Follow up on my previous forum "saga." :) I got a lead from another investor (name and phone#), found a buyer and got him to cover my realtor commission of $6,000. (3% of $200k sale price) After deducting my broker's fees I net $5,500. At the beginning I verbally offered the investor 10% of what I would be getting, or $550. He verbally agreed and seemed happy to get some money for just running some ads and answering a phone call. I worked on this deal for 2 months, jumping through hoops and getting the seller and buyer whatever they needed to close the deal, putting up with lawyer nonsense, even agreeing to kick in $300 for termite treatment which the bank requires before approving the loan. So today I got an email from my investor "friend" saying he talked to a few other investor friends (with whom I also am acquainted) and they all decided that a fair referral fee should be $1,000. I know I wouldn't have this deal without him giving me the lead, but I'm a bit miffed that he now wants more, and that brings down what I take home to $4,200 before taxes. I know I should probably be grateful to have something rather than nothing, but does this seem right? The closing is supposed to take place tomorrow. I do honor my promises but I don't appreciate last minute surprises. I need your words of wisdom. Help me get over this sour taste in my mouth. One thing I must do now is 1099 him because the fee would be over the $600 threshold. Sorry, Uncle Sam says so. ;)

Lily, This is only my opinion, but from a business standpoint, you are making a poor decision. First off, even the $550 fee was a verbal one and thus, not legal binding so he can sue all he wants, winning will be next to impossible. Second, "giving in" to his last second changes produces the appearence of weakness on your part. In business, you need to be fair, but firm. Tell him that the agreed upon arrangement, which you will always honor, was 10% of your net ($550) and no more. Also explain that he should keep in mind that you are an agent who gets things done and he can make many referral fees from you rather than trying to hit a homerun on just one! Finally, I would explain to him that since you both belong to the same group, and the fact that he is just starting out, he does NOT want to create an image and name forhimself as a person who makes last minute deal changes and reverts on his agreements. You are not the one who has done this, so the reputation at risk is his, not yours.

Lily, not all experienced investors disagree with what you did. I, for one, think you made the right call in deciding to increase the payment amount in order to not burn bridges. Here are my views: 1. If you feel the group or the referrer may bring you additional business, it is important for you to maintain good relations with them. Remember that 76% of something is more than 100% of nothing. 2. I also disagree with the other posters who have suggested various values for the other person's service. The value of that referral to you is simply whatever value it is worth to you. If it is worth it to you to spend 24% in "marketing" costs, then by all means pay it. I often pay well above market rates for certain types of services that are extremely important to me and hard to obtain. 3. I agree with the others that it is entirely inappropriate and unprofessional for someone to come back later into the deal and try to change its terms. You will have to make a business decision on whether you would rather keep the other person happy, or possibly piss him off (even though he is the one in the wrong) by refusing his request for a higher compensation. It appears as if you have made that decision. I do not think anybody on this site can decide how much that relationship is worth, so please do not get influenced by the posts that suggest that you may have made a mistake. However, you do need to make it clear to the referrer that this is a one-time accommodation that you are making because of his inexperience, and in the future a deal would be a deal and he cannot expect it to be retroactively changed. 4. The other posters are correct that there are regulations that restrict payment of referral fees by agents to non-agents. However, most regulations have ways around them are are an impediment primarily for the unwary. Having said that, I think you need to be very careful and make sure that you pay the other person in such a way that it is demonstrably legal. Otherwise, you could expose yourself to risk and perhaps even future blackmail. Be confident in your business judgment and do not feel that the weight of opinion on an online discussion forum determines whether your actions are right or wrong. Anybody can post on a forum and none of us understand the nuances of your business circumstance the way you do.

