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Is this legal in California?

Is This legal in California?
Wanted: Home Buyer -- $1,000 Reward

A property flier in the San Francisco Bay Area contains the usual information on amenities and price -- but the flip side carries an unusual appeal: "Find a qualified buyer ... and receive $1,000!"

The flier also states, "Wouldn't you like to have your friends or family live in your neighborhood and receive a little extra spending money?" Given that the list price of the home is over $575,000, it stands to reason that a friend or relative who buys the home might want to share in that $1,000, or would expect to negotiate down the price of the property at least $1,000 based on the willingness to hand out that sum to someone who is not directly involved in the transaction. It's not clear from the flier whether the actual buyer or an agent representing that buyer would be able to claim the reward directly if there isn't a third-party buyer-finder involved.

The "$1,000 REWARD" is subject to a restriction: Escrow must close on or before Nov. 30 in order for the person who locates the buyer to receive the money, which will be paid at close of escrow.

--Glenn Roberts Jr., Inman News

This article came from inman news.

I thought it was illegal to offer a finders fee to non licensed people.

If so how do you disperse the funds out of escrow so as not to pay taxes on it.

Do you have to pay out of your cut or the gross check?

I would really like some feed back as to the legality of this tactic in California.

Orville McCallister

Keller Williams Realty Temecula Valley

www.orvillemccallister.com

Posted by Orville Ivor McCallister on 01/23/2007 12:04 PM

Comments (36)

marketing, refferal, finders fee

Post is included in group: Keller Williams 'Rainers

36 Comments on Is this legal in California?

JAN

2007

Hi Orville - Agreed - cannot pay finders fees to non-licensed individuals in California.

btw - love Temecula! Tough bike races!

JAN

2007

I read that article on Inman today and laughed my butt off. I believe it eluded to paying it through escrow without quite stating that. Morons are going to lose their licenses on this one and Inman will walk away unscathed!

I thought so I could not believe what I saw. I went someone has bumped their head here, I am glad it was not me.

Orville McCallister

It is illegal to pay a commission to an unlicensed person in California!

Alas, would the DRE do something about it?

I have seen fliers here in Temecula at a Realtor kiosk in the mall. I have not seen that Realtor since. He was offering a $500 finders fee to anybody. I stopped and asked him about it and took a flier back to my broker and asked if it was legal. She laughed and told me no. I could not believe that article made it to the headlins of inman news.

Orville McCallister

That Inman post didn't say who was offering the $1000 reward. If it was a FSBO, wouldn't it be legal for FSBO to offer the $1000 incentive? Actually, even if it was a listed property, couldn't the Seller directly offer the reward to anyone they chose to? Also, it only says it would be paid at close of escrow, not that the funds would be paid from escrow.

A fsbo can do what they want they are not held to DRE rules or Realtor codes. I think only Realtors are held to that standard. I may be wrong, thats why I asked.

Orville McCallister

How can the companies who advertise 1% back at closing survive in Cali? Is that a nono also?

I have seen plenty of those advertisements - with a scale even - here in Nevada.

Why is this illegal?

Just curious. If someone wants to pay $1,000 to find a buyer......specifically, what's the problem?

Please educate this Title guy.

An owner of a home for sale can pretty much advertise anything they want.

That article does not say the person offering the thousand bucks has a real estate license.

If it's the owner there is no problem. I know pretty close to nothing about the real estate laws in California so it may be a problem for a licensee to make that offer.

I believe you can do this if you are NOT a Realtor. I have seen this in Virginia with "We buy Ugly homes" type places. If they arent a licensed Realtor, they can do it.

So I don't think it is a law thing, more of a Realtor restriction.

Frank- Virginia Realtor Broker

Realtors Against Realtor Spam

Hello I hope this helps answer any questions for any Realtors in the California Market. This is directly from CAR.

UNLICENSED PERSON

Q 20. Can a real estate licensee pay a referral fee or finder's fee to an unlicensed person?

A No, if the resulting transaction falls under RESPA. RESPA generally prohibits a real estate agent from paying a referral fee to anyone. However, a real estate agent may give someone a token of appreciation after receiving a referral (see Question 21). Furthermore, a real estate agent may give a commission rebate to his or her client (see Question 22).

For non-RESPA transactions, such as the sale of commercial property or vacant land, California law allows a real estate agent to pay a referral fee to an unlicensed person for merely introducing a new client. If, however, the unlicensed person goes beyond arranging an introduction, such as by negotiating the terms of sale on behalf of a principal, the real estate agent may not compensate the unlicensed person for performing licensed acts (Cal. Bus. & Prof. Code § 10138).

Q 21. Can a real estate licensee who receives a referral give the referring party a small token of appreciation?

A Yes. After a real estate licensee has received a referral, he or she may give the referring party a small token of appreciation. However, this arrangement would violate RESPA if there was a prior agreement that the referring party would receive that gift in exchange for the referral.

Q 22. Can a listing agent or buyer's agent give a commission rebate to the seller or buyer?

A Yes. Even though RESPA prohibits referral fees, it apparently does not prohibit a listing agent or buyer's agent from giving a portion of his or her commission to the seller or buyer. Moreover, giving a commission rebate to a seller or buyer seems consistent with RESPA's goal of minimizing a consumer's settlement costs. However, a buyer who intends to use a commission rebate as part of his or her down payment should first consult with the mortgage lender about the loan underwriting guidelines for that arrangement.

