Collecting a referral fee -- Advise against??

Question

How common (or uncommon) is it to refer one of your investors to another wholesale deal that is not your own, and collect a pre-arranged amount from the wholesaler, before or after closing?

Does the business frown upon on this sort of practice if one began to develop a reputation that "he just refers his own buyers to other deals", or does neither party (wholesaler/end buyer) care because ultimately, they are both making money. Are there legal issues here?

Please adviseâ€¦

Ps. If a licensee engaged in this transaction, would he or she need to disclose to each party that they are licensed, or are they not considered part of the transaction?

Vikram C. · Answer

I can only speak from my perspective as an investor. I get wholesalers offering properties to me all the time. I only care about my net price and do not really care how the compensation is split between the wholesaler who has my contact information and the wholesaler who identified the opportunity.

Bill Gulley · Answer

Jason, this is birddogging. In many states it is illegal to facilitate a transaction without a license. In all states, if you have a license, it is illegal to accept payment or any benefit from a property that is not listed. If it is listed and as a Realtor you charge a fee to facilitate a transaction, on either side, you must disclose your compensation to your broker and the listing broker or accept the co-brokerage fee arrangement stated in the listing agreement. If you needed holes poked in your plan, I'd say these are pretty big holes. You should also review the Realtors Code of Ethics, carefully. Talk to your broker. Good luck, Bill

Roberta Holland · Answer

I have a similar problem. I have a seller of a $1.8M property out of state, who is offering a $50k referral fee for anyone with a buyer. I have a buyer who wants to see the property. It sounds to me like my only recourse is to give this away to a broker where the deal is and to my broker and be satisfied with the crumbs. Doesn't seem fair. If I am understanding correctly, the only other thng I can do is an assignment. However, don't know what price I would put in to my contract without knowing what Seller and End buyer would negotiate. Please advise.

Curt Davis · Answer

Jason, Your making this too difficult. If you refer a buyer to someone who has a home for sale, you can collect a fee, just make sure you and your broker fill out a referral agreement form and have it signed by the person who is paying you the fee and your broker. I have done this many times and this is how its done legally. I am not familiar with Texas RE laws but I never heard of someone not being able to advertise a property that someone else has for sale like an investment home and needing it to be listed. This is how referral/affiliate programs work. There are many different creative ways to do transactions, just get with your broker if your that concerned about potential issues and get it figured out.

Bill Gulley · Answer

Hi, A Realtor may not advertise any property for sale or lease that they do not have an active listing or management agreement for that property. A Realtor may not advertise a property using only an Authorization To Show or Fee Agreement. You can't get a listing agreemnet from someone who does not have TITLE to the property. In a referral the listing is on a co-broked basis between the broker making the referral and the broker where the property is located. So it is listed before it is shown or advertised. Come on guys, really! I'm outta here now, you guys can figure this out tomorrow, maybe the next day, LOL. Ga Night, Bill

Bill Gulley · Answer

LOL! Yes, I have some words that my fingers think I'm spelling while my brain is talking, like committment, commensurate and commingle, my fingers just don't know what's coming next! LOL Your broker better figure it out! Hope so, Good luck, Bill

Jason K. · Answer

Bill, This is completely arguing your comment? Thoughts?

Jason K. · Answer

Curt, I'm speaking of an investor who does not OWN the property but is simply looking to flip the contract... Please advise?

Jason K. · Answer

Bill, As always, great insight. I've spoken with my broker and even he isn't sure exactly what the specifics indicate. (I'm assuming he's not opposed to collecting as much money from me as he can. :) ) Then again, most brokers aren't experts in the REI area... Having said that, hopefully your kids aren't coming to you asking how to spell "comming". (I kid of course) I will make sure that I am in compliance with local and state regulations as they are.. Thanks as always Bill

Bill Gulley · Answer

Check with your real estate state laws, it was probably a question on your test. If you do a FSBO as explained, and is common, there is an Authorization To Show Agreement executed by the seller and a Fee Agreement (your broker may handle this) this is basically your "listing". A Realtor can not show a property that is not listed....agreed? This does not include properties that you own or have an ownership interest in. What you described was flipping the investor on to the deal, like a birddog, if you have a contract on it as an individual, there is no problem, so long as you abide by your disclosure rewquirements and work that out with your broker. Being a Realtor, you should have the Realtor information and your state laws handy. From what you described initially, that is my rock solid opinion and I'm sorry but I don't think I need to look up state real estate laws for a Realtor, hope you understand that. LOL, It's like my kids comming in and asking how to spell a word and I tell them to look it up, they learn in the process, if I just tell them, it won't stick as long. You're getting into sticky territory here, you really need to get with your broker and forumlate a marketing method and "program" that the broker will approve of! You may have to read several statutes and apply them to understand the method that might be suitable. You need to do that or ask an attorney, I can't really look up laws and tell you how to apply them. Sorry You might see who has to have a license in your state, those who facilitate a t5ransaction? Then if a license is required and you have one, how are you to use your license? Under what circumsatnces and how is the transaction to be conducted? That should get you started. Good luck, Bill You have every right to act in your own interests.