The Legality of REIs Paying a Finders Fee to a Realtors, etc. ???

27 Replies

Hello BPers,

I recently met with an experienced realtor who worked for a larger RE brokerage in Arizona that after a decade or more experience remains under the impression that a (non- licensed) investor cannot pay a realtor, etc. (I'm uncertain if that also included mortgage professionals, insurance agents, title company people, etc.?) a "finder's fee" for referring clients, or providing 'leads' or 'lists' compiled from the MLS. It seems (in my limited experience) that every time one approaches a 'realtor...' they either consider an REI a "competitor?" Or they think the NAR and MLS run the industry, and their 'brokerage' (and by extension, they...) are to "report all earnings," and somehow a PROSPECT (vs. a CLIENT) is somehow "brokerage property." If for instance wholesalers had this ATTITUDE, then I wouldn't be working with their 'dead leads' and paying them a 'finder's fee' for referrals they otherwise can do a NOTHING WITH.

Has anyone else had any 'luck' approaching realtors, lenders, credit repair specialists, et al for a mutual "win- win" when they provide contacts that YOU CAN HELP, when they CANNOT? I find this particularly 'aggravating' with RE agents, to date, because they think their employer and/ or peers are going to 'black list' them and/ or you. (Peer pressure?) Or is "taxable compensation" as well as the "treat of loosing one's license" the crux of the matter, here?! And thank you for your input, in advance! WST

Updated 2 months ago

And BTW, I specialize in lease options, seller and owner financing deals, often with very little or no equity, so I'm providing SOLUTIONS for BOTH buyers and sellers who otherwise cannot buy, or resell. :-)

Most agents out there expect to get paid at closing only. When title is transferred and recorded. At least in my state this is the way it works. Agents cannot earn a commission until there is a transfer of title.  This is how everyone is taught. Maybe this is why you are getting pushback from realtors about accepting a finders fee. 

The other thing is you are most likely dealing with salespeople and not brokers. So if they find you a deal that fee must go through their broker first. This could cause confusion for the salesperson.

The real question is the capacity the licensee is representing the parties in the transaction. If there is no fiduciary relationship formed via an agency contract, the finders fee should not have to be processed by the broker. ( I could be wrong with this about this ). A broker agent relationship agreement could still bar the salesperson from accepting these fees. Unless they went through the broker of course.

The reason being.... The broker would want the salesperson to convert that party into a commissioned sale.

With all that being said a finders fee I am quite sure anyone can earn but a commission only a licensee can earn from their fiduciary. 

@Rich Hupper   Thanks for the (logical) clarifications, Rich. ;-) Quote: 

"The real question is the capacity the licensee is representing the parties in the transaction. If there is no fiduciary relationship formed via an agency contract, the finders fee should not have to be processed by the broker. ( I could be wrong with this about this ). A broker agent relationship agreement could still bar the salesperson from accepting these fees. Unless they went through the broker of course. The reason being.... The broker would want the salesperson to convert that party into a commissioned sale. With all that being said a finders fee I am quite sure anyone can earn but a commission only a licensee can earn from their fiduciary..." UnQ. 

That makes logical sense, because I was taught (and in order to do say a lease option agreement, separately between both you and the seller... then later reassigning your 'equitable interest' to the third party 'buyer' separately, after the fact...) so I cannot then be accused of "brokering a deal," or acting in the capacity of "consultant" (a mere advisor) for the seller.

The person I spoke with was apparently most concerned about potentially "loosing their license..." and was an agent, as were two others I've spoke to, prior. However in my defense, I had already emailed "where I was coming from," and even sent an explanatory 'terms deal' video link, the agent hadn't viewed yet, and I wasn't up to the TASK of clarifying the complexities in a coffee shop meet- up.) I didn't know HOW to explain in a few sentences that since 'referrals' to those one cannot currently work with are only 'prospects' (and not even viable leads, if they are for instance about to end- up in foreclosure, unless one also dabbles/ed in short- sales, etc., as I now see this agent does or did, for e.g.) they were no more under a LEGAL "contractual agreement" with them, or paying a "commission," than someone they 'referred to' their hair stylist... because those so- called "leads" are simply NOT clientele, until you have them "under (BINDING) contract." (Perhaps down the road after I saved their home, as one e.g.) Or 'lead list' peddlers would be in "breach of contract," with 'public disclosure,' and actually underlying LAW, vs. 'legal statues,' which aren't actual LAWS.  Thank you, sir! :-) WST

