The Legality of REIs Paying a Finders Fee to a Realtors, etc. ???

[Scott T.]

Hello BPers,

I recently met with an experienced realtor who worked for a larger RE brokerage in Arizona that after a decade or more experience remains under the impression that a (non- licensed) investor cannot pay a realtor, etc. (I'm uncertain if that also included mortgage professionals, insurance agents, title company people, etc.?) a "finder's fee" for referring clients, or providing 'leads' or 'lists' compiled from the MLS. It seems (in my limited experience) that every time one approaches a 'realtor...' they either consider an REI a "competitor?" Or they think the NAR and MLS run the industry, and their 'brokerage' (and by extension, they...) are to "report all earnings," and somehow a PROSPECT (vs. a CLIENT) is somehow "brokerage property." If for instance wholesalers had this ATTITUDE, then I wouldn't be working with their 'dead leads' and paying them a 'finder's fee' for referrals they otherwise can do a NOTHING WITH.

Has anyone else had any 'luck' approaching realtors, lenders, credit repair specialists, et al for a mutual "win- win" when they provide contacts that YOU CAN HELP, when they CANNOT? I find this particularly 'aggravating' with RE agents, to date, because they think their employer and/ or peers are going to 'black list' them and/ or you. (Peer pressure?) Or is "taxable compensation" as well as the "treat of loosing one's license" the crux of the matter, here?! And thank you for your input, in advance! WST

[Phil G.]

Caveat:  License laws vary from state to state.  I'm referring to Massachusetts, since that's where Rich is licensed and so am I.  California law may differ.

In Massachusetts an agent can earn compensation in a number of ways,not restricted to a commission upon conveyance, provided its OK with the broker, the fees are paid to the broker and the salesperson (or associate broker) is paid by the broker. For example agents can charge customers or clients by the hour to show properties or can charge a flat-fee to place an "entry-only" listing on the MLS. Most brokerages aren't organized for alternate activities/fee structures. Brokerages may just not want their agents engaging in this type of activity for several business reasons.

A licensee introducing a buyer and seller with the expectation of compensation (referral fee) is a brokerage activity.  No agency relationship need exist.  A licensee can work as a "facilitator", without an agency relationship with any party and still be engaging in regulated brokerage activities.

IMHO, I think salespersons who are looking at accepting referral fees directly from you, without going through their broker, have reason to worry about their license.