Thread: Whats the rules on referrals?

You must be careful referring clients to supporting real estate professionals such as escrow companies. There was a lot of dirty illegal kickbacks going around for awhile. These practices caused the creation of over zealous laws against referral gifts or fees from supporting services.

It is best to put together a list of at least three members of each supporting industry and refer your clients to all three. If you follow this advice you should avoid problems associated with the illegal kickbacks law.

Now as far as referring a client to another agent you can request a referral fee be paid. These normally range between 20% and 35% with 25% referral fees being the norm. In this circumstance only a licensed agent can recieve the referral fee and it must be paid through the broker of the recipant.

you may want to check directly with them. there can be a lot of contradictory rules on refferal fees. The CA DRE has stated it is ok to pay refferal fees however HUD does not.

Referral fees for related services are just not worth it IMHO. Like James said, there are some overzealous laws that must strictly be adhered to. I just don't think it is worth it.

So you guys all give your clients options on whom they want to choose? Iam just curious on the reasoning behind it. For instance, if I know an inspector will give me a referral fee, why wouldnt I always go with him?

Or, if I know I can get a kickback from a Loan Company, why wouldnt I tell my client about a " Great Rate". I cant see why this would ethically wrong if it is, in fact a benefit to my client. That is our moral and professional duty isnt it?

And for referring an Agent to another, you guys quoted some percentages. What percentage are you referring to? The commision?

Thanks guys for the replys.. I thought this forum might be dead a little.

Ry

I don't recommend a service provider based on referrals/kickbacks. Maybe unethical, probably illegal unless you do it just right etc. But I do recommend services that are IMHO a good idea, such as a home warranty, an inspection, survey etc. But really careful about lenders, I tell them to talk to their bank first, or you can call the lady who I have used many times in the past, she has really solved problems and come thru for me in the past. If you recommend someone and there is a problem, they will blame you!

Originally Posted by AgentsBuddy

So you guys all give your clients options on whom they want to choose? Iam just curious on the reasoning behind it. For instance, if I know an inspector will give me a referral fee, why wouldnt I always go with him?

Or, if I know I can get a kickback from a Loan Company, why wouldnt I tell my client about a " Great Rate". I cant see why this would ethically wrong if it is, in fact a benefit to my client. That is our moral and professional duty isnt it?

And for referring an Agent to another, you guys quoted some percentages. What percentage are you referring to? The commision?

Thanks guys for the replys.. I thought this forum might be dead a little.

Ry

The term "kickback" alone has a negative connotation to it. You seem to be fairly flippant about something so serious. The problem with referring one company and one company alone - and you getting a kickback for it - is that typically it is NOT in the client's best interest. There's this thing called competition and you have no way of knowing that another lender can't beat that rate or provide better service to your client if you are only recommending and working with one lender.
Let's say you only recommend one home inspector because he gives you $50 per referral...what happens when that home inspector makes a HUGE mistake and one that the buyers (your clients) decide to sue for (an oversight, misrepresentation, etc.). You are now in the line of legal fire because you are the one who referred him, received a kickback and never presented any other options to clients who are counting on you to represent their best interests.
As for agent referrals, if you refer a client to another then you will negotiate the referral fee. It's a percentage based on the commission. So...if the agent's commission is $5000 and you negotiated a 25% referral fee, then that agent will pay you $1250.

Just do not do it you will end up getting in trouble.