I concur, don't worry about closing delays, they happen frequently. I had a close date of Jan 28th and seller (bank) still has been unable to come to closing table per contract. I am still waiting impatiently. It is just part of this business. In response to that BS email you received, I would respond with, "I just realized you are not a licensed agent and have been informed by my broker that it is illegal for me to pay any fee to an unlicensed person. Are the other parties you referenced in your email licensed agents? If so, perhaps that is why they can command a higher fee. My offer to you in the beginning, which you should be honoring, was to pay $550 and no more. I would now be taking a risk paying you anything at this point. Once you learn the ropes of this business, you will find that the more value you add to a transaction, the more money you can command. For simply passing a name and number, you bring only a small amount of value and as such, are paid accordingly. I can not speak for others or their specific transactions and neither should you. They have nothing to do with this transaction." I am still willing to pay the agreed upon fee under my following provisions (insert your provisions ghere), however, if you intend to continue with your attempt to change the agreement, I will no longer do business with you."

I would have your closing and collect the commission check along with a copy of the HUD-1. Unless your broker stated you would be paid at closing and a separate check cut to the brokerage for their fee you will be taking the check into the brokerage and they will cut you a check for your portion. I wouldn't pay a fee to anyone until it has been ran by the closing attorney on whether or not it has to be disclosed on the HUD-1 and you have ran this by your broker. If the closing has already happened discuss with your broker and get in WRITING from them on how to proceed. A head broker is not responsible for their agents when the agent willfully do not communicate with their broker.Your broker should also have protocols in place to follow. Commercial transaction RESPA does not apply.Since you are doing a residential deal RESPA does apply. no legal advice

Finance, I hear you. I know as a new investor I have a learning curve, and I do believe in paying my dues. However I should not be the one who's always doing the "sharing" right? I believe in dealing with others with fairness and integrity, so I was somewhat disappointed with this whole thing. Last week I gave the head of my group a stack of returned letters that I mailed out to lis pendens database and I wonder how they would feel if I were to ask a payment of $1,000 for each letter I gave them that led to a closing. Hey that *is* what they said they would do right? Why should I work so hard to make a deal happen when according to their logic I could have just handed out names and addresses and wait to collect my "fair share"? ;) And remember they said "minimum" $1000. I think I'm going about this real estate investment thing all wrong! I should be in the lead selling business! /sarc

He did nothing on this transaction other than "here's a name and phone number." Places like RealtyTrac and other "lead referral" outfits charge from a few bucks to a couple of hundred $ for information like this. I will approach this carefully. You're right about the RE rules.

Thank you all for your feedback, and for your wise counsel. I will need to take a hard look at my business relationships and how I approach things. I am disheartened that the other more "seasoned" investors in my group is telling him to do this. One thing is for sure, you find out who your "friends" really are really quick in this business! :) In this case the money is not as important to me as the revelation it brings. Now I know who I'm dealing with, and I will tread carefully.

Well I made a business decision. I will pay him this time the $1000 he asks, but I will think twice before taking any more leads from him. He's a beginner investor like myself, so I want to help him make some money, but I just don't like people who change their minds and when the going gets good they get greedy. If we can't be true to our words and maintain a level of trust what do we have left to do business?

Long timeago I was in Germany, in the Army. I lived in Hockenheim and the is a international race track there. After they got me a license and memberships, I got in with some Germans and ended upgetting to race sedans, formula V and super Vs. Then they opened up the JC Whitney catelog and wanted me to buy all kinds of auto parts, carburators, intake manifolds, ignitions, etc. I didn't think anything of it since they gave me the money. Later I caught on, Germany has a very high import tax and shipping is expensive as well, which together is much more, many times,as the parts purchased. I was using my Army Post Office for stuff to be mailed to me which was hardly anything and being in the service, I paid no import taxes. All this to say, that when you are relatively new to a group and you have common interests, that's great. Beware that if you are drawn into the group quickly and that what you have to share or contribute there may be a motive behind it to benefit that group. So long as you know what that is, all well and good, but as a real estate agent in a group of non-licensees in reale state, you should expect that they will be asking you, at some time, to facilitate delas that they can not. How you strat out in such a group will either make it an above board and profitable relationship or you'll go down another path quickly and you may crash and burn!

