid for referring go as I'm not looking to be a real estate agent. *sigh* lol

Thanks you guys. & Please no fighting :) Everyone is just trying to help each other out.

[Ali Boone]

It's a fine line and gray area about this, but with everything I've ever done, it is officially illegal to pay a referral fee to an unlicensed person. Some people make attempts at getting around this buy calling them "marketing fees" or some other obvious attempt at skating the law, but even if there is some loophole or potential way around it, anyone who is willing to pay that fee to an unlicensed person isn't the smartest person in my book because it's very risky, and no upside to the risk of it. Getting a license is easy, I'd get it so you never have to worry about it.

[Chris Martin]

Originally posted by @Ali Boone:

It's a fine line and gray area about this, but with everything I've ever done, it is officially illegal to pay a referral fee to an unlicensed person. Some people make attempts at getting around this buy calling them "marketing fees" or some other obvious attempt at skating the law, but even if there is some loophole or potential way around it, anyone who is willing to pay that fee to an unlicensed person isn't the smartest person in my book because it's very risky, and no upside to the risk of it. Getting a license is easy, I'd get it so you never have to worry about it.

Please read the above post (dated Aug. 22) by @Brian P. (damn @!) and the reference link I updated in response to his post. The link is http://www.dre.ca.gov/files/pdf/reb/rebspring_12.pdf and talks about licensed brokers legally paying finders and legally compensating unlicensed people... in CA, in other states, and how to pay people (indirectly) in other countries.

[Brian P.]

What we are talking about here is finders fees regarding real estate and how the state reacts to them. I know when I was a kid some rich people I knew talked about doing something and getting a finders fee. It could have been a multitude of areas, and I know the amount quoted was generally 10%. I know of many people that made money that way and it was perfectly legal. I'm sure the people that felt they were losing chances at money started crying, real estate brokers, stock brokers, business brokers, lawyers and they had their lobbyist go to work at various capitols passing laws to steer the money back to them. 

I remember one guy in the S.F.Bay area that found a site for a new Pepsi plant when Pepsi was unable to find one and made a very large finders fee, his mistake he got involved in the deal to far instead of stopping at the introduction phase and the Pepsi lawyers used that to not pay his finders fee, but only waiting until it was almost time to pay him and the deal was basically done. Nice people, Pepsi. I'm sure if he was asked even The Donald earned  a few finders fees in his life time.

[Chris Martin]

@Brian P.  Quite interesting. It's always good to learn new stuff. I've posted in other topics (e.g. http://www.biggerpockets.com/forums/93/topics/139634-is-illegal-to-pay-referral-fees-to-non-realtors?page=3 my July 27 post) about similar circumstances in other states where the outcome was different. The best legal description/argument I've found to date is the following case. There is a lengthy discussion comparing and contrasting the "broker" and "finder" parties and their role in the transaction in the court case described here: http://law.justia.com/cases/new-york/other-courts/2010/2010-20104.html

While I realize this does not apply directly to the topic at hand (Wisconsin), I and other BP members in other states should find it very informative and educational. Upshot to readers: Know your state laws and real estate commission rules and how your state handles similar cases.

[Russ Kennedy]

I need to know if in INDIANA its legal to receive a finders fee....I got caught up in a webinar full of hot buttons on the ease of making these fees (Phil Grove from Texas is Guru behind this but someone else presented the webinar.   Russ    [email protected]

[Michelle Mitchell]

hey, if you find Investors who are willing to work with you or brokers whos willing to work with you they be happy not to have to find borrowers and or people who need funding or investors who want to invest, go I just had a lot of people tell me yes, on the first try. I told them I don't have a license, and that I am not interested in going pass introducing potiential clients and they emailed me asking me to find them clients.

[Rich Hupper]

I have a follow up question about this. Suppose you have a wholesaler with a purchase contract ready to sell to another buyer. That buyer and wholesaler were brought together via a 4th party. If the buyer is an investor and or company, and no fiduciary relationship has been expressed or implied,  could they pay the 4th party a finders fee without any legal implications?