Practice Tip: Referral Fees

Advice from your Mortgage Broker Practice Advisor, Gary Siegle

Most real estate transactions have several different players at the table. Many mortgage professionals have existing relationships with third-party service providers, and you may refer your clients to an insurance broker, home inspector, or cleaner. When you make the referral, you trust the person or company you’re referring someone to, and you believe using the services of the third party is in the best interest of your client—even if you will collect a referral fee.

Collecting a referral fee is perfectly legal, but it must be disclosed to the client by the professional who is receiving the fee.

Before a mortgage professional refers a client to a third-party service provider and you may receive a referral fee or other compensation for the referral, you must disclose to your client, in writing:

• that you 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 you will receive a fee or other compensation for the referral

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

Should a mortgage professional not have written permission from their client to make a referral and possibly receive a referral fee, they’re not entitled to receive a fee.

Another thing to remember is that all referral fees must be paid to you through your brokerage.

Mortgage professionals cannot receive referral fee payments directly, and they cannot directly pay a referral fee to someone directly. The fee must go through the brokerage. The brokerage will then pay the specific mortgage professional in accordance with the brokerage policies and any agreements that exist between the mortgage professional and their brokerage.

Making disclosures in writing and being honest and transparent during a transaction builds trust and confidence in Alberta’s mortgage industry and its professionals.

RECA’s disclosure requirements are laid out in RECA’s Information Bulletin: Referrals – Industry Member Requirements.