Is illegal to pay referral fees to non realtors?

[Vladimir Gonzalez]

I post a ad on Facebook offering a $500 referral fee for anyone who can give and address of a crappy, ugly house. It's that illegal?

[Wayne Brooks]

@Eugene Hoffman The link you provided is simply a complaint form.  I still haven't been able find any language in FS 475 where it is illegal to Pay a referral fee....to Receive one, yes.  I don't because I am an agent, but still can't find the language in the statute or any other licensing law, can you?

[Account Closed]

@Wayne Brooks,

I don't think there is a statue unless Eugene Hoffman can point it out to everyone.

Joe Gore

[Account Closed]

Originally posted by @Jay Hinrichs:

@Eugene Hoffman 

  I don't think title companies get into the nitty gritty of who needs a license etc etc. or is it legal or not to. They just receive instructions as to who to pay and they pay them according to their escrow instructions signed by the parties

No kidding.  Title companies that provide escrow services where I am do not concern themselves with licensing details of parties in a transaction nor the legality of the contract.  They are a fiduciary service and they follow their legal dept's advice for staying legal as a fiduciary. They are the last people I would ask what is legal and what is not. Actually, 2nd to last.  An agent is the last person I would ask.  No offense @Wayne Brooks!

[Account Closed]

Originally posted by @Eugene Hoffman:

Theory question.

If a Mother (licensed RE Agent) pays her daughter (non licensed) a referral for a property the Mother owns is either party violating Florida law.

Answer is yes. Both parties are violating Florida law. You may Not pay a referral fee to a person for a property you are buying or selling even if he or she is related. Both people Must be licensed to pay or receive a referral fee legally. If one person is not licensed the both are practicing Real Estate without a license. The licensed agent is expected to know this by Florida law.

Eugene Hoffman

This is the worst kind of quote and what I find so detestable about education for agents. "Violating Florida law"? What law? A code, a title, a bill......anything to back it up? This is why agents go around saying that this that and the other thing is illegal and they can rarely cite anything to back it up. Agents will say something is the "law" or "illegal" when it may just be NAR or state association rules. If it is illegal to pay a fee, any kind of fee, to an unlicensed person, there should be a clear citation so you know what law(s) it relates to.

I have the CA RE licensing books and it's painful to get through them.  They are full of inaccuracies and short on details. 

[Chris Martin]

Originally posted by @Wayne Brooks:

@Eugene Hoffman The link you provided is simply a complaint form.  I still haven't been able find any language in FS 475 where it is illegal to Pay a referral fee....to Receive one, yes.  I don't because I am an agent, but still can't find the language in the statute or any other licensing law, can you?

There isn't language like we are looking for... like what Eugene described. I'd say @wayne has the right answers, certainly from a statutory perspective.

[Wayne Brooks]

Originally posted by @Account Closed:

Originally posted by @Jay Hinrichs:

@Eugene Hoffman 

  They are the last people I would ask what is legal and what is not. Actually, 2nd to last.  An agent is the last person I would ask.  No offense @Wayne Brooks!

K Marie, no offense taken.  From past experiences with my fellow agents, we're actually kind of holding hands on that view point.

[Eugene Hoffman]

OK.

FS475

http://www.leg.state.fl.us/Statutes/index.cfm?App_...

Section 2. Paragraph (h)

Question from newest book Florida applicants should use,

Florida Real Estate Principles, Practices and law 37th edition

by Linda Crawford.

Chapter 2.

pg38. Question 19

A developer purchased a tract of land and subdivided the property. The developer hired his son to sell the lots but he is unlicensed.. The father agreed to pay the son a salary, The father later promised his son he would give him a lot free and clear after he sold five lots. After five weeks the sold sold three lots. The son then left to go to work for another developer who paid a higher weekly salary. Which statement applies to this arrangement?

A) No violation of FS475

B) The son violated FS475

C) Only father violated FS475

D) Both the father and son violated FS475.

The book sates D is the correct answer because both parties must be licensed to pay or receive a RE commission.

Eugene Hoffman

[Wayne Brooks]

@Eugene Hoffman We're not looking for something from a training booklet.  We're looking for the language in FS475, which I've never been able to find.

[Eugene Hoffman]

The point is knowing the Law. If you check to see if both the Broker being paid and his or her agent with the contract have an active and lawful license. If you check by typing in his or name into the DBPR you may be entitled to a double commission. If his license is not active and yours is you will get both halves of the commission.

Most people speed sometimes. Sometimes they get caught and sometimes they do not. Some speeders need to have their license suspended to learn. It is the same way with some bad people in RE. You may somebody that needs a cease and dismiss order from the DBPR.

Eugene Hoffman

Eugene Hoffman

[Account Closed]

Most real estate agents think inside the box and what they are taught in real estate school. Deals are done outside the box all the time.

Joe Gore

[Wayne Brooks]

@Eugene Hoffman The whole point of this conversation Is knowing the law, not someone's speculation or the "common conception".  I'm still waiting to see the languages in FS 475.  As for a title co. Redistributing funds in conflict with the contract, I've got to call hogwash.  A title co. Doesn't Pay anyone.  They simply collect funds from others, and distribute them As Per the Contract and Listing Agreement.  Please provide them name of a title agent who pays the whole commission to one Broker, in conflict with the contract/listing documents, when they find one of the Brokers to not have an active license.

