Is it legal to pay referral fees to other brokers?

We do commercial loan workouts. I would like to pay a referral fee to brokers who send me prospects that become clients who own commercial buildings and need help obtaining a workout solution. We have a good team here and get good results. Is it legal to pay a referral fee for this kind of deal? How much is fair to pay?
In Market Conditions - Asked by KC R. - Oct 26, 2010
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Answer(s)

Shoshana K.
Broker/Agent
Encino, CA

no

Oct 27, 2010
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Mark K.
Lender/Mortgage Broker
Haddon Heights, NJ

Why not ? It is not a real estate transaction - it involves the financing of the property.

Oct 27, 2010
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KC R.
Carlsbad, CA

OK - which is it? Yes or no? I am confused. I know you cannot pay referral fees in CA for residential loans as it may prevent unsavy residential borrowers from shopping for the best rates. However in commercial loan workouts we have property owners who are business people - even accredited investors and they fall under a different category of non-consumer protection I have heard. So if someone refers me a client for a commercial loan workout, I can't see why I should not be able to pay them a referral fee as long as I have an agreement and a W-9 to report the income, correct?

Oct 27, 2010
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Evelyn K.
Broker/Agent
Hemphill, TX

Check your state rules about getting involved in the financing end of a real estate transaction. Ask them what is legal.
As a real estate broker here in Texas, I can pay another broker who sends me a buyer. If that broker has the agent working for him/her then it is the broker's responsibility to pay that agent.

Oct 28, 2010
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Michael D.
Broker/Agent
Encino, CA

Licensed Real Estate Brokers can pay other licensed Real Estate Brokers referral fees. If you are talking about unlicensed people this is a legal question and should be referred to an attorney or contact the DRE direct for the exact answer.

Oct 28, 2010
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Frank N.
Broker/Agent
Phoenix, AZ

This is going to vary state to state, although I would guess it there are only a very small number of states where it would be legal. In my state, Arizona, it would definately not be legal. Check with your state's department of Real Estate and department of Financial Institutions as you would have to comply with the regulations of both.

Oct 29, 2010
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Chet M.
Developer
Cupertino, CA

Why not? What specific law prohibits this in CA for commercial transactions?

Apr 3, 2011
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Leah H.
Hopkins, SC

As a real estate agent we cannot accept payment for anything other then the purchase or sale of real estate. As a matter of fact a recent ruling came down that the home warranty companies that previously paid referral fees can no longer pay agents for the sale of a warranty to a buyer. As licensed professionals we must have long-arm dealings with all parties.
You can do one of two things to effectively strengthen your network of brokers. One way is to refer business to them whether residential or commercial. Another way to strengthen you brokers network is to have educational seminars where you provide CE credits. Simply call the local CCIM association for details. If that is cost prohibitive you can also call the local Realtors association to organize a commercial real estate oriented seminar.
Best of luck.
Leah Henderson, Realtor

Aug 17, 2011
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