Dave Thurman's Real Estate Blog

I recently had a client asking about referral fees and/or gifts from licensed real estate agents. You might think this is a very simple question, but it is not!!! Here is some information from the California Association of Realtors web site.

Question:

I am a REALTOR® and I want to give a gift to a friend for referring a client to me.  Is that legal?

Answer:

The answer depends on several factors.  First, what type of property is involved in the resulting transaction? Second, is your “friend” a real estate licensee, an unlicensed person, or an employee of a company providing special services such as title insurance or pest control work?

There is a legal article, Referral Fee Chart, that illustrates when you can or cannot give a “gift” (any amount of money or any other type of consideration).  In addition, there is a detailed legal article on the same topic, Referral Arrangements.

If you deal with residential one-to-four properties and your friend is a non-licensee unaffiliated with any type of special service company, then federal law–RESPA–generally forbids the giving of a referral fee (any type of gift) to your friend.  The term “generally” is used because RESPA does not forbid a referral fee if the buyer purchases the property using all cash or a loan from an individual who doesn’t typically loan money to borrrowers.

If you deal with residential five or more properties or commercial or industrial or agricultural property, then you may give a referral fee to a non-licensee who is not affiliated with a provider of special services.

Finally, the same rules apply regardless of what you call the “gift”:   a referral fee or a finder’s fee.