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          Home Referral Fees

          Can I Pay You Referral Fees?

          Chuck Marunde by Chuck Marunde
          November 1, 2018
          Reading Time: 3 mins read
          0 0
          10

          Can a Realtor pay referral fees to non-licensees?

          I’m a Realtor who would like to pay referral fees.   If you are not a licensed Realtor, can I pay you a referral fee for sending me business?   The answer may fascinate you.  It certainly fascinates me.

          Referral Fees in Washington

          Both state and federal law restrict the payment of a referral fee to an unlicensed third party, although it appears neither jurisdiction will enforce the restrictions.   I’m not interested in violating the law, even if it is unenforced, but there is more to the story.   Read on, because it turns out that I can pay referrals fees, provided they are paid under very specific circumstances.   As a retired real estate attorney I must admit I get a real kick out of these exceptions.

          Washington State Law on Referral Fees

          The Department of Licensing describes the practice of promising to pay a gift to an unlicensed person as unlawful under Washington law. However, under existing Department practices, it is not likely that this conduct will be prosecuted because it does not harm consumers. At its core, the Department of Licensing is a consumer protection agency. While the strict language of the Licensing Law prohibits an organized and advertised plan to pay a referral fee to an unlicensed third party, the Department believes that this conduct causes no harm to consumers. With limited resources available to prosecute real estate agent misconduct, the Department is likely to expend its prosecution efforts on violations that result in real harm to consumers. That is the current stated position of the Department. It could change.  

          If the referral fee is paid spontaneously, in other words, the agent had not promised to pay a referral fee in exchange for the giving of a referral, then the Department’s position is that it is lawful to pay such a referral fee.

          Federal Law on Referral Fees

          RESPA (The Real Estate Settlement and Procedures Act), a federal law, dictates that any payment made to another settlement service provider (except a licensed broker or agent), in direct exchange for a referral, is prohibited. The definition of a settlement service provider seems to be broad enough to include unlicensed, third parties. Nevertheless, payment of referral fees to friends and past clients is a common practice among agents  across the country.  HUD does not prosecute agents for this practice.   It may be that HUD does not prosecute real estate agents for the payment of referral fees to third parties because, like the Department of Licensing, HUD believes there is no harm to consumers from this action. Or, it could be that HUD’s prosecution resources are dedicated to other violations and HUD will prosecute agents for these payments when resources become available. If HUD has reason to believe that such payments result in a higher fee to a consumer, HUD will be more likely to prosecute.

          Conclusion

          Referral fees to non-licensees are not legal under state law, but referral fees to non-licensees are legal if they are “spontaneous.”  You couldn’t make this stuff up.   Truth really is stranger than fiction.   I love this stuff!   Mostly because it could mean money for you and me, but also because stupid laws deserve loopholes.   What do you think?   Want to send me some referrals.   No I can’t promise you anything . . . but you might check your mailbox shortly after the transaction closes.   That’s not a contractual promise, nor is it a subtle promise.   It is only a veiled hint of a potential “spontaneous” referral fee.   Sorry, just trying to comply with the law here.

          [Source of State and Federal law:   Washington Realtor magazine, May/June of 2008]

          Referral Fees can be paid if done correctly. See also Sequim Referral Broker or Sequim Referral Agent.

          Last Updated on November 1, 2018 by Chuck Marunde

          Tags: referral fee
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          Chuck Marunde

          Chuck Marunde

          Chuck grew up in remote Alaska, graduated from the University of Alaska with a degree in Economics and Teacher Certification, and after teaching high school for two years, went to law school at Gonzaga University in Spokane, Washington. He served four years as a Captain and JAG in the USAF at Nellis AFB in Las Vegas. After practicing real estate law for 20 years in Washington, Chuck founded iRealty Virtual Brokers covering Sequim and the beautiful Olympic Peninsula. He is the author of 2,200 real estate articles and a dozen real estate books, and he produced over 100 real estate videos. Chuck combined his love for real estate and technology to create a massive Internet presence, and his articles and videos and books have been viewed by millions. Chuck is a well recognized real estate expert and his counsel is sought by other brokers and practicing attorneys around the country. Buyers from New York to Hawaii and from Florida to Alaska seek him out to retain him as their buyer's agent, and home owners around the State of Washington seek him out because of his new Flat Fee Listing Service. 

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          Comments 10

          1. Moon Cook says:
            14 years ago

            I guess this is going to become less critical because of the world financial depression. What do you think?

            Editor: I think you’ve been drinking too much Kool-Aid.

            Reply
          2. Petilucci says:
            13 years ago

            Great! I love the idea of helping people do good things, and whenever some “consumer protection” rule is created by a bureaucrat, it often hinders good people from working together to help each other in good ways. Bravo to you and this whole idea, which as you point out, is legal and ethical.

            Reply
          3. Max says:
            12 years ago

            Sweet! If I could send you referrals, I surely would.

            Reply
          4. Website says:
            12 years ago

            Love your Sequim real estate blog. It’s great reading, and there’s some really fantastic content here. Thank you for doing this free for people like me and my wife.

            Reply
          5. Stephen says:
            12 years ago

            I wonder how someone even decided that it had to be “spontaneous”? It looks like those who wrote these laws were not actually associated with the industry and thus could not create a law that actually applied to the practices being put into procedure.

            Reply
          6. Chaz says:
            12 years ago

            I agree I have given many “gifts” to people who have sent me customers to sell or buy homes and it was spontaneous and by no means extravagant; fruit basket, flowers, Dairy Queen gift card not hurting any consumer just saying thanks.. How many times have I sat at the Dr’s office and have seen sales people (drug sellers) come in with literally hundreds of dollars worth of extravagant breakfast or lunch spreads dozens for me or how about bankers coming by our offices during Christmas with poinsettas gift baskets..no harm no foul..My neighbor is the manager of a drug store chain and he sells all of the promotional items left to him from vendors..I will think twice from now on.

            Reply
          7. Darin says:
            11 years ago

            Non-realtors CAN be paid for referring a buyer. Its called an Assignment Fee. Non-realtor signs a contract that discloses their intentions. In other words the Assignment of rights under a contract is the complete transfer of the rights to receive the benefits accruing to one of the parties to that contract. Its common law.

            Reply
          8. Ziggy says:
            11 years ago

            I like the idea of a referral fee. I’ll see what I can do. Thanks

            Reply
          9. Jan says:
            10 years ago

            I love this idea of referral fees.

            Reply
          10. Justina says:
            10 years ago

            Very good article about referral fees. I did not know this was possible.

            Reply

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