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Updated about 4 years ago, 10/13/2020

User Stats

64
Posts
17
Votes
Vladimir Gonzalez
  • Real Estate Investor
  • Altamonte Springs, FL
17
Votes |
64
Posts

Is illegal to pay referral fees to non realtors?

Vladimir Gonzalez
  • Real Estate Investor
  • Altamonte Springs, FL
Posted

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?

User Stats

5,682
Posts
3,423
Votes
Chris Martin
  • Investor
  • Willow Spring, NC
3,423
Votes |
5,682
Posts
Chris Martin
  • Investor
  • Willow Spring, NC
Replied
Originally posted by @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

Regarding "The law is basically the same for law firms paying a referral fee to another attorney." (emphasis mine.) Really? Did you learn that in class as well? Show me a statutory citation. 

You are quickly losing all credibility with your quotation of "law". The link you provided is for a 16 year old CALIFORNIA referral agreement for CA Realtors, copywrighted by CAR. It's not applicable for Florida use. Show me the applicable sections in http://www.leg.state.fl.us/Statutes/

Account Closed
  • CA
182
Votes |
762
Posts
Account Closed
  • CA
Replied

Just for the fun of it, I took a look at the California Association of Realtors website legal page. They have a matrix showing 15 different combinations of when a referral fee is legal and when it's not, involving Seller, Buyer, Mortgage Loan Broker, Licensee, non-Licensee, title company, pest company etc ... it's legal under some circumstances and not others. They also have a 17 page article on the subject. There is not an easy yes or no answer to this question. It's no wonder this thread is exploding.

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Account Closed
  • CA
182
Votes |
762
Posts
Account Closed
  • CA
Replied
Originally posted by @Account Closed:

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

 This made me laugh!  It's so true.  It's bad enough when you are learning something new, it's even worse when you know the right answer and have to answer it wrong to pass a test. 

User Stats

67
Posts
22
Votes
Gary Shaw
  • Real Estate Investor
  • Country Club Hills, IL
22
Votes |
67
Posts
Gary Shaw
  • Real Estate Investor
  • Country Club Hills, IL
Replied

There are several sites online who claim to pay fees to "locators", who find deals that close.  Sounds like your basic bird dog situation.  

Given all the previous posts, it begs the question:

Are these sites (and their so-called Locators) operating illegally?  

Account Closed
  • Investor
  • Central Valley, CA
3,729
Votes |
6,037
Posts
Account Closed
  • Investor
  • Central Valley, CA
Replied
Originally posted by @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

CA law probits an agent giving compensation to an unlicensed person for performing licensed activities.  Giving an agent the name and contact info of a possible client is not a licensed activity.  

A pretty good article explaining the complexities, and citing the CA Attorney General's ruling on agents compensating unlicensed persons:

http://www.brewerfirm.com/articles/article-splits-kickbacks-fees.html

Account Closed
  • Investor
  • Central Valley, CA
3,729
Votes |
6,037
Posts
Account Closed
  • Investor
  • Central Valley, CA
Replied

And another article I hadn't seen before, with good info on national case law on the topic:

http://kesslercollins.com/PDFs/ICSC_Fall_%20Winter_%20Article

Account Closed
  • Dallas, TX
744
Votes |
4,988
Posts
Account Closed
  • Dallas, TX
Replied

I don't think there is any law on the books where a real estate agent can pay an unlicensed person off of the HUD.


Joe Gore

User Stats

23,418
Posts
13,507
Votes
Wayne Brooks#1 Foreclosures Contributor
  • Real Estate Professional
  • West Palm Beach, FL
13,507
Votes |
23,418
Posts
Wayne Brooks#1 Foreclosures Contributor
  • Real Estate Professional
  • West Palm Beach, FL
Replied

Also, the original question is about paying a referral fee by an unlicensed investor.

Account Closed
  • Investor
  • Central Valley, CA
3,729
Votes |
6,037
Posts
Account Closed
  • Investor
  • Central Valley, CA
Replied
Originally posted by @Wayne Brooks:

Also, the original question is about paying a referral fee by an unlicensed investor.

Oh wow.  How did I miss that?  I just assumed it was another can-an-agent-pay-an-unlicensed person question.  

The various "brokering" activities requiring a license are spelled out in the state laws. Since CA has a finder's exemption for giving a name and contact info to an agent, I'd like to think it applies to giving that same info to an interested buyer.  But who knows?  As long as there is no "brokering" going on, can't you pay whatever you want for true referrals for business? And isn't anyone free to accept such a fee (except agents)?

