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?

[Account Closed]

Originally posted by @Wayne Brooks:

@Account Closed The original question is regarding a non licensed individual paying a referral fee, and in relation to the state Law regarding this. NAR has Rules to be a member of NAR, But these are not state laws. Yes, we realtors have an additional drummer to march to, but the question is about laws.

 The matrix does not involve NRA or CAR rules.  The matrix cites federal laws (RESPA) and State laws (Business & Professions code and Civil Code) as basis for their conclusions.

I'm not a realtor by the way, my realtor is sharing this info with me as her "individual client".

[Kingsley Siribour]

Well in Wisconsin, I learned in my pre license State law book it is not allowed in anyway for licensed to pay non-license referral/finder's fee. But as @Philip Elmes stated above, better to check with "your state's real estate licensing regulations.". 

[Philip Elmes]

Originally posted by @Kingsley Siribour:

Well in Wisconsin, I learned in my pre license State law book it is not allowed in anyway for licensed to pay non-license referral/finder's fee. But as @Philip Elmes stated above, better to check with "your state's real estate licensing regulations.". 

Good point to clarify here, Kingsley. Generally this has less to do with who originates or solicits the "finders" fee, or whatever they choose to call it. It's about "practicing real estate without a license". 

Licensing regulations–be they legal or "professional" (as with NAR, etc.)–are meant to protect citizens from ill-prepared or unscrupulous self-styled individuals engaging in the practice of real estate for a "consideration", monetary or in kind; they are assuming and performing an "agency" role in a real estate transaction for compensation. Thus the severity of the penalties.

When I am approached by an erstwhile "wholesaler", my first question is whether they are licensed. Absent a license, the only way I will deal with them is to purchase their Contract Rights should they in fact have them in hand. And, yes, even in that case I only pay upon the final closing of the deal. We document the deal with a written Assignment of their contract (for "$10 and other good and valuable consideration"), which I bring to the closing table; and a written side agreement that stipulates the financial arrangements, terms, conditions, etc., which is treated as an actionable yet confidential side agreement.

Short of that, I will pay a "scout" something like $250-500 for facts surrounding a property that may be available, including the seller's contact information. This is generally paid whether in the end I purchase the property or not. Importantly, the scout is not party to the transaction: I am paying for information only, not for his or her role in consummating a deal. Keeping these roles clearly in mind, documented accordingly, seems to satisfy the distinctions drawn by the relevant regulating statutes. 

But, once again, I'm just an 'old real estate guy', not a lawyer...  :-)

[Account Closed]

Here in Dallas the real estate agents will pay outside the HUD to any unlicensed person that brings them a deal that close which is nothing wrong with buying someone a bicycle, motorbike, or a little red wagon. As for as real estate agents if they stopped thinking about what other people are doing and return phone calls when someone calls that would show the consumer how motivated they are to earn their wings as a real estate agent.

Joe Gore

[Chris Martin]

The original poster's profile says he is in Florida. I posted a while back asking for statute(s) relating to some of the claims made in this topic. Well, no appropriate references were provided. I had a few minutes today to look further. I am not a FL resident, but this section of FL statute provides, in my mind, some clarity to the rationale of the "illegal" part relating to some posters... in the context of the topic at hand.

http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0400-0499/0475/Sections/0475.43.html

475.43?Presumptions.—In all criminal cases, contempt cases, and other cases filed pursuant to this chapter, if a party has sold, leased, or let real estate, the title to which was not in the party when it was offered for sale, lease, or letting, or such party has maintained an office bearing signs that real estate is for sale, lease, or rental thereat, or has advertised real estate for sale, lease, or rental, generally, or describing property, the title to which was not in such party at the time, it shall be a presumption that such party was acting or attempting to act as a real estate broker, and the burden of proof shall be upon him or her to show that he or she was not acting or attempting to act as a broker or sales associate. All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved.

History.—s. 3, ch. 22861, 1945; s. 3, ch. 76-168; s. 1, ch. 77-457; ss. 27, 42, 43, ch. 79-239; ss. 2, 3, ch. 81-318; ss. 28, 30, ch. 88-20; s. 10, ch. 91-89; s. 4, ch. 91-429; s. 15, ch. 93-261; s. 376, ch. 97-103; s. 41, ch. 2003-164.

This section clearly identifies practices that are generally associated with "wholesalers", while I would contend that this section does not pertain to the topic at hand for an unlicensed buyer compensating an unlicensed 'finder' of real property. My 2 cents.

[Vladimir Gonzalez]

You absolutely correct @Chris Martin , thanks for the post.