[Bill Gulley]

Originally posted by @Vladimir Gonzalez:

I post a ad on Facebook offering a $500 referral fee for anyone who can give and address of a crappy, ugly house. It's that illegal?

Read the real estate laws in your state pertaining to paying fees, it will probably be in the real estate licensing statutes.

I read the first response, no others, 38 posts drew my attention. Statements like "in most states" or other opinions won't do you any good, you need to look it up and apply what pertains to you.

Two sides to this, accepting a fee requires a license except under certain circumstances, such as acting as an administrator if allowed by the court. The other side is paying a fee, in which case you can be acting as a real estate broker, paying fees, without a license.

I have bought gifts and dinners, mini vacation  for a weekend and such in some cases. I've hired folks to do something else and paid them a premium fee for things that aren't illegal, just because I like them!

No way would I advertise anywhere that I would pay anyone off the street to perform an activity that requires a license. That's asking for trouble.

Read the statutes as a reasonable person would, don't hunt for what you think is a loophole like many do, they aren't lawyers, follow the intent of the law. Keep you private business dealings private and don't draw attention to questionable activities.   

[James Wise]

In ohio this would not be allowed. I am not familiar with Florida but here they have similar RE licensing laws.

[Account Closed]

Originally posted by @Eugene Hoffman:

The point is knowing the Law. If you check to see if both the Broker being paid and his or her agent with the contract have an active and lawful license. If you check by typing in his or name into the DBPR you may be entitled to a double commission. If his license is not active and yours is you will get both halves of the commission.

Most people speed sometimes. Sometimes they get caught and sometimes they do not. Some speeders need to have their license suspended to learn. It is the same way with some bad people in RE. You may somebody that needs a cease and dismiss order from the DBPR.

Eugene Hoffman

Eugene Hoffman

Speeding is not a good analogy because traffic laws are generally clearly written, understood and supported by AMPLE case law.  

If the point, as you say, is "knowing the law", let's look at the law and not RE training materials, which is editorial and not law. Let's get to "know the law". What does the specific law say that that supports the idea that it's illegal to receive a fee as an licensed person? Are there letters from the state Dept. of RE to explain the law and how it applies? Is there legal opinion from a court? Is there case law? This is important stuff, and this is an educational forum.

Refrain from insisting on and repeating things you haven't thought about and researched yourself.  You can do it!

[Chris Martin]

Regarding "If you check by typing in his or name into the DBPR you may be entitled to a double commission. If his license is not active and yours is you will get both halves of the commission." Please provide a qualified reference. I'd like to see a statute OR DBPR section that relates to this. I could see if one party (the licensed party) contested the payment of a commission outside of closing via administrative action through the real estate commission, but from earlier statements you made, you infer that the title company is responsible for performing functions to verify this is a 'legal' transaction. It's not that I don't believe you, it's just that I know of no other state where a third party (title company) makes unilateral contract decisions and judicial-type actions based on the status of licensure. The actions (reassigning commission outside of contractual obligations) you define... did you get this from your class? If so, please provide a reference.

(Didn't see Wayne's last post... which is similar to mine.)

[Jay Hinrichs]

@Chris Martin 

I have never seen a  title company  get involved with licensure issues. and the broker in most states that I am aware of is the one who gets paid. Not the agent.. And its the Seller 98% of the time paying the commish... So if a seller says last minute hey my guy has no license and instructs title not to pay the agent the escrow company can disregard the broker demand but I will bet 50 cents that if that was the case the title co. would hold the funds until the parties reached a resolution or if no resolution was made would interplead the funds. The broker in this illustration cannot just unilaterally make a demand for the whole commish at lest I have never heard of it or seen it.

[Eugene Hoffman]

The 63 hour Florida goes over hundreds of laws. I recently took the class and passed the class test that Florida requires. I am not a lawyer. I am telling you what I was told and what I read.

I suggest you take the coarse. It will help you know the laws. The laws make it easier for professional RE agents to make a higher income.

The coarse provides over 600 study questions. This is just one question. I know many people take the path of least resistance. The large RE firms know the law and train their people to practice RE by the law. As I said earlier many large companies pay incentives even though it is against law. Hundreds of RE owned companies and agents are breaking the law right now. The DBPR does not have enough agents to police every transaction.

It really isn't that hard to follow the law if you study the law and know it.

Eugene Hoffman

Eugene Hoffman

[Account Closed]

I've researched this issue a lot for California over the past year.  In CA, an agent CAN pay an unlicensed person a "finder's fee".  There is case law to support it, and AG opinion to uphold it.  However, the "finder's fee" is truly limited to introducing the parties, and leaving the principals to negotiate all details of the listing or agreement.  I'm not an agent, but it would seem to be that a good referral worth following up on (and eventually paying for) is usually more than "I heard Jack wants to sell is house".  

