How much to pay for a referral???

Question

Hey BP!!!   Real estate investor and new real estate agent here!!!

Referral based Question:

I have a neighbor who got me in contact with a person who was looking to sell 4 properties off market one at a time. I contacted him, and everything worked out great on the first one and I bought it 4 weeks ago and am right in the middle of the rehab.

How much should I pay my neighbor for giving me this contact information? Do you have a set price, a % of the purchase price, or does it vary based on the kind of deal you got?

Also, when does this referral get paid? After the house is purchased or after the rehab is completed and the home is rented?

Thanks in advance for your input,

-Matt

Patricia Steiner · Answer

@Matt Nico

Mr. Turner is not a realtor.  If you were not a realtor, you could pay a referral fee for the contract, the referral, for anything.  But as a licensee, you cannot.  You can't pay anything associated with a real estate transaction - not for the lead, not for the contact, nothing.  It's the law and it's there for a reason.  Wholesaling is a whole other legal argument and is not one you can use to justify breaking real estate law.

You gotta know your business - and in your case, you have several.  I recommend you remove the post.  Congrats again on your acquisitions.

Patricia Steiner · Answer

If you're a real estate agent, better check your state law.  In Florida, a licensed realtor/broker cannot pay a non-licensee a referral fee - it is illegal.  And, a realtor can't pay anyone directly; all payments must go through a broker.

I think you owe that neighbor a gift certificate to his/her favorite restaurant and a thank you note. But again, a realtor cannot pay anyone directly - whether licensed or not - and a non-licensed person is not eligible for a referral fee in most states.

Congrats on your acquisitions - and even more so on having such a great neighbor.

Matt Nico · Answer

Hey Adam,

Thats a great idea to call FREC. I never even thought of that to just ask them about this. When you talked to them, were you talking about wholesaling or about a referral? I'd be interested as to what they said about both.

Thanks,

Matt

Matt Nico · Answer

@Adam Bartomeo

Thank you for that info about Wholesaling. I have never done it myself personally but its always great to have information.

Adam Bartomeo · Answer

Matt Nico

I spoke to the FREC investigators in person at a real estate conference a few years ago. I spoke to them about wholesaling being illegal or legal. And, according to them it is legal if you meet certain criteria.

The referral, it is clear that we are not allowed to give referrals. I have never had a need to research it further.

Adam Bartomeo · Answer

Wholesalers operate in a gray area of the law. I have spoke with FREC investigators about this topic and you cannot compared the two. Wholesalers get a house under contract and then sell that contract. Although this can be legal it can also be considered illegal because they are brokering real estate without a license.

Patricia Steiner is correct and is looking out for your best interest. You cannot pay anyone that is not licensed a referral fee in the state of FL.

Matt Nico · Answer

Thanks for your input Nick. I was not using the wholesaling thing as an excuse. Just trying to make a point.

Thanks!

Nick C. · Answer

Calling it a referral bonus doesn’t change the legality of what you’re doing. It sounds like your neighbor hooked you up, and may even deserve a fee, but it’s still illegal.

Most likely nothing will come of it if you do pay him a fee, but if you get busted you’ll need a better defense than “but wholesalers do it”.

Matt Nico · Answer

Hi Patricia, thanks for the input. I am aware than I cannot pay a non-licensed person a fee for a real estate transaction. And yet a wholesaler makes a fee on sales.

What I am getting at is giving my neighbor a referral bonus as a way of saying thank you for the contact. I am not paying him a fee for a house I bought, but for the contact. I think that is fairly common in an investor's world. He didnt have to give me anything, but chose to you know?

As an example, I hear often on the podcast that Brandon Turner will give someone a referral fee if that person brings him information or a deal that leads to a mobile home purchase for his syndication.

How much to pay for a referral???

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