Updated 2 months ago

I ran OUT of 'editing' time, because of an interruption. I meant to say that I AM acting as an 'advisor,' or "consultant" with BOTH sellers and thereafter, buyers, because (re)educating people about the FACT that they do indeed have more OPTIONS... is a big part of what my company "mission" IS! (Whether they are about to loose their home and equity? Or simply cannot 'resell,' because they have less than 15% equity, at the present time???)

Caveat:  License laws vary from state to state.  I'm referring to Massachusetts, since that's where Rich is licensed and so am I.  California law may differ.

In Massachusetts an agent can earn compensation in a number of ways,not restricted to a commission upon conveyance, provided its OK with the broker, the fees are paid to the broker and the salesperson (or associate broker) is paid by the broker. For example agents can charge customers or clients by the hour to show properties or can charge a flat-fee to place an "entry-only" listing on the MLS. Most brokerages aren't organized for alternate activities/fee structures. Brokerages may just not want their agents engaging in this type of activity for several business reasons.

A licensee introducing a buyer and seller with the expectation of compensation (referral fee) is a brokerage activity.  No agency relationship need exist.  A licensee can work as a "facilitator", without an agency relationship with any party and still be engaging in regulated brokerage activities.

IMHO, I think salespersons who are looking at accepting referral fees directly from you, without going through their broker, have reason to worry about their license.  

The issue is that a Realtor can ONLY receive a fee through their broker.   Agents can do a few different types of transactions for a fee - including providing lists, referring buyers/sellers/renters - it is just that the fee must go to their broker not them personally.   It is also not an issue of a non-licensed person paying a fee - it is the licensed person receiving a fee that is the issue. It just must go through their broker.   There is no rule that I am aware of that prevents other professionals as well from receiving a fee for a referral.   It is again the other way - mortgage and title companies can NOT pay a fee if you refer to them  (They fall under RESPA and are settlement companies) - but not sure about you paying them for a referral.   I am not aware of any issues on that.    

The agents actually understand the jaws they are bound by......you do not. They also may not be convinced about the value of your “help” and may not want to be associated with it.

Aside from my typos and creative punctuation (I find it ODD that one cannot edit the title, for example, seconds after they post) I also made the above blunder of stating: "referring clients" vs. leads or more to the point, PROSPECTS (who RE, etc. agents cannot otherwise work with presently, or in the near future, mostly due to a lack of equity, vs. credit, debt to income, etc. reasons) because we (REIs like myself, or Wendy, for e.g.) can actually HELP these people get into a home, save for a down payment, while also getting their credit repaired (indirectly) and eventually BUY before or at the time their 'option' expires, vs. just taking the "most money down" and having an abysmal 70- 75% turnover (in the case of lease options) as so many used to DO. (And I suspect many former "buy- n- hold" landlords, and one large "working with the BIGGEST brokerages" entity with a very long "partnership" agreement, still DO.)

I suspect this is another reason WHY so few realtors, etc. want to be associated with REIs that 'specialize' in 'creative terms' agreements, which could (soon?) be solving the "home buying" (and reselling, after the coming 'correction' when the market cycles down again) issue for the MAJORITY that STILL cannot 'qualify' to BUY their own home, along with the MILLIONS (x10?) who cannot 'resell' (even under the current market conditions!) precisely because they would have to "bring a check" to the closing table, in order to move forward, and move on...

