Real estate agents can pay referral fees to licensed persons. Most state laws prohibit the paying of referral fees to unlicensed persons. Federal law also prohibits this in most cases. This law was defined in the Real Estate Settlements and Procedures Act (RESPA), passed by Congress in 1974. It governs many real estate transactions in which the government is involved.
Who Can Receive Referral Fees?
Referral fees often inflate the cost of real estate. In certain states, inactive salespeople can be paid referral fees, as well as salespeople who are considered active and are affiliated with a firm. Active salespeople can only receive compensation from the broker they are affiliated with. Licenses can only be changed from active to inactive, and vice versa, during a renewal.
Some states allow unlicensed individuals to receive compensation for referrals on the sole condition that the recipient of the fee not be involved in the real estate transaction itself.
How Are Referral Fees Paid?
Referral fees are paid from broker to broker rather than between individual agents. Referral agreements are paid between cooperating brokers. The broker will then pay the agent.
It is illegal for a broker to hire or compensate someone without a proper license for acts that require a license. Many companies use websites, social media or online ads to complete referrals, but this can be dangerous as it is more difficult to discern people's trustworthiness or know what qualifications they have.
If a referral fee is paid to someone without the proper qualifications, the people who paid the fee could have their own qualifications removed.