Q 23. Can a listing agent or buyer's agent pay for the seller's or buyer's transactional costs, or give a gift to the seller or buyer?

A Yes. Let's say, for example, a listing agent pays for a buyer's home warranty plan, or the buyer's agent gives a buyer a new doormat as a housewarming gift. Again, as mentioned above, these activities are not only good business practices, but they seem to fall squarely within RESPA's goal of minimizing consumers' settlement costs.

Regards,

Rick

Rick another respa question for you:

Does an all cash sale fall under respa? Since there is no lender, no repsp? That has been mu understanding, is that how you understand it?

Lynda Eisenmann, Broker

All cash sale does not fall under RESPA. Neither do investment properties or commercial properties. Stand alone construction loans that do not convert to permanent also do not fall under RESPA as well as parcels of land with one or more homes of 25 acres or greater. Try this link:

http://www.hud.gov/offices/hsg/sfh/res/resindus.cfm

And read this point:

What kinds of transactions are covered
under RESPA?

Transactions involving a federally related mortgage loan, which includes most loans secured by a lien (first or subordinate position) on residential property. This includes: home purchase loans, refinances, lender approved assumptions, property improvement loans, equity lines of credit, and reverse mortgages.

I have a Treo, not a Blackberry.

RESPA!!!!!!!!!!!!!!!!!

This is very much against the law. Thats like me going to a mall offering cash for referrals.

Eddy

This was posted on inman. Without regulation in the industry - we will continue to see such things!

IN Florida its illegal to pay a" finders fee' to non licenced realtors/brokers. There are many reasons. Some obvious.Its would be the equivalent to greasing the palm and making "an offer someone couldn't refuse."

I found the perfect business to compliment my realestate business. www.thewealththeory.org & www.secretbiz.org

Yep, my read is that is illegal here, but I am not an attorney. Gotta admire their creativity, but they could be in big trouble.

Jeff

Sounds illegal to me unless they aren't a realtor. Now if they put in a want ad for a buyer than that would be fine but throw in $1000 and that changes things doesn't it!

It's definitely a no no

A quick call to the CAR legal hotline could help. The number is 213-739-8282. Their lawyers are friendly and helpful, especially when you catch them on a slow day.

Cheers, Steve

JAN

2007

Thanks for all of the great info on this guys. The Rain rocks!

Orville McCallister

Sure doesn't sound legit to me. Maybe the local board needs to do a bit more education??

whether it is cut & dried illegal or not, it is a gray area.

i would NEVER work with a realtor who has to use gimmicks like this. no telling what kind of other gimmicks they are doing involving the client.

just ONE MORE thing that is wrong with this industry

Orville - Great Post !! It has inspired me to market one of my listings differently !!

Thanks for the info, Orville. It never ceases to amaze me that so many unethical and illegal practices continue without state officials cracking down. Why have the rules if you will not enforce them.

Inman posted an article on the legality today...

I know of agents here that do it secretly (or at least my clients have made really good stories up about it), but noone is quite that stupid to do it openly!!!

I just finished posting a blog on the old "bird dogs" we used to use before RESPA. It's under Dan's Blog.

Orville,

Looks like you got your suspicions confirmed. congratulations on this post - over 30 comments - awesome.

Out of curiosity, how many points did you get for this - email me please.

John Occhi, Hemet CA REALTOR
www.JohnOcchi.com

JUN

2008

Ok! So the token of appreciation that I will accept for me finding a person who will buy from you is $1,500. Is that to high of a token?

Who dont I know!!! I know a few Hollywood star, Playboy playmates, singers, song writers, video producers, models and your everyday average person...... I do expect something for me telling them about you.

Is there any set "token of appreciation" amount that is standard here? I would really appreciate an answer.

Thank you!

JUN

2008

It seems that alot of people are saying no just because a broker or friend told them it was illegal. Check out this textbook used by accredited universities that was WRITTEN BY LAWYERS

http://books.google.com/books?id=qrmsoRD0eLAC&pg=PA73&lpg=PA73&dq=california+real+estate+law+referral+fee+unlicensed&source=web&ots=Ns1RHZLxfa&sig=Xce8O6eXS0c7qcqHvHSXFdmfkQ4&hl=en&sa=X&oi=book_result&resnum=3&ct=result

Referral fees are federally illegal but California state real estate law states that they are legal. There are established court cases where the person who made the referral won the case. Referral fees are legal between agents and unlicensed bird dogs, but are illegal from broker to agent or broker to broker.

IMO, seems like agents and brokers who are probably doing it themselves have every incentive to tell other agents and brokers that it is illegal to keep the pool of bird dogs to themselves.

There you have it. Assume nothing, verify everything, and be prepared for anything.

NOV

2008

Wow so many good points I'm still confused.

DEC

2008

In studying for the California's Broker Exam, I came across the following under California RE Law. A licensee may pay a referral or finder's fee to a nonlicensee for an introduction. The nonlicensee may not perform any act for which a license is required....quote prices, show property, nogotiate, etc. California Business and Profession Codes apparently only limits compensation as it pertains to issues for which a license is required.

JUL

Finder fees re illegal

Please check my sites as well.

http://homesinsale.com

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