Legal FAQs for REALTORS®
— Commission Disputes
How do I conduct a referral to another agent? (updated Aug. 14, 2013)
Generally speaking, there will need to be a referral agreement between the brokers. It is best to get this agreement in writing. Your broker may have a form to use in such circumstances. If not, your broker can draft a simple agreement to be signed by the parties. An agent may sign the agreement on behalf of their broker only when authorized by their broker to do so.
I have a buyer's representation agreement with my client and we have a contract to purchase a home pending for closing at the title company. I just received a surprise letter from a relocation company informing me that I must pay them a referral fee and that I should not discuss this fee payment with my client. What should I do?
You should discuss this issue with your client. The relocation company's instruction is inappropriate. Your fiduciary responsibility to your client requires that you inform him of everything you know about the transaction unless it is otherwise privileged information you are not permitted to tell him. No such privilege exists relative to this instruction from the relocation company.
Should I handle the referral any differently if I'm making a referral to a commercial broker? (updated Nov. 11 2008)
A referral to a commercial agent or broker is not fundamentally different than a residential referral. You should perform your due diligence to ensure the commercial agent has the proper experience to serve the client's interests.
Someone told me that I could pay an unlicensed person a referral fee as long as the fee did not exceed $50. Is this true? (Nov. 1, 2006)
Under the provisions of Section 1101.002(1)(A)(ix) and (x) of the Real Estate License Act a person making a referral of prospects or property for the sale or rental of real estate must be licensed under the act if the referral is done with the expectation of receiving valuable consideration. In August 1999, TREC amended Section 535.20 of the TREC rules to provide that for purposes of that section, the term "valuable consideration" includes, but is not limited to: 1) money; 2) gifts of merchandise having a retail value greater than $50; 3) rent bonuses; and 4) discounts. If the referring party does not have a real estate license, then no referral fee could be paid to that party by the broker receiving the referral. Under the amended rule, a broker could give an unlicensed person a gift of merchandise having a value of no more than $50 and this would not subject the unlicensed recipient to a charge of unauthorized practice as a broker, nor result in a violation of TREC rules by the broker giving the nominal gift.
A licensed real estate broker in Oklahoma wants me to pay her a referral fee for sending me a seller who’s selling his property in Texas. Can I pay this out-of-state broker a referral fee? (Updated March 4, 2015)
Yes. Section 535.131 of TREC rules permits a licensed Texas real estate broker to cooperate with and share commissions with brokers licensed in other states; however, all negotiations within Texas must be handled by Texas licensees.
A mortgage broker has offered to send me clients interested in buying property and wants me to pay her a referral fee. She does not have a real estate license. Can I do it? (March 19, 2014)
No. Under the provisions of the Real Estate License Act, she must be licensed to receive valuable consideration for referring prospects for the purchase or sale of real estate. Since she is not licensed, you cannot share fees with her or pay her any kind of referral fee. However, TREC rules do not prohibit you from giving her a gift of merchandise having a value of no more than $50. This type of gift would not subject either of you to violations of the act or the commission's rules.
Why does this practice not constitute payment of an illegal kickback and therefore violate RESPA? (updated Jan. 1, 2002)
The Department of Housing and Urban Development (HUD), in its regulatory comments on proposed RESPA regulations in 1996, stated that it was not taking a position at that time on referral fees in affinity and relocation relationships. Ironically, the practice would violate RESPA if there was any common ownership between affiliated entities in what most of us still call "controlled business arrangements." As we all know, there are strong political lobby interests, including NAR, on the side of limiting the reach of RESPA. In the association's view, RESPA could easily be interpreted to prohibit the common practice of paying referral fees as part of an affinity group or due to a referral from a relocation company.
Is there any limit to what a relocation company can charge as a referral fee? (updated Jan. 1, 2002)
Legally, the answer is no. While the current level of fee ranges from 35%-45%, in some markets the fee is at 50%. In Mobility Magazine several months ago, an executive from a relocation company predicted that relocation companies would own real estate companies in the near future. Since his statement, one major relocation company announced it was going to invest $200 million to buy dominant real estate companies in major markets across the U.S. The only limit is market-driven, not legal.
Do I still have to pay a referral fee if I have been working with a client and find out after the fact that the client is locked with an affinity group or relocation company? (updated Jan. 1, 2002)
Practically speaking, the answer is yes because in most of these relationships the client (employee) will lose their benefits if they do not follow the rules. If you insist on not paying a referral fee, the client will have to pay more to work with you due to the loss of their benefits. Many real estate agents have adopted a policy to ask the potential client right up front to avoid surprises later. The Employee Relocation Council (ERC) http://www.erc.org/ has adopted procedures to facilitate the resolution of disputes regarding after-the-fact referral fees.
Are there antitrust implications to this practice? (updated Jan. 1, 2002)
Yes. On the one side is the restraint-of-trade concern with the affinity group or relocation company controlling the stream of buyers and sellers. As much as 25% of today’s real estate market involves an affinity group or relocation company referral, and the percentage will only go up. On the other side, real estate companies competing with each other in a particular marketplace cannot get together to fight the relocation companies by refusing to participate in the referral fee scheme or they risk violating antitrust laws. This whole question remains largely unanswered since there are no definitive court decisions which would give us needed guidance.
Can payments (referral fees) be made to non-real estate licensees? (updated Jan. 1, 2002)
No. Texas laws also prohibit the payment of referral fees to non-licensees for brokerage services.
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