All this reading of the federal laws that supposedly override CA law on this issue has made me aware of possible exemptions in my business.  This entire issue is governed by RESPA at the federal level.  It's RESPA that governs this issue of compensation by an agent to unlicensed persons for any transaction involving a federally insured mortgage.  I've probably sold 5 properties in the last 15 years that involved a federally insured mortgage.  And probably bought less than 5 where a federally insured mortgage was being paid off. That leaves A LOT of what I do outside of RESPA (putting aside seller financing deals).  

Account Closed
  • Dallas, TX
744
Votes |
4,988
Posts
Account Closed
  • Dallas, TX
Replied

Here in Texas it is no big deal an agent paying a fee outside of HUD, and it is all about making money.


Joe Gore

User Stats

178
Posts
65
Votes
Sean Brooks
  • Bear, DE
65
Votes |
178
Posts
Sean Brooks
  • Bear, DE
Replied

When working in the field of real estate investing, the best advise I can give is to get to know the laws that pertain to the state you plan on operating because you can land in some legal trouble. You also want to have a real estate lawyer in your circle to advise you on what's legal and illegal. At some of the real estate seminars they shared some strategies that in some state are purely illegal so before using what's shared at these events, you want to speak with a lawyer. Taking advise from someone that's not a lawyer is risky. 

User Stats

46
Posts
18
Votes
Kingsley Siribour
  • Investor and Realtor
  • Milwaukee, WI
18
Votes |
46
Posts
Kingsley Siribour
  • Investor and Realtor
  • Milwaukee, WI
Replied

Very interesting topic and responses here. As a newly licensed Realtor in Milwaukee, WI, that was one of the first shock when I learned in the class that in most States including Wisconsin, NO referral fees can be paid by a licensed agent to a non-licensed person. I then understood why some agents stayed away from leads as finder unless of course it is under contract as equitable interest. Hope this helps in addition to all the great responses above.

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User Stats

2
Posts
0
Votes
Mark Dobert
  • Quincy, FL
0
Votes |
2
Posts
Mark Dobert
  • Quincy, FL
Replied

I very always gotten around this nonsense by paying a consulting fee for their expert real estate opinion.  Usually this type of law is for realtors not the general public but like any linsane law written by a politician. ..people usually find a way around it. I only pay the consulting fee only after the closing when my consultant is advising me on how to best use and rehab the property!  ;-) 

User Stats

64
Posts
17
Votes
Vladimir Gonzalez
  • Real Estate Investor
  • Altamonte Springs, FL
17
Votes |
64
Posts
Vladimir Gonzalez
  • Real Estate Investor
  • Altamonte Springs, FL
Replied

Thanks guys It have been quite insteresting read all your responses and points view. @Mark Dobert @Kingsley Siribour @Account Closed @Sean Brooks

@Account Closed

User Stats

46
Posts
18
Votes
Kingsley Siribour
  • Investor and Realtor
  • Milwaukee, WI
18
Votes |
46
Posts
Kingsley Siribour
  • Investor and Realtor
  • Milwaukee, WI
Replied
Originally posted by @Mark Dobert:

I very always gotten around this nonsense by paying a consulting fee for their expert real estate opinion.  Usually this type of law is for realtors not the general public but like any linsane law written by a politician. ..people usually find a way around it. I only pay the consulting fee only after the closing when my consultant is advising me on how to best use and rehab the property!  ;-) 

 You are right, Mark. Realtors are usually those that are held that high standards or could loose their License.

User Stats

1,330
Posts
450
Votes
Dick Rosen
Pro Member
  • Property Manager
  • Gilbert, AZ
450
Votes |
1,330
Posts
Dick Rosen
Pro Member
  • Property Manager
  • Gilbert, AZ
Replied

@Vladimir Gonzalez 

my suggestion would be to include a marketing fee on your HUD, payable to the person who brought you the lead. Now he's paid at closing and only if there is a closing and it's completely legal.

@Jean Bolger 

Your property manager is collecting and possibly paying out a lease up fee in your eyes but in the licensed arena that's actually a commission that goes through the involved brokers making it perfectly legal.

