BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Several questions have arisen as to the handling of referral fees between agents after the NAR settlement. The following addresses the handling and recommendations.
SCENARIO NO. 1: I am a listing agent. In my practice, I do not represent both buyers and sellers in the sale of the same property. I received a call from a buyer who wants to write an offer on my listing. I would like to refer that buyer to a colleague in my office and receive a 20% referral fee. How do I handle the documentation for that referral fee?
ANSWER: The primary concern of plaintiffs in the various NAR class action antitrust lawsuits was to ensure complete transparency in the payment of commissions to real estate agents. The second concern was to ensure consent by the buyers and sellers for any compensation paid to agents. Therefore, it is recommended that if the referral fee is to be paid, the buyer and seller consent to it.
Broker Risk Management (“BRM”) has prepared a Referral Fee Agreement which can be used. BRM recommends that agents refrain from using CAR’s referral agreement until CAR adds a consent by buyer and seller to that form.
SCENARIO NO. 2: I am a listing agent. An agent in another related office referred the seller to me. I would like to pay the agent a referral fee. How do I document that?
ANSWER: Use the BRM referral form, thus ensuringthat you receive the consent of the seller before paying that referral fee.
SCENARIO NO. 3: I am a buyer’s agent, and a buyer was referred to me by another agent. How do I document the referral fee?
ANSWER: Use the BRM referral agreement.
SCENARIO NO. 4: I represent a buyer. The BuyerRepresentation and BrokerCompensation agreement (“BRBC”) states that the buyer is to pay me 4%. If the seller agrees to pay the 4%, can I split it with the buyer?
ANSWER: That is not a recommended practice. The Department of Real Estate has taken the position that commissions may not be shared with non-licensees. Therefore, splitting a commission with a buyer is not recommended. Further, buyer and seller should sign a written consent to any commission splits or credits with your buyer. As indicated, the purpose of the NAR litigation and resulting settlement is to ensure transparency and approval of all commissions paid by the parties.
OTHER RELATED QUESTIONS AND ANSWERS:
Question:I am a listing agent. Can I offer to pay a buyer concession but use the money to pay the buyer’s agent?
Answer:No. Agents are required to obtain consent from their clients to pay commissions and concessions. Agents should not be mixing and matching concessions with commission payments. In other words, if the documentation indicates a credit toward buyer concessions, that credit cannot be used for paying a buyer’s agent without the consent of the seller.
Question: I have been receiving referrals from an out-of-state agent. It is legal to pay those referral fees?
Answer: According to the Department of Real Estate, referrals can be paid to out-of-state agents on an “occasional” basis. If the commissions become regular, which the DRE has not defined, the out-of-state agent needs to be licensed before that agent receives a commission.
PRACTICE TIPS:
- BRM recommends that BRM’s referral fee agreement be used in lieu of CAR’s agreement until CAR’s agreement is amended to include buyer and seller consent.
- No referral fee should be paid to any agent unless the buyer and/or seller consent in writing.
- Regular commissions or referral fees should not be paid to, or received from, out-of-state agents on more than an occasional basis.
- No commission or referral fee should be paid, received, or credited to any party without your client’s written consent.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication 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 LLP. 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