RE: REFERRAL FEES
Commissions belong to the Broker. The agent’s right to commission is based exclusively upon his/her written agreement with the Broker (i.e. Independent Contractor Agreement).
Payment of referral fees between brokers is fine. Payment of referral fees between agents is also fine so long as payment is made through the Broker and disclosed.
Business & Professions §10131 requires a real estate license for anyone who:
1. Solicits prospective Sellers;
2. Solicits prospective Buyers; and
3. Solicits prospective borrowers and lenders.
Referral fees to unlicensed persons are generally prohibited in California and under RESPA. However, both California and RESPA allow payment of a nominal amount as a token of appreciation under limited circumstances.
Consider this example where a referral fee is unlawful. A real estate agent cannot advertise that he/she will pay a referral fee to anyone who “solicits” a Buyer or Seller. You cannot print flyers offering “$500.00 for each referral” and circulate those in the neighborhoods that you canvas.
The key term is “solicit”. A real estate agent cannot pay a referral fee for any “solicited” referral. However, a real estate agent can pay a nominal referral fee for an “unsolicited” referral. An “unsolicited” referral is best illustrated by example.
As a first example, assume that a past client of yours calls you and says ” a friend of mine wants to buy a house and I am referring him to you”. You thank your past client and offer to pay him $500.00 as a token of your appreciation upon close of the transaction. Payment of that nominal referral fee is permitted because the referral was not “solicited”.
As a second example, assume that you met Joe at a party. Joe says to you “I have a friend interested in selling his house” and gives you his friend’s phone number. You thank Joe and offer to pay him $500.00 as a token of your appreciation upon close of the transaction. Payment of that nominal referral fee is permitted because the referral was not “solicited”.
An agent may pay an unlicensed person a referral fee only for an “unsolicited” referral as a token of appreciation. An agent may never pay a referral fee for a “solicited” referral.
The amount of the referral fee must be minimal and appear as a mere token of appreciation. Anything more may violate California law, RESPA, or both.
Agents are advised to proceed very cautiously in this area.