  • Dick Rosen
  • User Stats

    110
    Posts
    35
    Votes
    Terry Evans
    • Real Estate Agent
    • Houston, TX
    35
    Votes |
    110
    Posts
    Terry Evans
    • Real Estate Agent
    • Houston, TX
    Replied

    @Account Closed 

    I was just thinking about posting, "what about in Texas"  Glad you answered that one

    User Stats

    4
    Posts
    5
    Votes
    Philip Elmes
    • Northbrook, IL
    5
    Votes |
    4
    Posts
    Philip Elmes
    • Northbrook, IL
    Replied

    In Illinois the State Licensing Act is clear: Anyone facilitating a real estate transaction for compensation of any kind must be licensed. Nevertheless there is much confusion on this point. 

    Many (unlicensed) "wholesalers" insist no license is needed, especially in cases where they have brought a likely property to an investor who subsequently purchases the property. Their argument is they merely earned and collected collected a "finder's" or "referral" fee. The flaw in this argument is clear with even the most cursory review of state licensing law.

    Interestingly, it is also understood that the payor of the "referral fee" - the person paying the "referral fee", is also a participant in the violation and subject to a comparable fine. (Which, in Illinois, is not subject to judicial proceedings but "administered" solely by the state licensing agency.)

    To be safe, wholesalers are well advised to secure assignable Contract Rights to the property which - as others have noted above - are in fact "personal property" and as such may be sold. Thereby, one is not selling real estate per se, which in fact they do not own; rather they are selling the real estate "interest" they own: the contractual right to complete a real estate transaction subject to the terms of the contract.

    This is our view in Illinois and may vary in other jurisdictions (though I doubt it). 

    Finally, while I am a licensed real estate broker (since 1971), I am not a lawyer. Save the attorney's fee and consult your state's real estate licensing regulations.

    User Stats

    958
    Posts
    276
    Votes
    Will F.
    • Investor
    • Los Angeles County, CA
    276
    Votes |
    958
    Posts
    Will F.
    • Investor
    • Los Angeles County, CA
    Replied
    Originally posted by @Account Closed:

    Just for the fun of it, I took a look at the California Association of Realtors website legal page. They have a matrix showing 15 different combinations of when a referral fee is legal and when it's not, involving Seller, Buyer, Mortgage Loan Broker, Licensee, non-Licensee, title company, pest company etc ... it's legal under some circumstances and not others. They also have a 17 page article on the subject. There is not an easy yes or no answer to this question. It's no wonder this thread is exploding.

     Hey David could you put a link? 

    I'm not a Realtor.  I offer finders fees/ referral fees for finding property in the thousands of dollars here in Cali.  It's contingent on the property selling.  I don't have them representing me, but merely giving a referral.

    Account Closed
    • CA
    182
    Votes |
    762
    Posts
    Account Closed
    • CA
    Replied

    @Will F. 

    I would if I could.  You need to be a CAR member see the link.  I would reprint it here but I'm afraid it would be some kind of a copyright violation.  Maybe it is, maybe it isn't, I don't know and don't want to find out.

    Account Closed
    • Dallas, TX
    744
    Votes |
    4,988
    Posts
    Account Closed
    • Dallas, TX
    Replied

    @David C.,

    Does CAR have something to hide on their legal page from the public? 

    Joe Gore

    Account Closed
    • CA
    182
    Votes |
    762
    Posts
    Account Closed
    • CA
    Replied
    Originally posted by @Account Closed:

    @David C.,

    Does CAR have something to hide on their legal page from the public? 

    Joe Gore

    Okay, Joe, you made me go back and look, lol ... at the bottom of the article it says: 

    "Permission is granted to C.A.R. members to reprint this material in hardcopy or PDF format only for personal use or with individual clients. This material may not be used or reproduced for commercial purposes. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R Legal Department. All rights reserved."

    I take that as a do not post :)

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    Account Closed
    • Dallas, TX
    744
    Votes |
    4,988
    Posts
    Account Closed
    • Dallas, TX
    Replied

    @David C.,

    So if you have a client, and they ask to see it, you could show them.

    Joe Gore

    User Stats

    23,418
    Posts
    13,507
    Votes
    Wayne Brooks#1 Foreclosures Contributor
    • Real Estate Professional
    • West Palm Beach, FL
    13,507
    Votes |
    23,418
    Posts
    Wayne Brooks#1 Foreclosures Contributor
    • Real Estate Professional
    • West Palm Beach, FL
    Replied

    @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.

    Account Closed
    • CA
    182
    Votes |
    762
    Posts
    Account Closed
    • CA
    Replied
    Originally posted by @Account Closed:

    @David C.,

    So if you have a client, and they ask to see it, you could show them.

    Joe Gore

     That's how I read it.