As for signing a "non compete," "non disclosure" and whatever else a realtor agreed they'd do, not do, or not "disclose..." (like what neighbor 'hoods' to avoid, for e.g.) it seems to me that perhaps I should rather A.) Only deal with BROKERS, vs. agents? B.) Only inquire about "under 15% equity" prospects no brokerage, or lender, etc. can or will work with in the next two years, or so. Or C.) Have whomever I do work with set- up a separate LLC (or I do, or utilize referrals from existing 501C entities?) that simply provide a 'referral...' and then in turn either advertise them on my websites, send them referrals back, and/ or 'donate...' to their cause. (?) I plan on building a LARGE nationwide network, so anyone who IS working with me will be very glad they DID, after the next so- called (and predictably 'cyclical') 'correction,' occurs.

:-)  Scott 

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Updated 2 months ago

And BTW, that wasn't meant to be a "digg' at anyone who has, or even that still DOES "short sales," etc. I do however believe it's (quite obviously) CRIMINAL THAT 99/100 people in this country still aren't even AWARE of the FACT that they have (or had?) "alternatives" to loosing everything, for example.

Updated 2 months ago

@ Wayne Brooks I suspect it's mainly due to A.) Fear, B.) Ignorance! And C.) GREED, on some people's part, anyway... who specialize in say doing "short- sales," etc. that aren't interested in "helping others."

@Rich Hupper

GOOD POINT-  Q: "Most agents out there expect to get paid at closing only. When title is transferred and recorded. At least in my state this is the way it works. Agents cannot earn a commission until there is a transfer of title. This is how everyone is taught. Maybe this is why you are getting pushback from realtors about accepting a finders fee..." UnQ.

It seems to me that most realtors and brokers are indeed just working with wholesalers to remodelers (on the cleaner homes, that are or soon will be listable, in higher demand areas) and if they are on "straight commission" and the deal isn't DONE unless and until it's "closed," then that makes logical sense.

Conversely, I plan to utilize primarily a "get paid up front," model (As in say a WLO = Wholesale Lease Option deal) or similar (money down, then reassignment) approaches, after contacting people about to loose their home, and explaining that they do indeed have other alternatives... and then advertising my 'option,' etc., prior to reassignment. Afterall, it makes little sense to "stay in" ANY deal, atop the 'S' curve of a given market cycle... which we may already soon be approaching? 

Last night I thought of the near complete 'strategy' and business plan... and if I had the INVESTOR(s) I'd start developing it, on Monday... Such is LIFE when you're an "out of the sandbox" thinker, "going against the grain..." If I don't start this business model soon, someone else WILL and I'll be "kicking myself" (yet again...) for LIFE!? 

I know with a 100% certainly in California realtors can pay anyone a finders fee as long as it doesn’t violate respa and as long as they don’t perform any activities that only a broker can do. There is a article published by the DRE that explicitly states this. I assume a realtor can accept finders fees from anybody too.

@Storm Silva

That sounds like what I heard and read in California when I started looking into REI about a year ago... and I haven't found anyone locally (now, in Phoenix metro) who can tell me WHY or HOW they seem to have no issue working with wholesalers, or 'referring' business back and forth with say mortgage lenders, etc., but don't think it's alright to receive a "check" for referring say someone about to loose their home, equity and credit??? I may be DONE with this angle, until I hire a broker (when I'm doing 100- 1000 deals a month soon?) as I don't seem to be getting anywhere with the NAR networkers? That's part and parcel of being a "contrarian" thinker, doer and investor, I suppose... but the 'short- sidedness' of people who are clearly AFRAID to "rock the boat," is very aggravating when I have a viable SOLUTION and many a RE professional lost their own HOME not very long ago.

But getting back to the 'post,' I meant to say that I don't see WHY a NON- CLIENT 'referral' is a violation of any NAR, etc. 'rule,' if they are NOT even a viable PROSPECT, because they don't have the EQUITY and/ or an otherwise listable property they say cannot afford to FIX, then LIST on the MLS, and not show- up at closing, with a check. Furthermore, I do intend to offer the higher- end abodes, etc. on the MLS, but I'm not starting with multi- million $ homes... unless perhaps I return to California, soon? Santa Barbara, eh? I was in south OC last, before heading back to Phoenix metro east after three decades in November, on a whim. If you have any nicer abode wholesale leads you can't 'work' due to low equity, etc., hit me up. ;-)

@Wayne Brooks

Sorry for the 'over reaction,' Wayne. I frankly don't understand (and never could...) why ANYONE would allow a bully like a large company, for example, "run their lives..." and I suppose that's why I was NEVER "employee material." This seems to be the basic challenge between the "need to know" (only) conventionalists, vs. the the "need to know more," crowd. Of course if everyone 'woke up' to what's really going- on in the shadows tomorrow... DC, the City of London, Brussels, etc. (and of course, mother ROME) would all burn! Have a good weekend or week, sir. :-)

I remember now any realtor in California can accept a finders fee from someone as long as they disclose that they are receiving it to all applicable parties. What is prohibited is making a secret profit.