That being said, back in 1996 I was paid a $25K finder's fee for doing exactly that.  I knew someone who wanted to buy the property I was living in.  He asked if I would notify him if I got word that the property was being sold. I heard from the landlords and property manager that they were thinking of selling (again) and that their last potential buyer was no longer interested.  I contacted the interested party and told him there was rumor that they were ready to sell and gave him the phone number for the owner's personal assistant.  I got a check from escrow 3 months later.  My understanding for California is that I could have been paid a finder's fee by an agent for such a refer all (as an unlicensed person) had the agent been able to obtain the listing.

[Wayne Brooks]

The sky is purple.  I know it to be true.  Don't ask me for proof.

[Jay Hinrichs]

@Account Closed 

  what you describe is a prohibited transaction in Oregon.. When I give referrals to brokers in the Napa valley and Palm springs from Oregonians looking for 2nd homes. I get a referral fee however they ask for my brokers license number and verify that is current.. That's my CA Brokers license. At least the bigger shops will.  I think every state has a different twist on this one.. One things is certain though its not the title companies job to decide who is licensed and who is not and who should get paid.

PS on another thread folks were talking about EM deposits.  When you do your transactions do you use an attorney to close them or a title and escrow company? And or have you ever used an attorney to do the functions of a title company on a closing ?

[Eugene Hoffman]

Ms, Poe,

Sorry, but you are wrong. I googled it.

Found this form. Please read the fine print.

http://isvr.net/usr/1020814000/CustomPages/Referra...

Eugene

[Account Closed]

I have never heard of a real estate agent staking claim to the other half of the commission due to an expired license of the other agent.  Assuming that is in fact true, it would be horrible for business in my opinion.  If an agent pulled a stunt like that, the word would get around pretty quick and other agents would not go out of their way to do business with him/her.

[Chris Martin]

Here are some cases to consider. Borrowing on @Karen Margrave  and @K. Marie Poe's posts, the OP needs to tweek the message a little. Karen said: "What you are talking about isn't necessarily a referral, but a finders fee." I agree. The concept and performance of a "finder" is significantly different from the obligations of a broker. Although these cases are from NY, I believe they have applicability in many states, including Florida.

The first citation compares and contrasts, as part of the case, the differences between a finder and a broker. There is a lengthy discussion of both of these parties and their role in the transaction. http://law.justia.com/cases/new-york/other-courts/2010/2010-20104.html

This is a very good read. Start from "Distinguishing Brokers and Finders". Then follow the Sections which include: Quality and Quantity of Services, Fiduciary Duty, Differences in Entitlement to Fee, Statutory Distinctions, Cases Where Real Property Law Did Not Apply, Summary of Distinctions, and (longest section) Applying Broker-Finder Distinctions.

This second case at the Appellate court reverses the findings of the first court. Note the reference in the second case is the NY Supreme Court's conclusion. http://caselaw.findlaw.com/ny-supreme-court/1569743.html I'd really like to know if they spent more than 10 minutes looking at this case and if they did any investigation to the reference cases provided.

I believe the "finder" in the instant case, with the 'profit sharing' (15%) aspect of the deal, and the large payout that was part of the finder's contract, made the case compelling. The buyer made a really, really bad contract. Had the 'finder' made a reasonable contract, I couldn't have made this post;)... because the suit wouldn't have happened. Everyone (judges, lawyers, etc.) knew the contract turned out to be lucrative. Some interesting quotes along these lines... "When presented with such an agreement, "a court is not free to alter the contract to reflect its personal notions of fairness and equity." (citation removed)" The courts work with the contract as written by the parties. They Do NOT unilaterally adjust the contract to meet what they consider "equity".

Upshot: Read the cases above. If you 'employ' a 'finder', make sure your contract works in your favor so that the 'finder' will not be considered a 'broker'. If I were to 'Employ' a finder, that would mean to independently contract for a function that consists of a finder as defined in the sections I itemized in the third paragraph above. As a practical matter, in the general case I would not compensate a finder based on performance (closing) but prior to closing. Be professional and pay people when you get a solid contract OR the finder meets your requirements for "finding". Seek professional help as to if you need to identify the payment as Paid Outside Closing (POC) on the HUD-1. My company has done just this and the legal expense is trivial ($0 in my company's case).

Disclaimer: Seek legal help for your own scenario. These cases referenced may not apply to your situation. Non of this post should be considered legal advice, just my opinion and commentary.

[Eugene Hoffman]

The law is basically the same for law firms paying a referral fee to another attorney. A lawyer cannot pay another lawyer a fee without disclosure to both parties involved in the law case. A lawyer definitely cannot pay a lay person a referral fee.

The same is probably true in a RE closing. As long as the seller knows and agrees nobody will probably care, but to earn money selling another person property you definatly need a license. It is the same as speeding. If a person drives badly I avoid them and the same if a person practices RE poorly. Just avoid people in RE if they are in experienced. I try and buy properties w/o a Realtor. Most cannot get me what I need at what I call a fair price.

Here is the 11 page forms for a Florida lawyer to pay a referral to another lawyer.

http://isvr.net/usr/1020814000/CustomPages/Referra...

Eugene

[Andrew Syrios]

I think it technically is, but I know so many people who break that rule it isn't even funny.