When is it legal to pay a finder's fee to a BirdDog?

By
Services for Real Estate Pros with Domination Marketing Solutions

I have read and heard so much conflicting information on this topic it is driving me crazy.  When is it legal to pay a finder's fee to a birddog?

Under what circumstances, can a licensed real estate agent pay a birddog a finder's fee?

Under what circumstances, can a person, who is NOT a licensed real estate agent, pay a birddog a finder's fee?

I have been told ~75% to ~25% that it is illegal to pay a finder's fee in Washington.  And, the only situation where it would be legal to pay a finder's fee is if the birddog AND the person paying the finder's fee are both licensed agents.

I have also been told, that if the birddog gets the property under contract it is perfectly legal, in all situations to pay an assignment fee an purchase the contract. 

Of particular interest is how this applies in Washington state.

There are many investors (licensed and unlicensed) that use property locators to find properties to invest in.  The intent is to find the properties for investing, not just to get a listing.

Thanks gang.

Mark

 

 

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Show All Comments
Rainer
32,580
Michelle Way
AVALAR Pro Realty - Jackson, MS
ABR, GRI, WCR
In MS you WILL loose your lic.e
Jan 21, 2008 10:00 AM #1
Rainmaker
27,968
San Diego Short Sales
San Diego Homes - San Diego, CA
Your best source for clarification on this would be RESPA. The fines are steep if you violate federal law and the RESPA folks are cracking down.
Jan 21, 2008 10:07 AM #2
Rainmaker
151,411
Amanda Hall
DFW Living - Fort Worth, TX
Real Estate Broker - Fort Worth Texas

If the birddooger has the property under contract as the buyer, they can assign (sell) the contract to a 3rd party buyer for a fee.  If the birddogger isn't a principal to the contract, then it is considered a finders fee and it is illegal.  (IMO--a birddogger that doesn't get the property under contract, isn't worth a fee to begin with.)

Of course, I recommend confirming this with a real estate attorney to be on the safe side. 

Jan 21, 2008 10:42 AM #3
Rainer
7,282
Mark Schwartz
Domination Marketing Solutions - Sammamish, WA

In Washington you can not pay a finders fee to anyone that is unlicensed.  In Nevada you can pay up to $25 to someone who is unlicensed.

All the states vary.

Mar 03, 2008 06:21 PM #4
Rainer
7,282
Mark Schwartz
Domination Marketing Solutions - Sammamish, WA

The May/June issue of Washington Realtor, www.warealtor.org (the article is not online) included the following article on "Incentives: What You Can Legally Offer".  It is item "b" that is of interest.  My interpretation of this is that it is illegal to pay referral fees to a non-licensed agent, however, the Department of Licensing does not enforce it unless they feel like it.

1.    Paying Rebates and/or Referral Fees.

a) Payments from Realtor to buyer or seller.

There are no state or federal prohibitions or limitations on the amount of money or incentive that an agent can pay to either the buyer or the seller in the transaction. It is the buyer and! or seller who pay a real estate commission, so if a REALTOR gives part of it back, the REALTOR is actually just charging a lower commission. That is lawful.

There is nothing wrong with an agent running an advertising campaign and offering to pay some amount of cash toward buyer's or seller's closing costs, to give a gift certificate to buyer or seller or to make a charitable donation in buyer's or seller's name. If a gift is given to a buyer, buyer should be reminded to make note of that gift on buyer's loan application to avoid any allegations of lender fraud.

b) Payments from REALTOR to a third party referral source.
Both state and federal law restrict the payment of a referral fee to an unlicensed third party, although it is not clear if either jurisdiction will enforce the restrictions.

    (i) State Law.
    The Department of Licensing describes the practice of promising to pay a gift to an unlicensed person as unlawful under Washington law. However, under existing Department practices, it is not likely that this conduct will be prosecuted because it does not harm consumers. At its core, the Department of Licensing is a consumer protection agency. While the strict language of the Licensing Law prohibits an organized and advertised plan to pay a referral fee to an unlicensed third party, the Department believes that this conduct causes no harm to consumers.
   
    With limited resources available to prosecute real estate agent misconduct, the Department is likely to expend its prosecution efforts on violations that result in harm to consumers. That is the current stated position of the Department. It could change.
   
