What would you pay for a referral

Steve Babiak

Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes

15y

What does your broker say to all this? That is what you would be expected to do ...

OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

I'm licensed, he's not. I was going to pay him from my LLC as "marketing" or "consulting." We both belong to the same apprenticeship group so I don't feel comfortable burning bridges. I rather not wrong others even if they do wrong me. Guess I need to take assertiveness lessons. :)

It started out as a investor deal but the seller wanted more so it became a realtor deal. I feel regardless of the outcome I should compensate him fairly. I thought $550 for passing along a name and phone number seems "fair." Guess not.

Still... it comes out to be 23.8% of my net, so ouch. My credit cards rates aren't even that high.

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

15y

Send him a check for $550. If he believes that he is entitled to more than that, let him take you to court (which he won't because he knows that he's not entitled to more).

If you pay him what was agreed in the first place, you are in no way burning bridges.

All that said, I would still be very careful that you're not breaking any RE Commission rules by paying him...especially given that you don't have anything in writing about your "marketing" agreement...

OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

Is it too late for new year resolutions? From now on, no more freebies and everyone gets paid AFTER I do! Go girl! :)

I think it's not legal but then again I have another LLC I could use... I should probably delete this post lest I run afoul of the real estate police.

ANYWAY, my question, Would you pay $1000 if it's agreed upon up front? Or would you base it on the deal size? In all honesty if I had expected to pay $1000 I don't know if I would have done all this work. Then again if I did, I probably would have negotiated harder to get a bigger commission.

Jon Holdman

Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

15y

This is a bird dog situation. Someone passed you a "lead". A lead isn't worth squat unless its closed. You did the work and closed it. He's entitled to a bird dog fee, which is a few percent. IMHO, if you guys agreed to $550 up front, which seems quite reasonable for a $200K deal, that's what he should get.

OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

Well I made a business decision. I will pay him this time the $1000 he asks, but I will think twice before taking any more leads from him. He's a beginner investor like myself, so I want to help him make some money, but I just don't like people who change their minds and when the going gets good they get greedy. If we can't be true to our words and maintain a level of trust what do we have left to do business?

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Will BarnardPro Member

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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

15y

Lily,
This is only my opinion, but from a business standpoint, you are making a poor decision.
First off, even the $550 fee was a verbal one and thus, not legal binding so he can sue all he wants, winning will be next to impossible.

Second, "giving in" to his last second changes produces the appearence of weakness on your part. In business, you need to be fair, but firm. Tell him that the agreed upon arrangement, which you will always honor, was 10% of your net ($550) and no more. Also explain that he should keep in mind that you are an agent who gets things done and he can make many referral fees from you rather than trying to hit a homerun on just one!
Finally, I would explain to him that since you both belong to the same group, and the fact that he is just starting out, he does NOT want to create an image and name forhimself as a person who makes last minute deal changes and reverts on his agreements. You are not the one who has done this, so the reputation at risk is his, not yours.

9 Reply

Nick Henson

Real Estate Investor · Long Beach, CA · Member since 2011 · 74 posts · 17 votes

15y

I agree with Will on this one, Lily. I think your "friend" is trying to take advantage of you. If you give in, you are setting a bad precident for ALL your future referrals--don't think he won't crow about this victory. Will you really be burning a bridge with someone of so little integrity? "Look, I appreciate the lead and all your help but I have a (family to feed, a cat to be declawed, etc) and I need the money I EARNED". Then, you can "go, girl"!

OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

Thank you all for your feedback, and for your wise counsel. I will need to take a hard look at my business relationships and how I approach things. I am disheartened that the other more "seasoned" investors in my group is telling him to do this. One thing is for sure, you find out who your "friends" really are really quick in this business! :)

In this case the money is not as important to me as the revelation it brings. Now I know who I'm dealing with, and I will tread carefully.

Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

15y

Depending on what the investor did prior to this deal evolving into a Realtor transaction, I might go a little stronger; Lilly, you may be acting in an unethical and illegal manner paying a fee to a person who is not a licensee. His calling himself a "consultant" or a "marketing" type is a smoke screen to circumvent licensing laws, facilitating a RE transaction, marketing RE or consulting in RE could still be a violation of law . Check your state law and see what the wording is, in Mo. it uses "facilitates" some states do not. And keep reading, many states require a license to advertise RE, not only in print, but promoting in any manner can be advertising.

Paying an expense in connection with a real estate closing can be a violation of RESPA if not disclosed!

If it had been me, he would have gotten a thank you note with a gift certificate to Steak and Ale or Red Lobster! Burning a bridge with those that attempt to skirt the rules is not a bad thing, especially ifit could put your license at risk.

I agree with others above as well, as Willpoints out, it's not a good business decission either.
You really need a written agreement and one that you can disclose if you are going to pay fees to others. Otherwise, stop by a nice resturant next time..

