Marketing Fees in Indiana - Legal or Not?

Question

Hi everyone,

I'm hoping someone can help me here.  My wife and I had some bandit cards printed up stating if anyone found us a deal, we'd pay them a $500 referral fee.  We were told by a fellow investor friend that this was illegal in our state unless the recipient was licensed.  So my question is this:  what about marketing fees?

Some form of this has to be legal because a very experienced and successful investor in our area pays thousands in "marketing fees" each year.

Is a special form required?  And why does the state allow "marketing" fees but not "referral" fees?

I know this is most likely a question better suited for an attorney but was just wondering if anyone around here had some good background to add to this.  We want to find some way to reward anyone who brings a deal our way.

Thanks everyone!

Stephen

Dev Horn · Answer

This is my understanding:

The language is, are you doing "an activity for which a license is required"?

So, if I run a website that collects leads and sells them to agents/brokers, does the require a license?  We do that and no, it does not.  That is a marketing service and is not an activity which requires a license.

Now in the course of my normal We Buy Houses marketing, I often find people who really would rather LIST their property.  I refer them to one of my agent associates.  They CANNOT provide me fee for that referral because I (as an unlicensed person) cannot offer to list someone's property.

If instead, every month, I sold my "agent leads" for $100 each flat rate to my agent friend, regardless of whether she gets the listings or not, that's OK - she can pay me for the leads, but not for the REFERRAL.

P.S. I'm currently in the process of getting my license for this very reason.  Lately I have found more listings than deals and I want that piece of the pie as well.  90% of the successful investors in our system are also licensed (or their spouse is).  That's the model for a REAL, scalable local real estate company - multiple revenue streams from real estate.

Taylor Jennings · Answer

The law says that no unlicensed entity can receive 'any' considerations due to the purchase/sale of real estate.

That means gift cards, credit points, discounts, cash, etc at closing.

Like @Dev Horn says if you pay a flat fee for each lead then that isn't a consideration for closing any transactions and it would be strictly lead generation.

If somebody brought me a deal and I closed on it before paying them If I was fearful of paying them for it bc they were unlicensed then I think I would simply give them the option to have money out into a marketing campaign for them to manage.

Like buying 1000 direct mail letters with their information on it bc that would be you putting money into marketing vs giving a consideration. (In my opinion)

I feel the best way to go about it is to take a different route if you feel uneasy about it... There are a million successful strategies out @Stephen Barton which don't involve the thin line of what's legal and not.

Since you already bought the signs I'd recommend not putting them in areas like Hamilton county where all the attorneys live lol

Stephen Barton · Answer

Thank you so much for your insight. We actually do not use bandit signs anymore but we wanted to know if someone brought us a deal-could we give them money to do so. Very insightful and you are so cool for answering my question!

Wayne Brooks · Answer

Age old question.  In Florida anyway, it's my understanding that it is illegal to Receive the fee being unlicensed, doesn't matter what you call it, but not illegal to pay it unless you're licensed.

Stephen Barton · Answer

@Andrew Davis there is a multi-million dollar real estate company here in Indianapolis who will pay people "marketing fees" to bring them deals. So far, I have only brought them one deal and could not take the fee because I wanted to be ok legally! Funny huh? Yeah so I just know what they tell us at their meet ups and I would like to do the same now that we are closing on more and more deals. I just need to talk to more real estate attorneys about this.

Andrew Davis · Answer

@Stephen Barton great idea!  I was thinking of doing something similar in my area.  I'm researching the legality as well, but my main question is:  how is it working??

Stephen Barton · Answer

I know everyone talks about how people can wholesale without being a Real Estate Agent (now called Broker) and it being perfectly legal as long as you do not represent someone who is buying or selling. My big question is @Sharad M. if someone comes to us and says they know who a seller is and they want to refer us how to you give them a fee for doing that? I mean I hear how companies around Indianapolis pay a referral fee, but is that really legal? When I went through the class to be a Broker just a couple of months ago, they constantly drilled it into our heads how you cannot pay "fees" unless you are a Broker! I can even read the Indiana code and I see where the law says that. How can we get around this?

Sharad M. · Answer

@Stephen Barton

I invest in Indiana and I have seen marketing fees being paid to a non-licensed person on a HUD statement.

Marketing Fees in Indiana - Legal or Not?

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