Legal FAQs for REALTORS®
I’m a broker and I recently terminated the services of one of my agents who signed the TAR independent-contractor agreement. Which fees should he receive upon termination? (updated September 15, 2015)
You owe him any fees earned before the termination was effective.
The Independent Contractor Agreement for Sales Associate (TAR 2301) outlines the rights of the broker and agent concerning earned fees upon termination of agent sponsorship. According to Paragraph 16C of the contract, an agent’s fees are earned at the time a broker's fees are earned under the applicable agreement for brokerage services—unless the fees are subject to arbitration or litigation. Each brokerage agreement defines when a broker's fees are earned. Generally, a broker's fees are earned when contracts or leases are fully executed.
Paragraphs 16G and 16H address the issue of fees payable to the departing agent if prospects are reassigned to another agent to complete a transaction. The parties could agree to other rules regarding this fee sharing, but a different agreement should be in writing to prevent disputes.
A buyer broker whom I know told me that he regularly shares part of his fees with the buyer he represents. Also, he pays the buyer outside of closing with no indication of the payment shown on the HUD-1 Settlement Statement. Isn't that illegal? (updated Nov. 26, 2008)
A broker is not prohibited by The Real Estate License Act from sharing a fee with a principal. Any fee-sharing arrangement, however, should be disclosed on the HUD-1 Settlement Statement.<br/><br/> Sellers and buyers signing the HUD-1 Settlement Statement represent that the settlement statement is a true and accurate statement of all receipts and disbursements made in connection with closing of the transaction. The HUD-1 Settlement Statement usually contains a warning that making a false statement on it is a federal crime punishable by a fine or imprisonment. A broker participating in any scheme to pay money to a buyer outside of the closing might risk similar penalties. <br/><br/> Note: REALTORS® advertising or otherwise representing that they will share fees with a party in a transaction must disclose in the ad that the rebate is subject to the consent of the party that the broker represents. Also, if the rebate is contingent upon certain restrictions, such as approval by the lender, the ad must contain a disclosure that payment of the rebate is subject to restrictions.
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.
A prospective buyer is interested in one of my listings. He told me he is a licensed attorney and will prepare his own offer without using a real estate agent. He also asked to receive a share of my fee in the transaction. He doesn’t have a broker’s license. Can I pay him? (updated May 21, 2014)
Yes. A broker can share a fee with a principal, regardless of the principal's profession or license status. However, the broker is not required to do so. A concession of part of the broker’s fee to a principal is a business decision made by the broker.
Remember, a broker is prohibited from sharing a commission with an attorney who represents a party in a transaction. In that situation, the attorney would need to seek payment from his client.
Keep in mind that if you decide to share your fee with a principal who you don’t represent, you must obtain consent from your client 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.
An attorney told me her client attended an open house for my listing and wants to make an offer on the property. The attorney is preparing the offer for her client and insisted I pay her the same fees I had offered cooperating brokers in the MLS. The attorney doesn’t have a broker’s license. Can I pay her the cooperation fee if her client purchases the property? (updated March 3, 2015)
No. The Real Estate License Act (TRELA) prohibits brokers from sharing fees received for services as a real estate agent with anyone not licensed as a real estate broker or salesperson in Texas or any other state. (See Section 1101.651, Occupations Code.) You would face disciplinary action for paying a cooperating commission to an attorney.
Although attorneys are exempt from the provisions of TRELA (see Section 1101.005, Occupations Code) and are permitted to represent clients in real estate transactions, attorneys must seek compensation for those services directly from one of the principals in a transaction.
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.
Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.
While the Texas Association of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the Texas Association of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on TexasRealEstate.com. Any legal or other information found here, on TexasRealEstate.com, or at other sites to which we link, should be verified before it is relied upon.