Paying for information is one thing, who might be interested in selling or where an vacant house is, but be careful about the function or activities, the involvement of a non-licensee.

OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

He did nothing on this transaction other than "here's a name and phone number." Places like RealtyTrac and other "lead referral" outfits charge from a few bucks to a couple of hundred $ for information like this. I will approach this carefully. You're right about the RE rules.

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Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

15y

They have also spent tons of money UPFRONT with legal attorneys,forms,and structures to make sure they a legally compliant within the law.

You are "flying by the seat of your pants" and I am not even sure how much of this you have ran by your broker.

An INVESTOR GROUP does not have your best interest at heart.They are seeing how they can use your license to make them more money.

For you to agree to things verbally shows you are new to this game.On the commercial real estate side buyers have to fill out form with me that no other broker/agents are involved in the transaction when they inquire.If they are they have to disclose at that time.

It also states if they have a third party they owe money to or an arrangement that the seller will not be legally responsible to pay those fees.

This puts the bird doggers getting paid by the buyer.Otherwise these bird doggers don't trust the buyer and wants the seller to cover this or the buyer tries and not pay for the lead.

This is why on my properties I have listed I like to market to end buyers. Not a daisy chain of people that bought a course trying to get a little nut at all costs to get by.

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OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

So... don't do it? Walk away? Keep all the hard earned money to myself? :)

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Joel OwensBusiness Member

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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

15y

I would have your closing and collect the commission check along with a copy of the HUD-1.

Unless your broker stated you would be paid at closing and a separate check cut to the brokerage for their fee you will be taking the check into the brokerage and they will cut you a check for your portion.

I wouldn't pay a fee to anyone until it has been ran by the closing attorney on whether or not it has to be disclosed on the HUD-1 and you have ran this by your broker.

If the closing has already happened discuss with your broker and get in WRITING from them on how to proceed.

A head broker is not responsible for their agents when the agent willfully do not communicate with their broker.Your broker should also have protocols in place to follow.

Commercial transaction RESPA does not apply.Since you are doing a residential deal RESPA does apply.

no legal advice

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Will BarnardPro Member

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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

15y

Because you already gave your word to pay the $550 fee, I still would do so, but in cash (no way to prove or track it).
Secondly, your group is not telling your friend specifically to charge you more, but what they may or may expect to receive from other investors you pay referral fees. For the work/effort this referrer did, it is not valued at anything more than what you have given. In fact, $250 would have been a fair # IMHO.

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OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

Thanks for another perspective, Will, but I distinctively got the vibe from his email that they are... here are his exact quote (names removed to protect the innocent):

"I only work for 15 hrs a week and I asked JB LG, M, JD about the comission, and they all said the same amount to $ 1,000 as minimum referral fee. If it's okay to you just write the check to XYZ. I greatly appreciate it, so far that would be my first little income"

Yep sounds like he was crying poor and they told him to get more.

Just another wrinkle on this whole deal, I just found out there was no closing today because the buyer's bank held up the loan pending some repairs that was entirely unnecessary but the appraised recommended to cover his butt. The seller is now furious and looking for someone to sue. I guess no sale, no commission, no fee, everybody just walk away one big happy! (/sarc)

Jon Holdman

Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

15y

Assuming JB, LG, M, and JD are all people in this group, you need to find a new group to hang out with. At this point I'd be tempted to just say "I can't legally pay you anything."

Delayed closings are nothing new. If today was the first scheduled closing date you'll be doing good to actually get closed in February. Last house I sold was scheduled for 12/10 and actually closed on 12/28.

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Will BarnardPro Member

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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

15y

I concur, don't worry about closing delays, they happen frequently. I had a close date of Jan 28th and seller (bank) still has been unable to come to closing table per contract. I am still waiting impatiently. It is just part of this business.

In response to that BS email you received, I would respond with, "I just realized you are not a licensed agent and have been informed by my broker that it is illegal for me to pay any fee to an unlicensed person. Are the other parties you referenced in your email licensed agents? If so, perhaps that is why they can command a higher fee. My offer to you in the beginning, which you should be honoring, was to pay $550 and no more. I would now be taking a risk paying you anything at this point. Once you learn the ropes of this business, you will find that the more value you add to a transaction, the more money you can command. For simply passing a name and number, you bring only a small amount of value and as such, are paid accordingly. I can not speak for others or their specific transactions and neither should you. They have nothing to do with this transaction." I am still willing to pay the agreed upon fee under my following provisions (insert your provisions ghere), however, if you intend to continue with your attempt to change the agreement, I will no longer do business with you."

2 Reply

OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

Thanks Will, this is good material.

Jon, I am seriously going to reconsider running with this group. None of them are licensed but they seemed to be pretty successful at investing/wholesaling/short sales. Unfortunately I already paid the membership fee so I just have to cut my losses before getting further entangled with these characters.

