Question

Can a Realtor give a referral fee to an attorney who recommended them to a client?

Answer

With respect to payment of a referral fee to an unlicensed person, the Washington State License Law says that a real estate licensee may pay a referral fee to a third party, unlicensed person so long as payment of the referral fee is not contingent upon receipt of compensation by the licensee or the real estate firm. There is no difference, with respect to this issue, between a lawyer and any other third party who does not hold a RE license. There is no dollar limit on the referral fee/gift card that may be paid. Advertising the referral fee/gift card is no problem except that advertising that the referral fee will be paid at closing is not allowed because that means that payment is contingent on a successful closing. If broker wants to pay a referral fee to an unlicensed person, the referral fee is due regardless of whether the referral results in a successful transaction for broker or not. It should be remembered that the License Law is a state law. However, federal law is not so clear on these points. RESPA, a federal law (""Real Estate Settlement Procedures Act""), seems to indicate that any payment that is made in direct exchange for a referral, is prohibited. RESPA prohibits settlement service providers from giving or receiving anything of value in exchange for a referral. ""Settlement service provider"" is a broadly defined term which could include unlicensed, non professional individuals. HUD has not indicated whether RESPA prohibits the payment of referral fees to unlicensed, non-professional people. Accordingly, there is a fair amount of confusion on this issue around the country. This is a practice in which many agents engage and to the knowledge of the Hotline lawyer, HUD has not prosecuted real estate licensees for this practice. If HUD had reason to believe that such payments resulted in a higher fee ultimately being charged to a buyer or seller, then HUD would prosecute. At this point, the Hotline lawyer advises that the payment of referral fees to unlicensed people (not contingent on a successful outcome) can be lawful under state law but seems to violate the plain language of RESPA. Accordingly, licensee should consult with her DB and/or legal counsel on this issue and determine how to proceed only in conjunction with DB's permission.

Date of Posting

10/16/2020

Legal Disclaimer

The Legal Hotline Lawyer does not represent Washington REALTORS® or its members. The advice contained herein does not constitute legal counsel. Please consult with your managing broker for best practices.

Association Name

WHATCOM COUNTY ASSOCIATION OF REALTORS® INC