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Updated about 4 years ago, 10/13/2020
Is illegal to pay referral fees to non realtors?
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?
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.
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/
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.
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.
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?
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
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
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
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Also, the original question is about paying a referral fee by an unlicensed investor.
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).
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
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.
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.
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! ;-)
Thanks guys It have been quite insteresting read all your responses and points view. @Mark Dobert @Kingsley Siribour @Account Closed @Sean Brooks
@Account Closed
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.
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.
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.
@Account Closed
I was just thinking about posting, "what about in Texas" Glad you answered that one
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.
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.
Originally posted by @Account Closed:
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 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.