John C

Real Estate Investor · SouthCentral, IA · Member since 2010 · 97 posts · 45 votes

15y

I would cut losses and get a new group. I would pay the agreed $550 in cash and learn from this. But thats just me! Hope it all works out for you!

Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

15y

Long timeago I was in Germany, in the Army. I lived in Hockenheim and the is a international race track there. After they got me a license and memberships, I got in with some Germans and ended upgetting to race sedans, formula V and super Vs. Then they opened up the JC Whitney catelog and wanted me to buy all kinds of auto parts, carburators, intake manifolds, ignitions, etc. I didn't think anything of it since they gave me the money.

Later I caught on, Germany has a very high import tax and shipping is expensive as well, which together is much more, many times,as the parts purchased.

I was using my Army Post Office for stuff to be mailed to me which was hardly anything and being in the service, I paid no import taxes.

All this to say, that when you are relatively new to a group and you have common interests, that's great. Beware that if you are drawn into the group quickly and that what you have to share or contribute there may be a motive behind it to benefit that group. So long as you know what that is, all well and good, but as a real estate agent in a group of non-licensees in reale state, you should expect that they will be asking you, at some time, to facilitate delas that they can not. How you strat out in such a group will either make it an above board and profitable relationship or you'll go down another path quickly and you may crash and burn!

OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

Finance, I hear you. I know as a new investor I have a learning curve, and I do believe in paying my dues. However I should not be the one who's always doing the "sharing" right? I believe in dealing with others with fairness and integrity, so I was somewhat disappointed with this whole thing. Last week I gave the head of my group a stack of returned letters that I mailed out to lis pendens database and I wonder how they would feel if I were to ask a payment of $1,000 for each letter I gave them that led to a closing. Hey that *is* what they said they would do right? Why should I work so hard to make a deal happen when according to their logic I could have just handed out names and addresses and wait to collect my "fair share"? ;)

And remember they said "minimum" $1000. I think I'm going about this real estate investment thing all wrong! I should be in the lead selling business! /sarc

Vikram C.

Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes

15y

Lily, not all experienced investors disagree with what you did. I, for one, think you made the right call in deciding to increase the payment amount in order to not burn bridges. Here are my views:

1. If you feel the group or the referrer may bring you additional business, it is important for you to maintain good relations with them. Remember that 76% of something is more than 100% of nothing.

2. I also disagree with the other posters who have suggested various values for the other person's service. The value of that referral to you is simply whatever value it is worth to you. If it is worth it to you to spend 24% in "marketing" costs, then by all means pay it. I often pay well above market rates for certain types of services that are extremely important to me and hard to obtain.

3. I agree with the others that it is entirely inappropriate and unprofessional for someone to come back later into the deal and try to change its terms. You will have to make a business decision on whether you would rather keep the other person happy, or possibly piss him off (even though he is the one in the wrong) by refusing his request for a higher compensation. It appears as if you have made that decision. I do not think anybody on this site can decide how much that relationship is worth, so please do not get influenced by the posts that suggest that you may have made a mistake. However, you do need to make it clear to the referrer that this is a one-time accommodation that you are making because of his inexperience, and in the future a deal would be a deal and he cannot expect it to be retroactively changed.

4. The other posters are correct that there are regulations that restrict payment of referral fees by agents to non-agents. However, most regulations have ways around them are are an impediment primarily for the unwary. Having said that, I think you need to be very careful and make sure that you pay the other person in such a way that it is demonstrably legal. Otherwise, you could expose yourself to risk and perhaps even future blackmail.

Be confident in your business judgment and do not feel that the weight of opinion on an online discussion forum determines whether your actions are right or wrong. Anybody can post on a forum and none of us understand the nuances of your business circumstance the way you do.

4 Reply

OP

Involved In Real Estate · Paramus, NJ · Member since 2009 · 95 posts · 40 votes

15y

Thank you for your perspective, Vikram. I have played out the scenarios in my mind of various what-ifs: what if I flatly reneg on my original verbal commitment, what if I go ahead and pay what he asks, what if this and that. Believe me, I've wasted more mental energy on this than the $450 difference is worth, but it is an important lesson and in the end I am better off having learned it now than down the road where the stakes are much higher.

While I see everyone has a valid point, for me I know I probably will just do what I promised to do (in a discreet way), but I will choose to NEVER do business with him again, and in the future will politely refer him to another investor who would pay that high a fee. There is just something about reneging on your agreement, inexperience or not. Look, if he was sincerely feeling it was not enough money, he should have said "let me think about it and get back to you as to a reasonable fee for me." I would not have a problem with that, as opposed to him having "referrer's remorse" and trying to put pressure on me by ganging up on me with the other investors.

I've committed to decisions in the past where outcome did not favor me financially, but I stuck it out because I made the promise, and I would not go back on my word. I figure what I lacked in compensation I made up in the learning experience. I can't expect everyone else to act like I do, but I can choose not to do business with people who are like him. He's cooked his golden goose and sold his integrity for $450, and that is the sad end to this story.