BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
BLANKET REFERRAL AND COMMISSION AGREEMENTS
Q: I received an email solicitation to sign up to receive referrals from an internet site which promised me “many qualified leads in my area.” I had been selected, it said, because I was a “leading agent” in my area. To receive the referrals I had to agree to pay a flat annual fee for each zip code for which I would have an “exclusive right to receive referrals.” I also had to sign an exclusive referral agreement that said I would pay a referral fee on any referral prospect who sells or buys through me.
At first, I received a bunch of referrals, but they were not quality referrals at all. Some prospects had no idea why I was calling. Others were difficult, demanding, for example, a huge reduction in my commission on the listing side, or a payment of most of my commission to them as buyers. Others never even responded. Since that first flurry of activity, the number of referrals has dwindled, and the quality is still not good.
After two years, I have still closed no sales after paying a fee each year for the exclusive rights to my zip codes. But, that’s not all; it gets worse: this company is now claiming a referral fee from a seller who, unbeknownst to me, started working with a fellow agent in my office and closed a sale. The internet referral company pointed out that the seller in question had been on a list sent to me, and that the agreement signed by me obligates me, and any agent working for my company, to pay them a referral fee. I re-read the agreement and, in the smallest of print, that is what it says.
Is that fair? How can they do that? What can I do?
A: Your situation points out the pitfalls of working with “blanket referral agreements.”
In answer to your questions: It is not fair. They do it because they can, it is lucrative, and they get away with it most of the time. There may be little that you can do in this situation; but, discuss with your manager whether the company needs to comply with the request, or if there may be a legal defense to the claim of the referral company.
Many of those promoting these referral programs are internet-based companies with slick websites and promises of many referrals. But most are nothing but hard-sell boiler-room operations trying to sign up as many real estate agents as possible and collect fees from each.
Their list of “qualified prospects” may be nothing more than a list of sellers against whom a Notice of Default has been recorded, or just visitors who have registered at their website with no attempt to qualify them.
A similar problem can come up in non-internet contexts as well. For example, a listing agent may have a non-exclusive “pocket listing” and require, as a condition of exposing the listing to you, that you sign an agreement that if you represent any buyer on the property you will go through the listing agent, or will owe a commission to that listing agent.
Some of those agreements cover not only the agent signing it, but also all agents in that signing agent’s brokerage. So, if a different agent in your company represents a buyer and they go through another “listing agent,” who does not have an exclusive listing either, then the first listing agent will claim a commission is due to them.
PRACTICE TIPS:
1. Do not sign any referral agreement unless you have read it to be sure that it applies to you only, and not your entire company. Check with your manager if you have any questions.
2. Be cautious before paying any company, internet or not, money up-front to receive referrals. Most of those provide little value for the money you have spent. Some are outright scams.
3. Before you sign any exclusive agreement with any listing agent to go through them if they expose a non-MLS property to you to show to your buyer, read the document to be sure that it covers just you, and not other agents in your company. Also, make sure it has a definite, and reasonably short, termination date.
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2010 03/19/10