[Levi Bennett]

In Florida it's simple, you cannot pay a referral fee to someone without a license. Ever. If you're caught, you can get your license suspended. It's pretty cut and dry. 

[Philip Elmes]

Thanks, Chris

I and others have tried to make this clear, but... There are always those who cite "local protocols" and "what they've always done" as validation. Happens here in Chicago as well: I've had unlicensed "wholesalers' insist in open forum that they KNOW a referral fee is legit! that an expert told 'em so, etc.

Guess I should have cited the Illinois law. ('Though there would be those who believe that's just a problem for us folks in Illinois. And maybe the 'unsophisticated'.) If called to account, they will find that ignorance is no defense in court.

Good for you for taking the time.

[Account Closed]

Originally posted by @Chris Martin:

.........All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved.

The substantial consideration part got my attention.  The law makers are making it very clear that an unlicensed person cannot in any way engage in what is considered brokering, even with supposed "equitable interest" in a property (that phrase wholesalers like to use). Again, the message is do not even think about marketing or selling what you don't own or have "substantial"l interest in.  

This thread has become a mashup of brokering issues vs. referral fees.  The above addresses what many wholesalers do.  But does not address if a licensed person or unlicensed person can pay a referral fee for the name and address of a property.  Giving someone nothing but the contact info and address of a property is not necessarily brokering.  

[Priscilla Z.]

This thread has been brought up to my attention since I am in Florida.  I have spent a good part of my afternoon reading up on this part of the statute and researching it.  This is what I found..... 

The Florida Bar website states:  

"To be a binding contract, there must also be an offer and acceptance that involves the exchange of promises to act and/or provide goods, services or money. The act, promises, goods, services and/or money are called “consideration.” In order to have a binding, enforceable contract, there must be consideration."

http://www.floridabar.org/tfb/TFBConsum.nsf/0a92a6dc28e76ae58525700a005d0d53/6a653200b74c8a2085257405007a3ac3!OpenDocument

Furthermore, the book titled "Florida Real Estate Principle, Practices, and License Laws states on page 177:

"The first requirement of a valid contract is consideration.  Consideration is a promise someone makes to give up something of value.  In a typical home sale, the seller promises to give up his/her home, and the buyer promises to give the seller money (the purchase price)."

It continues, stating:  "In a real estate contract, consideration is NOT the earnest money, but the exchange of the purchase price (or something else of value) for real property."

http://books.google.com/books?id=w5tfQMgmXDgC&lpg=PA176&ots=TTBO0RFBh0&dq=florida%20real%20estate%20substantial%20consideration&pg=PA177#

I'm not a lawyer (even though after doing all this research I realized I like it :), I'm just an investor that wants to understand and make sure what I do is right at all times.  IMO what the statute is saying is that if there is NO consideration, i.e purchase price, and someone is selling a property and they do not have a license, then they are in trouble because they are acting as broker.  Real estate agents do not give consideration, they just get a listing signed and tell the seller they will try market and bring a buyer.  

Investors, on the other hand, sign a contract and give a consideration (purchase price), with the intention of purchasing the house, and since they do give a consideration (purchase price) then they are exempt.  So FL investors....don't forget to put your purchase price on the contract :)

Again, this is all my opinion.....

[Account Closed]

@Priscilla Z.,

Good research and don't let the real estate agents throw you under the bus keep your head high and when you have an interest in the property record it so you get paid at closing.

Joe Gore

[Kingsley Siribour]

I just stopped by quick to check thinking the issue is resolved since we are all just curious about whats up with other states and none of us (If I read correctly) practices law. Seems there is never going to be a definite answer and the topic could change down the road. As a disclosure, I sat for the exam to enhance my investment opportunities and knowledge, and to reach out to more investors along the way (I am hoping therefore no licensed real estate here really wants to put others under the bus - That will be just plain wrong though and against the spirit of agents vs. investors collaboration BP is trying to establish!)

Cheers for all the intellectually stimulating discussions on this thread and BP as a whole!

[Wayne Brooks]

@Priscilla Z. The part you're overlooking is the statute says "....the beneficial title to which has not, in good faith, passed to such party for substantial consideration...".  It doesn't reference simply proper consideration for a contract, but when"title to which has not passed".  This says title had to have changed hands, not just have a contract.

[Account Closed]

Originally posted by @Wayne Brooks:

@Priscilla Z. The part you're overlooking is the statute says "....the beneficial title to which has not, in good faith, passed to such party for substantial consideration...".  It doesn't reference simply proper consideration for a contract, but when"title to which has not passed".  This says title had to have changed hands, not just have a contract.

