Paying Finders Fees/Referral Fees to Unlicensed Individuals

Real Estate Fees to Unlicensed Individual

Can a real estate licensee pay a referral fee or finder’s fee to an unlicensed person?

A real estate licensee who receives a referral may give the referring party a small token of appreciation. After a real estate licensee has already received a referral, he or she may give the referring party a small token of appreciation, such as a potted plant or movie tickets.  This arrangement would not violate Real Estate Settlement Procedures Act (RESPA) which generally applies to most residential one-to-four unit transactions.  More specifically, RESPA applies to transactions involving a “federally related mortgage loan.” if there was a prior agreement that the referring party would receive that gift in exchange for the referral.  Also, any gift, no matter how small, may be covered under RESPA, but a small token of appreciation after a referral has already been received should pass scrutiny

Non-RESPA transactions such as the sale of commercial property, residential property with five or more units, agricultural property or vacant land—basically any property other than residential one-to-four unit property–or a transaction not involving a federally-related mortgage loan (e.g., private one-time lender or an all-cash deal), California law allows a real estate agent to pay a referral fee to an unlicensed person for merely introducing a new client  are exempt from the RESPA rules. If, however, the unlicensed person goes beyond arranging an introduction, such as by negotiating the terms of sale on behalf of a principal, the real estate agent may not compensate the unlicensed person for performing licensed acts (Cal. Bus. & Prof. Code § 10138).

For further questions  call Contract Support Manager or read CAR Q&A-Referral Fees