What would you pay for a referral

J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

15y

Originally posted by Lily Chen:

He's cooked his golden goose and sold his integrity for $450, and that is the sad end to this story.

There are lots of people like this who are greedy and who will try to squeeze every last dime out of you; ultimately, they will destroy a potentially lucrative business relationship over a few dollars.

In the end, his loss, not yours...

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Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

15y

Lily,

I don't think it is a good idea to get in with a bunch of unlicensed investors.They often look for new agents.

Certain people teach courses on this.Find a new agent and get them to shotgun offers for you all over creation and run them ragged to find you a deal.They also use your license to perform deal structures that will get you in very hot water.

Unlicensed investors are not held to the same standard as licensed agents.The reason is agents have been trained on contracts and other items.

What you need in my opinion is to switch to a brokerage that is investment based.The broker can mentor you and show you how to protect your license while working with professional investors.

Stay away from investor groups who will try to make a buck at any cost.There are a TON out there.

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Richard Martin

Real Estate Broker · Gilbert, AZ · Member since 2010 · 42 posts · 24 votes

15y

Hi Lily,

I strongly suggest you talk with your Broker. As described I am afraid that your "friend" could file a complaint with the DRE. Doing so would be of no concern to him. You will pay by check and file a 1099 all proof against you. Your Broker will help you get back on track. Then be sure to talk about it with your group. It sounds like they need some education that you, the professional, can provide.

We all have these costly mistakes. Last year I received a commission check of $16.87 from a $220k sale. I photocopied the check and wrote "this is what not to do" on it and taped it to the wall in front of my desk.

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OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

Thanks Richard. I'd be curious in the circumstances about your $16.87 commission. Perhaps another post?

I appreciate EVERYONE who put their advice on this forum and I'm grateful for your kindness. I learn something from each input. I am not going to do anything until I have a chance to mull this over.

At least for now, it's not a crime to "talk" about it, is there? :)

If licensing laws prevent me from paying the "referral" or bird dog fee, would that make me just as bad as he (in terms of going back on my words)?

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Richard Martin

Real Estate Broker · Gilbert, AZ · Member since 2010 · 42 posts · 24 votes

15y

A couple of points

1. In NJ does your association have a legal hot line. Call them and ask what the law is in NJ. I'm in CA and wouldn't want to do what you originally suggested. Ask them if there is a legal way to pay a finders fee
2. By following the law and your brokers advice you are not going back on your word you are admitting a mistake and dealing with it as a professional. You explain it that you didn't know the regulations, you do now, and you apoligize for the confusion. He can't sue you for something that requires you to break the law. But all this needs you to know what the law is.

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Sharon Vornholt

Goshen, KY · Member since 2009 · 835 posts · 683 votes

15y

Hi Lily -

Your reputation in this business is everything! You should pay him at least what you agreed upon.

In my area $1000 is considered to be the norm for a referral fee. I am a wholesaler, and pay that much for a lead all the time. What you have to remember, is that you would have no deal to work on without this lead.

Next time just type up a little bill for a $1000 consulting fee and have him agree to the amount and sign it You can pay anyone out of your LLC for services so that isn't a problem.

If he tries to change the terms of your arrangement a second time just say no and cross him off your list.

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Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

Sharon, that's what I would have done if he asked in the beginning. I don't have a problem paying a reasonable fee. Changing your mind the day before closing is not reasonable to me. I assure you there will NOT be a second time. Not with him. I an torn up about this precisely because to me a verbal agreement still means something.