@Scott T.

I agree with you most agents don’t understand how to work with investors in my county I only know around 5 agents who are competent in working with investors which is why I decided to get my real estate license to fill this niche.

@Storm Silva   I hear ya! It's always: "That can't be legal!?' (More like "lawful... vs. "legalesed!") Or, the deer in the headlights, lOOk...

You are one "well studied" 19 year old, Storm! Are you also studying to get your broker's license, by 21? I hear from an REI friend in Gilbert, that she wished she's taken the test in Cali, before relocating here and then not passing it, the first attempt. And that 'jibes' with what the last agent told me, on Tuesday. This seems to me to be perhaps more of an IR$ (= IH$) 'bean counting' rule? However I knoweth NOT what blood oaths of secrecy, the entrusted 'agent' is dutifully bound by!? But seriously though, "public records," are merely that.

@Scott T.

Yes I plan on getting by brokers license as soon as possible. I’m also about to finish my property and casualty insurance brokers pre-licensing tomorrow. Right now I’m working on starting my own property management company but it’s hard to get clients I put up a Craigslist ad for free full services for tax reasons but I didn’t get any offers. Everyone thinks I’m trying to scam them because they don’t believe anyone would work for free. I’m also working on a syndication project for a apartment complex right now just studying and talking to attorneys trying to make sure I stay within the law.

@Storm Silva PM Suggestion: Offer to do so for less than the going rate, then "free" for a certain time frame, then say 10% thereafter? (i.e. For an extended gig... subject to performance and client satisfaction.) And CL is rife, with scams... I'd choose the neighborhoods you want to 'work,' then determine where the 'absentee ownership' resides and call the 'owners of record.' As for (buyer's market strategy) REI niches such as 'wholesaling...' I have MUCH better IDEAS. (I will generally pay 70%- 100% of ARV, vs. minus 70%, for e.g. Similarly, I can save people 10- 20% over the MLS approach. ;-)

@Scott T.

I would do that but the reason I’m not charging is because I need to take a loss to offset other income. I have a strategy for building up my credit I’m almost to 800.

@Wendy Patton   Thanks Wendy! Well you should know, of all people. :-) I think you, Joe Crump and a handful of others... are actually both (creative terms deal) knowledgeable and versatile REIs and 'brokers' here. I need to get the 'rules' and my terminology straight. I have a second meet- up next Friday with the same realtor. Hopefully I'll have my FACTS straight, or we'll end- up talking about "investment strategy" and "the market," or something else?! 

I would love to talk to you also, sometime. I have BIG plans for using: pure, cooperative and sandwich lease options, as well as subject to and owner financing acquisition, etc. strategies soon!

@Scott T.   You haven't come with anything new here, it's taught b a bunch of gurus.

As I suspected, "helping" the distressed sellers in your mind consists of lease options and I assume some sub2's mixed in.  These of course are not "solutions" for the distressed owners, but rather optimistically temporary band aids.  The majority of lease options never get to the actual purchasing stage of course and the seller is still stuck, now with a non paying tenant usually.

And you of course don't care t that point, you just want to collect your fee/spread when your "tenant/buyer" signs up, while you "move on down the road".

And you wonder why an agent doesn't want to be associated with you?

