Referral Programs in Real Estate: What Works Best?

Question

For those who have run or participated in referral programs, what strategies have you found most effective? How do you ensure that both the referrer and the client benefit from the program?

Charlice Arnold · Answer

Okay thank you for your input, it is appreciated!

Charlice Arnold · Answer

Hi Jay, Thank you for responding to my post. In my research, I found that it is legal to pay referral fees for commercial loans, not residential loans.

Is it legal to pay referral fees for commercial mortgage referrals?

Yes! Even in states where a license is required to broker commercial loans (California, Florida, Nevada, Arizona, etc.), you can legally pay a referral fee on a commercial mortgage loan, as long as the referring source does nothing more than call you with a name and phone number of a prospective borrower.

However, if the referral source — say, a commercial real estate broker — starts to negotiate terms (rate, points, term, etc.), then he is working as a commercial mortgage broker. In those states requiring a license to broker commercial loans, the referral source is now breaking the law. Therefore, don’t let your referral sources gather documents for you or issue loan quotes.

When is it illegal for a mortgage broker to pay a referral fee?

Under RESPA (Real Estate Settlement Procedures Act), it is illegal to pay a referral fee (called a kickback) on a residential loan. A residential loan is a mortgage loan on a house, condo, townhouse, duplex, triplex, or four-plex. In the parlance of the Federal government, such loans are called loans on one-to-four family dwellings.