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17 Comments on Referral Fees - Can they or Can't they be paid?
I like your cartoon! Very cute!
Not only can you only pay a referral fee to a licensed Agent.....but the check must be made out to the brokerage- not the Agent directly.
Excellent point Rick - Thanks.
Hi there,
I think since RESPA pertains to transactions where a loan is secured by a lender who is federally chartered, therefore if that's not the case, i.e. all cash sale or owner carry back for example, it's n/a as far as I know I've actually had it come up a few times myself.
Great cartoon, I think the rebates are not legal in all states, although they are in some states.
All the best!
I went to a meeting a couple of years ago where the guest speakers were a three person panel. The panel was made up of the Director of RESPA from HUD, his Assistant and a Maryland Attorney who is a RESPA expert. A person in the audience asked the question, "Can I give my Buyers a Plasma TV?" The Director made the following statement, "If it benefits the consumer, it's okay; however, if it benefits the agent you cannot." The Attorney jumped up and said, "Be sure to check with your State Rules and Regulations. It may illegal to give something of value to your Buyer, as it may be considered compensation."
In Virginia, compensation can only be paid to another Agent through their Broker. How do you handle the above situation without violating the law even though it may be okay with RESPA? In my opinion, if it can go on the HUD-1 with lender approval it is probably okay.
Good Post!
Thanks for your input on this matter Michael.
Interesting topic. Companies like Rent.com who are licensed Brokers in all 50 states pay out Millions in referral fees to non-licensed affiliates every year. How do they get away with that. Also, apartment communities who's owner are in most cases licensed Real Estate Brokers offer incentives every day to non licenced people that referr them business.
In California, it is perfectly legal to do. However, federally it is illegal in states that do not allow exception like CA does.
Here is a link to a real estate law textbook written by lawyers, with example court cases upholding referral fees to unlicensed individuals: 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
Here is the actual law in legalese: http://law.onecle.com/california/business/10137.html
Here is a referral chart CAR issued regarding referral laws: http://www.avivarate.com/Note/ReferralFeeChart.pdf Refer to page 2, #8 "Yes, if only introduction"--meaning that bird dogs can't have any part in the the negotiations (which they don't), or defining the price (which they shouldn't).
As defined specifically by these laws, referrals in California are PERFECTLY legal--doesn't need to be a gift or things of that nature. Please take the time to look up the laws in as many sources as you can, and don't just trust your broker or other realtors if they haven't looked it up themselves--bird dogs can be a very helpful way of advancing a licensed individual's career, and sometimes it benefits the ones who are using them to tell others it isn't legal to scare them off from doing it.
Does anyone know if it is illegal to get a referral fee for rented apartments? I live in New York City and my broker said he'd pay me $100 for any rental leads that I send him. Since the transaction is a rental and not related to a mortgage, would that be legal?
Yes, they can. A RE Licensee CAN pay referral fees to a non-Licensee if there is an introduction (referral) without licensed acitivity, but only for residential 5 or more units, commercial, industrial or agricultural property.
No, they can't. A RE Licensee CAN NOT pay referral fees to a non-Licensee if there is for residential 1 - 4 unit property with a federally related mortgage loan OR any participation in negotiation or other licensed activity (B&P Section 10137)
It's very important to abide both of CA State Law and Federal Law.
I wish it helps!
Did you see this today? I just blogged about it here on Active Rain.
BROKER LIABLE FOR CHARGING UNEARNED FEE
A broker must perform a specific settlement service to charge a $149 "administrative brokerage commission" fee under the Real Estate Settlement Procedures Act (RESPA). That was the recent decision of a federal district court in Alabama in the case of Busby v. JRHBW Realty, Inc. (Case No. 2:04-CV-2799-VEH). This decision serves as a good reminder for REALTORS® to refrain from charging unearned fees under RESPA.
In this case, a seller in Jefferson, Alabama agreed to pay the real estate broker a five percent commission. However, during the closing and settlement, the broker also charged the buyer a $149 "administrative brokerage commission" (ABC) fee in connection with a federally-related mortgage loan.
The buyer paid the $149 ABC fee, but then sued the broker and succeeded in obtaining class action status for over 30,000 consumers. The buyer claimed that the broker performed no services for the $149 ABC fee. According to HUD, RESPA prohibits an unearned fee, such as when a "service provider charges the consumer a fee where no, nominal, or duplicative work is done."
In response to the buyer's claim, the broker argued that the ABC fee was for an array of services, including overhead expenses, regulatory compliance, technological enhancements, and additional commission. The court, however, agreed with the buyer. The court observed that the array of services listed by the broker were not settlement services because they did not occur at or before the closing, and any direct benefit to the buyer was negligible. The court also pointed out that, as additional commission, the $149 ABC fee would be a duplication of the percentage commission already charged.
For more information about unearned fees, C.A.R.'s Legal Department has a legal article entitled HUD's Unearned Fee Policies. C.A.R. also provides REALTORS® with many other legal articles covering a wide range of topics of interest.
Thanks for highlighting this Brinette!
Stewart...this is a great post! I was not aware that there were state specific guidelines for RESPA, but based on the comments I think it's safe to say it's always best to err on the side of caution.
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