I wonder if I am missing something.  That FL statute seems like the ultimate buzz kill for so many types of "wholesale-like" transactions.  It's really sweeping and says you are out of compliance if you go into contract or even option property you don't buy.  Are investors in FL ignoring it?  Is there no backlash on it?

[Rick H.]

Well, in an option agreement, the consideration is for the privileged, exclusive choice to buy for X and Y terms for a specific time period. The consideration is earned merely by the acceptance of the option agreement, whether ultimately executed or permitted to expire. 

In cases that I've read in CA, their were sometimes disputes over the adequacy of consideration or benefit of the bargain the optionor/seller received. 

Of course, much of an attorney's legal work concerns the appearances of a case and the leverage that one party has over another. 

I thought this thread was about the legality of compensating non-licensees?  Will we ultimately see a matrix?

[Wayne Brooks]

@Account Closed It doesn't seem to. I know of no even slaps on the wrists for assigning and such. I can see though when sub2's and L/O assignments blowing up start getting attention in the right places, things will likely change.

I met with the proverbial little old lady today who let someone talk her her into a sub2 (they said they'd take over my payments).  The only doc.s were a QCD, and the loan is now one year behind.  If you had a wholesaler in the middle who assigned it, you'd have the poster child for enforcement action.

[Wayne Brooks]

@Rick H. As to the original question, a non licensed investor....the relevant Florida statutes I read say it is illegal to "receive a fee" but nowhere does it say to "pay a fee".  I'm still waiting for someone to point out differing language.  Way past my bedtime.

[James B.]

Thread Resurrected!

Thanks all for the info, especially for those of us unlicensed/passive investors in CA.

It appears "finder's fees" is the appropriate term if it's just being happy about a current investment, and telling another to contact the firm offering the investment...

[John Haller]

This is an excellent article that may answer several questions:

Commission Splits, Kickbacks, and Referral Fees

[Karen Williams]

I just started with a company that is paying thru profit sharing. There is always a way of legally getting someone paid for their efforts. This company is out of California. They are paying Non-Licensed individuals who refer Realtors and Mortgage Brokers to their company thru profit sharing and corporate profits. 

[Shawn Maxey]

Originally posted by @Vladimir Gonzalez:

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?

 I'm in Orlando area, Central Florida. Going to have to research of the Florida Board 

If I remember from my class it was illegal to share or pay commission from a "SALE" to a non realtor like a friend. But if you are paying a referral to a friend who tell you address that might want to see. I don't think this would be illegal. You are not getting a commission off that property you are making a profit. Example offer 15,000 and sell to flipper for 20,000=5,000 profit not commission. But you never know I could be wrong and have no clue what I am talking about hahaha. Don't take this as legal advise and make sure to talk with the state.  

[Toris Diggs]

Paying someone a referral fee is not illegal.  In Real Estate there called BirdDogs or Ants.  Stop listening to stupid people and realtors lying to you for their own agenda.  Just ask a Real Estate attorney or contact your Board of Realtors.  You ARE NOT required to have a real estate license to refer people and your not required to have a real estate license to receive a referral fee.  People and companies pay referral fees all the time they call them Affiliate programs/Referral Fees.  Referrals ain't nothing but a lead.  There's companies who's entire business is referring leads to people, google it.  And you know google not gonna do nothing illegal.  It amazes me how some ppl just don't think.  There are certain things that you can't say.  You have to be within the Law about what you say or how you word it.  Like you can't make false promises or guarantees but you can pay ppl for referrals and you can also get paid for referrals.  I've been a birddog for yrs finding properties for investors and agents and if I find you a good property then yes I need to be paid for my work.  Don't just take someone's word though that they'll pay you for a referral get everything in writing. 

[Chris Martin]

@Toris Diggs the original poster is in Florida. Your post is off the mark for Florida. I recommend going back and looking at some of the links to Florida state law and other applicable court decisions in my prior posts.

In my state (NC) and apparently in DC, a couple of your statements are correct. I will quote you your own words, which are applicable to your post about this topic about Florida: "It amazes me how some ppl just don't think."

Welcome to BP!

[Toris Diggs]

Chris I'm an Investor and my sister lives in Florida and she's a Realtor Agent.  I know a few agents and Investors in Florida who pay for referrals.  I have NEVER heard of any case in which someones went to jail, lost there license or even went to court over paying for referrals.  There's ALWAYS a way around it.  This is America were the only thing that matters in this country is money. 

[Chris Martin]

It's a civil offense, not criminal offense. Show me the Florida state law that says your point is correct.