@Wayne Brooks    So you think... And yes, I 'studied' what the gurus are selling (perhaps 1500 hours of my 'spare time,' in the first year...) and I didn't buy, save perhaps a grand on various lease option courses, to access their forms and agreements, vs. paying an attorney or three $5- 20k. Then I "one- upped" it. Nothing NEW? What have you got to 'wager,' on that?? And the last 'options' package I sourced claims an 85% 'closing' rate, even with cooperative LOs. And unlike a 'realtor,' I CAN SAVE THEM a minimum of 10%. (More like 15% on average, as near as I and many others are calculating. As for wholesalers, even higher... than that. I now see you do 'short- sales.' Figures. Why 'reinvent' the wheel, right??? And that's WHY realtors and REIs don't "mesh." (i.e. Because of a Pareto principal level, of 'conformity.'  ;-)))

Updated 2 months ago

To anyone who thinks outside the sandbox... I suggest Joe Crump's "Hierarchy of Deal Structures," for some straightforward transactional analysis "rules of engagement..." with "little or no money down." Keith & Shannon French's "Link Options" program (They did with Wendy Patton) for basic (cooperative) 'options...' and if you really want to HELP PEOPLE and get a "thank you," hug and a 'referral' for LIFE... I'm looking for a small group of 'caring,people centric' individuals I can train (or "retrain?") to actually SOLVE people's problems ( while STILL make a very good living, 90% of 'agents' would envy...) vs. the antithesis. Got a better "business plan" than that??? I've studied HUNDREDS and this is definitely in the top five, even BEFORE I IMPROVED upon the existing deal structurings,business models, and passe' marketing and ads, etc. The GAME... is soon gonna CHANGE.(And as soon as the 'market' cycles back DOWN, like short sales, foreclosures, tax liens, REOs, etc., this business model will EXPLODE in growth! Then let the BEST 'solution' WIN. ;-) ATB :-) Scott

I think it’s a good thing most agents won’t work with investors. More money and clients for me.

@Storm Silva    Well if they ever 'awaken' (especially the 80% of 'agents' who QUIT within two years, when they can't "fish, in the big pond" with the "sales sharks," because they "don't have the work ethic," or simply aren't that outgoing, and/ or 'salesy...') THEN they can join my Western worldwide 'franchise?' Otherwise, they won't be able to 'compete' any better than the MLSers, or the wholesale 'low- ballers.' (i.e. He or she with the BEST SOLUTION will ultimately WIN...)

Updated 2 months ago

And I find it (almost) amusing that I can simply glance at how many "thumb's up" a BP member (or most anywhere else, online...) has, and tell if they are "playing along," and "think for themselves," critically, or not? I see many getting "back pats" for "playing along" with the scripted, "politically correct" collectivist "group think" (i.e. industry correct) dialog. And that's even before any (intel, to moronic troll)"ghosting" censorship. Pretty TELLING, I think. (And merely an observation...) There are far more than "two kinds of people in the world..." but the Powers That Be do their UTMOST to "herd" the chattle into the "black, or white" compartMENTALized 'meme' mental construct corrals. I'm more akin to a "grey wolf," myself. If you try to "cage me," then good luck, with that. ;-)

@Storm Silva

Check this out, Storm: (Go to YouTube and search for: " Structuring Deals #6: Hierarchy Of Control .") This BLOWS AWAY "wholesaling..." (in a "seller's market") or any other (single option) deal structured solution. You of course want to learn one or two strategies at a time... then after several years, be utilizing multiple solutions, to truly DOVETAIL to the seller and buyer's individual needs. I planned to simply do assignable "lease options" (and mainly will to start...) however you'll have FAR more 'control' when you "get the deed, subject to the underlying loan(s)," as you know! Also check- out Alicia Cox, in your area. (She's a broker and SubTo specialist, also on YouTube, who teaches people to do what she's been doing in North LA metro east, and NYC and Florida, prior (?) for the past twentyish years.) Some more tools to ADD to your REI "toolkit!" (See also: linkedin.com /in/aliciaacox/ )

@Scott T.

I used to work for a investment company where I was the director of acquisitions and dispositions. We would screen for the most qualified sellers and then after most were weeded out the ones that made it would talk to me. I would find the best solution for them and then I would send them the contract. We would either list the property, offer cash, or offer terms. When we offered terms we would try to get owner financing or do a subject to and then on the disposition side we would try to sell on a lease option or land contract.

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