Is it Legal to Earn a Commission on an Assignment Fee?

Question

I am working on a website that lets investors who have a purchase agreement assign that agreement to an end-buyer, in exchange for an assignment fee. I know that a non-Realtor can't charge a commission on a sale, but can said person charge a percentage on the assignment fee, for example, having the potential end buyer put up 10% of the assignment fee into an escrow account, and then if the deal goes through, the company gets to keep that escrow amount.

All views on this would be appreciated.

Kathy Batesel · Answer

There was a recent lawsuit about this that I ran across. I'm sorry I can't refer to it directly or even remember many details, but what stuck with me is that this remains an unsettled area of the law.

It had to do with a website doing something similar to what you've described. In some states, it's illegal to pay a finder's fee or assignment fee to a person who isn't a real estate broker.

The legal question that seemed to arise is whether the payment is a "marketing fee" or a "finder's fee."

Joe Kamenar · Answer

OK, thanks everyone, that basically confirms my suspicion on this one.

J Scott · Answer

It might be legal if the buyer is paying a fee regardless of whether they successfully find an end-buyer and if the fee is fixed as opposed to be a percentage of the assignment fee.  But I agree that taking a percentage of the assignment fee is almost definitely not legal.

Mark H. · Answer

I think you'll find that the answer is no.    The heart of the matter is that you're marketing property for someone else & collecting a fee - that requires a license.

Joe Kamenar · Answer

Yes, but you can create a website that lets assignors post their property so that potential assignees can take a look at it and then decide if they want to purchase the assignment. That is the business model and the question is can the company get a percentage of the assignment fee.

J Scott · Answer

I'm not an attorney, but this sounds like brokering real estate without a license to me.  Technically, you can't be marketing a property to buyers if you don't have a marketable interest in the property, and that's what it appears you want to be doing.

Not saying there aren't legal loopholes that you could find to do it, but you're going to want to consult an attorney if you go that route.

Again, just my non-professional $.02...