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.
How do I conduct a referral to another agent?
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?
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.
An unlicensed person referred business to me. Can I pay him a fee in return?
You may give an unlicensed person a non-cash gift worth $50 or less in exchange for a referral and not violate The Real Estate License Act (TRELA) or Texas Real Estate Commission rules. According to TRELA, if a referral is made with the expectation of receiving valuable consideration, the person making the referral must be licensed under the act. Under Section 535.20 of TREC rules, gifts of merchandise having a value of $50 or less do not count as valuable consideration.
A bank gift card that can be converted to cash or credit or any amount of cash or credit toward rent owed are not allowed to be used as gifts to an unlicensed person in exchange for a referral, according to TREC.
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?
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?
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?
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?
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.
I started working with a client before learning she was locked with an affinity group or relocation company. Do I have to pay a referral fee to the relocation company?
No. If you do not have an agreement with the affinity group or relocation company, there is no legal obligation to pay the referral fee. However, this may put your client in a difficult position because in most of these relationships the employee will lose her benefits if she does not follow the rules. If you insist on not paying a referral fee, the client will have to pay more to work with you because of the loss of benefits. Many real estate agents have adopted a policy to ask potential clients up front if they have any agreements with other service providers to avoid surprises later.
Worldwide ERC offers resources outlining procedures to facilitate dispute resolution relating to after-the-fact referral fees. Find these resources at worldwideerc.org/interchange.
Are there antitrust implications to this practice?
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.