Staying above board: Referral Fees

In medieval Europe, keeping things ‘above board’ meant everyone around a table kept their hands visible, above the table. This way everyone could be sure no one was hiding a weapon or conducting secret business ‘under the table.’

Both expressions remain, and so does their deeper meaning: if we conduct our dealings where everyone can see, with full disclosure and transparency, everyone can feel more comfortable trusting everyone else.

In real estate, there can be many people around the table. Buyers, sellers, real estate professionals, mortgage professionals, appraisal professionals, home inspectors, lawyers, stagers, cleaners, movers, and so on.

Many professionals have existing relationships with third-party service providers, and may refer their clients to a mortgage broker, home inspector, or cleaner. They trust the person or company they are referring to, and believe using the services of the third party is in the best interest of their client, even if by referring a client the referrer collects a referral fee.

This is all perfectly legal, but it must be done above board, where everyone is aware of what is going on.

Industry professionals must always receive payment through their brokerage

Any fees or commissions you will receive must come through your brokerage. This includes referral fees. Industry professionals cannot receive payment directly, and they cannot directly pay a referral fee to someone. The fee must go through the brokerage. The brokerage will then pay the specific professional in accordance with the brokerage policies and any agreements that exist between the professional and their brokerage.

Likewise, if, for example, you are a mortgage associate, and a real estate associate thinks you can help their clients and refers them to you in exchange for a referral fee, that fee must be above board. Your brokerage must pay the real estate associate’s brokerage. It cannot go under the table from you to them directly.

Industry professionals must always disclose the details of referrals to clients

When an industry professional will receive a referral fee or other compensation for referring a client to a third party, before making that referral, they must disclose to their client, in writing:

• that they will be giving the client’s confidential information to a third party
• the nature of the information being shared (name, address, contact info, etc.)
• the fact the industry professional will receive a fee or other compensation for the referral

After the industry professional provides those disclosures, the clients must give their consent, in writing, to the professional to share their information with a third party. Remember, even a client’s name, phone number or email are private, confidential information.

Industry professionals should strive to build trust and confidence in the industry and its professionals. There are perhaps no better tools for doing so than being honest, making full disclosure, and keeping everything above board.