FAQs: Referrals

Q. 1: Can an agent send out a mailer to past clients offering to give them a $100 gift certificate to a local restaurant as a thank you for referring a seller to the agent? Can a broker who manages a rental property offer a $100 rent credit to any tenant who refers a friend who rents an apartment?

A. 1: The answer to both questions is, no. Under Ohio law only a licensee can be compensated for referring prospects to another licensee. An unlicensed person cannot be compensated in anyway for referring sales or leasing prospects to a licensee. This prohibition applies to all non-licensees, including past clients, current tenants, builders, attorneys, etc.

Q. 2: I have listed property for a builder. He wants to offer a finder’s fee to anyone who sends him a buyer. He would like me to advertise this promotion. Is it legal and can I advertise this fee?

A. 2: In order for someone to legally receive such a finder’s fee from the builder, that person would need to be licensed as an Ohio real estate sales person or broker. Thus, if this finder’s fee is being offered to unlicensed persons, you should not participate in marketing it to the public.

Q. 3: I have a commercial property listed for sale. I have been contacted by a “consultant” who is working with an out-of-state buyer who is interested in purchasing the property. He is seeking a “consulting” fee from me for his services. He is not licensed in Ohio or any other state. Can I pay him?

A. 3: The A. depends on what services he is providing as a consultant. If he is seeking compensation for acts that require a license you cannot pay him since he does not hold any real estate license. Such acts would include procuring the buyer, showing the property, writing and negotiating the offer, etc. On the other hand, if he is performing acts that do not require a license such as architectural or design services, you could legally pay for these services.

Q. 4: Can my brokerage pay a referral fee to a broker licensed in another state? Can I receive a referral fee from an out-of-state broker?

A. 4: Yes. Under Ohio license law you can pay a referral fee to a broker licensed in another state and receive a fee from them.

Q. 5: A broker in another state is offering to send me a referral. The amount of compensation he is seeking is equal to what I normally offer as a “co-op” fee. Is there any limit to the amount of referral fee I can pay?

A. 5: No. The amount of the referral fee is negotiable between you and the other broker.

Q. 6: I got an email from an out-of-state company offering to sell me leads. Can I pay for such leads?

A. 6: Fees for leads or referrals can only be paid to persons who hold either an Ohio real estate license or a real estate license in another state. Therefore, you must verify that this company holds a broker’s license in either Ohio or another state before you compensate that company for a “lead.”

Q. 7: I deal with relocation companies from around the country and send them a portion of my commission. Do they have to be licensed in order for me to pay them?

A. 7: Yes. Under Ohio license law it is a violation to pay or split a commission with an unlicensed person or entity. Therefore, before you agree to split your commission or pay a referral fee to a relocation company, you need to verify that it is licensed either in Ohio or in another state.

Q. 8: My agent was offered a referral fee from an out of state broker. Can he collect that in his own name or does it have to be made payable to the broker?

A. 8: Under Ohio license law, all fees paid in conjunction with a real estate transaction must be collected in the name of the broker. Thus, the compensation paid for the referral must be handled the same as commissions, broker to broker. A referral fee must be paid to the broker, not directly to the agent who made the referral.

Q. 9: I placed my sales license on an inactive status. If I refer one of my relatives to my former brokerage can I receive a referral fee?

A. 9: No. Only a licensee whose license is active can be paid a referral fee for referring prospects to another licensee. An individual with an inactive license (the license is in the possession of the Ohio Division of Real Estate and Professional Licensing) is viewed the same as an unlicensed person and cannot be compensated for a referral. If you want to be compensated for referrals, you must keep your license active.

Q. 10: I am thinking of retiring and closing my brokerage business. I made a referral several months ago to another broker. If the transaction closes after I have returned my license to the Division, can I still collect the referral fee?

A. 10: As long as you had an active license at the time you made the referral, you can still be paid. Therefore, because you were actively licensed when you made the referral, you can be paid even though the transaction closed after you retired from real estate.

Q. 11: Can a lender pay a fee to a real estate broker for referring buyers to the lender?

A. 11: No. The referral fee is prohibited under section 8 of RESPA.

Q. 12: I have season tickets to Ohio State football games. Can I take a mortgage broker who refers me a lot of business to a game as away of thanking him?

A. 12: Because there is a value to these football tickets, this could be perceived by HUD as a RESPA violation if the ticket is linked to a referral of business. Therefore such a practice is not recommended.

Q. 13: Is it a RESPA violation for a real estate broker to rent office or desk space to a lender?

A. 13: No. However, the rent the broker charges the lender must be the general market rate for the office space leased. Any amount charged in excess of the market rate could be viewed as a means to disguise referral payments. Rent cannot be based on the number of referrals or value of business generated from the location.

Q. 14: A mortgage company that I send a lot of buyers to approached me about doing joint advertising. The mortgage broker indicated that he would pay for the ad. Is that permissible under RESPA?

A. 14: While joint advertising is not prohibited, payment of the entire cost of the ad by the mortgage broker could be construed as hidden compensation for referrals you send them. Therefore, you should pay your proportional share of this marketing expense.