It was my idea that my best friend get into real estate. We have known each other for many years and I have always been the one who is the most outgoing.
I thought she could get her real estate license and I could send everybody I know to her. I could be her "bird dog."
I have sent her more business and she has made more money than she ever thought she could and the most she has ever done for me in return is take me out to dinner. What a friend!
When I finally got up the nerve to ask her why she wasn't paying me any referral fees, she said she couldn't because it was "illegal."
In fact she said that it was illegal to pay any unlicensed person a referral fee. Is this true? Who would ever know that she was paying me a referral fee anyway? It is nobody's business but ours.
If you tell me that she is right about this, I may just get my own license so she can start paying me. Or better yet, I will make a few sales of my own.
What's the scoop, Sue?
|- Referring Ronda|
Your friend is absolutely right. Many people believe that they deserve "bird dog" fees. They have no idea that it is illegal.
The Federal Real Estate Settlement and Procedures Act, known as RESPA, forbids a real estate agent from paying an unlicensed person a referral fee. In fact, a licensed real estate agent is not even allowed to pay another agent. California law requires any compensation for a sales person's licensed activities to be paid to that sales person's employing broker.
A real estate licensee may give a referring party a small token of appreciation. However, this arrangement would violate RESPA if there were a prior agreement that the referring party would receive that gift in exchange for the referral.
For example, if you made an arrangement with your friend to receive movie tickets, dinners, jewelry or anything in return for giving her referrals, she would be in violation of RESPA laws for giving you those items.
One exception under RESPA would be if you personally were the buyer or seller. Your friend can give a commission rebate because it would be consistent with RESPA's goal of minimizing a consumer's settlement cost or closing cost.
It's important for you to know that a licensee, who receives a referral fee, must disclose it. It can't be on the sly or under the table. The person or persons it must be disclosed to are the principles in the transaction, the buyer and seller.
Failure to comply with RESPA's prohibitions against referral fees and "kick-backs" could result in, among other things, a fine up to $10,000 for each violation and imprisonment for up to one year. Furthermore, the United States Department of Housing and Urban Development, state attorney generals and state insurance commissioners may bring "an action to enjoying RESPA violations." The word "enjoying" isn't being used in a positive way in this regard.
Aside from governmental enforcement, an individual consumer may file a civil lawsuit to recover an amount equal to three times the amount of the illegal referral fee, plus attorney's fees and court costs.
Do you still think your friend should give you referral fees?
The best thing you can do, as you suggested yourself, is to get your own license. This way you and your friend can make a good living and stay out of jail.
Not violating RESPA is a matter of good Home $$$s and Sense.
Sue Thompson is owner and sales manager of HomeTown Realtors. She can be reached at email@example.com.