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Deluxe Fernandez

Real Estate Investor · beaumont, CA · Member since 2011 · 3 posts · 1 vote

15y

Hi lily,

IMHO....Integrity (reputation) and relationships is the topmost importance in this business.....you are right.....the original agreed upon verbal agreement should be the fee you are willing to pay...... and in this business......you have to put it in writing.... when it comes to money.....you may be surprise how it can change people.... protect your license, agree to give the 550 (legally), and either gently remind that integrity is an utmost importance in this business and give him another chance if opportunity arises or totally just respectfully decline any future dealings with him...... how you deal with them now will paint a picture of you who is a person willing to point a newbie to the importance of integrity and be willing to let it go and give one more chance or a picture of someone who does not want to waste time with anyone who doesnt uphold integrity on their first deal.......that they only have one chance to show that in their character, if not just dont deal with them anymore....... i agree with vikram.......
1.) protect your license first
2.) uphold the original agreed upon price of 550 (all in legal writing and legally allowable in your state)
3.) make it clear that you are thankful of the referral but that next time, they cant back out on their word...........or that you think its just altogether waste time to deal with them and there will be no next time....
ultimately you are calling the shots.....both of you are willing to learn and you decide if you want to give him/them another chance for another future business dealings or altogether just dont deal with them anymore....after all......its all about building quality/trusting relationships and integrity.... its your shot.....IMHO :)

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Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

I really appreciate all your feedback. I have been wondering, many have chimed in about the "fair" amount a referral fee might be to them or in their market. Would you consider having a tiered approach, for example. based on deal size or profit? Or would you do a strict flat fee regardless of whether you net $5,000 or $500,000? Would your bird dog or referral source have a problem getting a smaller amount if he sees you're making a large profit? Or do you just let it all even out over time? Is it "fair" for me to say "this is what **I** pay, regardless of what the market says or what everyone else is paying? Because as I think back to the beginning of this whole thing, I really thought I was being fair by offering 10% of my $5,500. Should I just stick to my guns and say this is what I will pay every referrer regardless of what everyone else expects?

Now I wonder if I should have just kept my mouth shut from the start and let him come begging for his "fee." I feel like a chump for having offered too low in his opinion but it's now making me question if the whole deal was worth all the trouble.

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Will BarnardPro Member

Moderator

Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

15y

Lily,
About what Vikram stated, I would agree ONLY IF the other party was not a rookie, but a seasoned investor or lead generator. In your case, he is not and to topp it off, has poor integrity and business skills.
Asking a "group" if he should demand more money after an agreement is ridiculous.

I agree fully that 60% or even 10% of something is better than 100% of nothing, however, in this case, it is the refering party who should be considering this thought, not you in thi case.

I stand by my opinion that the $550 is all you should pay and you should only do so after consulting legal counsel or your broker as your license is more important in this situation and should be protected first.

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Faisal Sami

Investor · South Barrington, IL · Member since 2011 · 102 posts · 57 votes

15y

I have not read all of the posts above but I just wanted to share my answer on what I pay for referrals. I pay a $1k referral to anyone who refers a client who actually CLOSES on a property with me AFTER funds are deposited in my bank account.

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Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

I spoke to my broker and she made it clear that I cannot pay a non-licensed person any part of my Realtor commission.

Now I get to play the bad guy. :)

Would you all feel it's OK if I pay him out of my NEXT, non-realtor deal, for example if I were to wholesale or option a property as a principal, not as a Realtor?

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J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

15y

Originally posted by Lily Chen:

Would you all feel it's OK if I pay him out of my NEXT, non-realtor deal, for example if I were to wholesale or option a property as a principal, not as a Realtor?

If you are going to pay him at all, write up a "Marketing/Consulting Agreement" between your business and him, both of you sign it, and pay him from your business checking account.

If you don't have a business, write him a personal check.

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Will BarnardPro Member

Moderator

Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

15y

Originally posted by J Scott:

If you are going to pay him at all, write up a "Marketing/Consulting Agreement" between your business and him, both of you sign it, and pay him from your business checking account.

If you don't have a business, write him a personal check.

I am not an attorney, but couldn't the last option Jason mentioned be construed as a violation of the agent license? I would only do option #1 and use a business with a business check, this would (in my mind) seperate the two entities (your agent license and another seperate company involved in another business aspect.

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Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

I have two LLCs. One for real estate related and the other for creative services.

I am not going to do anything until after the closing happens. I'm working on two new deals right now on my own and hopefully they will work out and be bigger and better for me than this past one. Wish me luck!

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What would you pay for a referral

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