Nancy Neighbor refers a plum listing to Andy Agent. Agnes Agent has a plum listing, and Benjamin Buyer made an offer that the owner countered. Are these commission splits, or referral fees, legal? Under California law a broker can pay compensation only to another broker or to a duly licensed salesperson through the employing broker.

Even if someone is otherwise entitled to a commission split, if they are unlicensed at the time the compensation is earned it is illegal to compensate that person. It is illegal for a broker to employ or compensate an unlicensed person for acts that require a license.

Payment to someone employed by the broker to perform clerical services or other office functions is not illegal. However, if that person performs services requiring a license, such as answering questions about a listing, promoting a property, or holding an open house, it may be a violation.

Also under California law a broker can share a commission with a party to the transaction, provided that person is not doing any work that would require a license. For example, what if the buyer writes up his or her own purchase offer containing a request for a portion of the commission.

Would not the drafting of the purchase offer be an act requiring a license? There is no prohibition under California law so long as the finder does not perform any services requiring a license. A finder is someone whose only act is introducing a prospective buyer or seller to one another or to an agent.

In one case a broker made an agreement with a landlord to receive a commission if the broker found a tenant. The broker offered an attorney a third of his commission if the attorney introduced him to a tenant. The attorney made the introduction, but remained tangentially involved in the lease negotiations, communicating terms between the parties and advising the landlord. The court held that the attorney had performed acts for which a license was required, and voided the commission agreement as being illegal.

The California Attorney General issued an opinion in that a broker can pay a referral fee to an unlicensed person for a referral so long as the referring person was not soliciting on behalf of the broker.

The matter is different under federal law. RESPA covers most transactions involving singlefamily residences in properties of one to four units.

This prohibition applies to both licensees and laypersons. RESPA prohibits either giving or receiving any consideration or thing of value pursuant to any agreement or understanding that it is in exchange for referral of business relating to a real estate settlement. RESPA goes on to prohibit the giving or accepting any portion, split, or percentage of any charge relating to a settlement service other than for services actually performed. Thus if someone did not actually do work to earn the kickback or comission split, it is likely that payment to them will be illegal.

Some examples of prohibited practices are: Additionally an affected consumer can bring a civil action for damages three times the amount of any charge paid that violates RESPA, plus attorney fees and court costs. Authorities differ in their opinions of what does and does not constitute violations of either state or federal law.

Is a financial advisor allowed to pay a referral fee? | Investopedia

Also slight differences in the facts can affect the outcome. This article is a general discussion and is not intended to address any specific situation. It is best to stay on the conservative side, and if in doubt contact a knowledgeable real estate lawyer for guidance.

Kelley 9 Cal. Monter Rainbow 12 Cal. The Law Office of Peter N. Brewer and his firm also represent clients in debt collection, breach of contract matters, and other litigation and transactional work.

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The Law & You: Don't Pay Illegal Referral Fees | Realtor Magazine

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