Test Your Knowledge – Q & A on Referral Fees

(Source:  Reprinted from the October 12, 2011 edition of the N.C. REALTOR Report published by The NC Association of REALTORS)

QUESTION: A broker in my firm recently referred a seller who owns a property in a different market area to a local firm there to list the seller’s home. My broker orally disclosed to the seller at the time of the referral that our firm would expect to receive a referral fee from the listing firm if the property closed during the term of the listing, and she entered into a referral agreement with the other firm using NCAR’s Referral Agreement form (form 730). The property went under contract and is set to close but now for some reason the seller claims that he was unaware of the referral agreement and is threatening to turn my broker in to the Real Estate Commission. Has my broker done anything wrong?


ANSWER: Subsection (b) of Real Estate Commission Rule 58A.0109 prohibits a real estate licensee from receiving a fee for real estate-related services which the licensee “recommends, procures or arranges … for a party without full and timely disclosure to such party.” Subsection (d) of the Rule provides that “full disclosure” includes “a description of the compensation, incentive, bonus, rebate, or other consideration including its value and the identity of the person or party by whom it will or may be paid.”

Although it appears that your agent substantially complied with the Rule, it’s not clear from your question whether she complied with the requirement that the value of the referral fee be disclosed to the seller; that is, how much the expected referral fee would be. Of course, if the fee were expressed as a percentage of the compensation received by the listing firm as a result of any sale, the exact amount of the fee would be unknown at the time of the referral. However, in such a case, disclosing the percentage of the listing firm’s compensation that your firm would expect to be paid for the referral would be sufficient for purposes of complying with the Rule.

The Rule does not specifically require that disclosure of a referral fee to a party be in writing, but it clearly should be in order to refute a later allegation by the party that disclosure wasn’t made. There are different ways this could be accomplished. One way would be to provide the party with a copy of the referral agreement itself and document it by having them acknowledge receipt by signature or reply email.

(Source:  Reprinted from the October 12, 2011 edition of the N.C. REALTOR Report published by The NC Association of REALTORS)