    If the referral fee is paid spontaneously-in other words, agent had not promised to pay a referral fee in exchange for the giving of a referral-then the Department's position is that it is lawful to pay such a referral fee.
   
    (ii) Federal Law.
    RESPA, a federal law ("Real Estate Settlement Procedures Act"), dictates that any payment made to another settlement service provider (except a licensed broker or agent), in direct exchange for a referral, is prohibited. The definition of "settlement service provider" seems to be broad enough to include unlicensed, third parties. Nevertheless, payment of referral fees to friends and past clients is a practice in which many agents engage across the country. It does not appear that HUD prosecutes agents for this practice. It may be that HUD does not prosecute real estate agents for the payment of referral fees to third parties because, like the Department of Licensing, HUD believes there is no harm to consumers from this action. Or, it could be that HUD's prosecution resources are dedicated to other violations and HUD will prosecute agents for these payments when resources become available. If HUD has reason to believe that such payments result in a higher fee to a consumer, HUD will be more likely to prosecute. If a REALTOR chooses to offer referral fees to unlicensed third parties, REALTOR should consult with their broker and! or legal counsel and determine to proceed only in conjunction with broker's permission.

c) Payments from Seller to Buyer or Buyer's Agent.
Of course, there are no restrictions on sellers offering incentives to buyers. Sellers can offer buyers any amount of price reduction, in the form of a cash payment or the giving of a gift. Sellers can offer to pay closing costs, give a vacation, award a carpeting allowance, or anything else. Buyer must be certain to notify buyer's lender of any intended gift or cash contribution from seller. If a gift is deemed excessive by a lender, lender may limit buyer's ability to take the gift or cash payment from seller. However, the offering of the incentive is never unlawful. As a reminder, if seller offers an incentive in a listing printout or other advertisement, buyer must include the incentive in the written purchase agreement or seller will have no obligation to give the incentive.

It is lawful for seller to offer an incentive to a buyer's agent. However, if an incentive is offered from seller to the buyer's agent, buyer's agent must disclose the gift or incentive to buyer. This disclosure is necessary to avoid conflicts of interests or conflicts of loyalty between buyer and buyer's agent.

Moreover, Washington law requires that all compensation for real estate services be paid by a consumer, only to a broker. Accordingly, the incentive cannot be given directly to buyer's agent. Incentives must be paid through buyer's broker.

__________

Items "a" and "c" are straight forward, while item "b" essentially says, go ahead and take your chances, we may or may not look the other way.

Apr 27, 2008 10:37 AM #5
Rainmaker
476,663
Palm Springs Realtor Stewart Penn
Windermere Real Estate - Palm Springs - Palm Springs, CA
Windermere Real Estate - Associate Broker

I am a Broker in California.

A "referral fee" can only be paid to a person who is licensed with the DRE (Department of Real Estate) .

Under RESPA (Real Estate Settlement Procedure Act), a real estate agent engaged in a residential transaction for one to four units with a federally related mortgage loan is generally prohibited from paying a referral fee to an unlicensed person.

However, a real estate agent may give a non licensed person a small token of appreciation. There must be no prior agreement that the referring party would receive that token gift in exchange for the referral.

It is also noteworthy that RESPA does not prohibit a real estate agent from giving a commission rebate back to his client.

May 07, 2008 11:29 PM #6
Anonymous
Anonymous
Gary

Why is it illegal for an Realtor to give a 3rd party a finder's fee? I am not trying to argue about it, I just want to understand the reasoning behind it.

Is there some harm done to one of the parties? Or, is it just that the government doesn't want to loose out on a chance to tax someone (the 3rd party)?

Jul 05, 2008 03:11 PM #7
Rainmaker
54,730
Kathy Fisher
Parker Properties - Decatur, TX
Realtor Wise County Texas

In Texas it is illegal to pay anyone other than a licensed Agent a referral fee or WHATEVER you want to call it. It's grounds for losing your license and HEFTY fines!!!

Aug 06, 2008 10:17 PM #8
Anonymous
Anonymous
Hazel L

In California, it is perfectly legal to do. However, federally it is illegal in states that do not allow exception like CA does.

 

Here is a link to a real estate law textbook written by lawyers, with example court cases upholding referral fees to unlicensed individuals: http://books.google.com/books?id=qrmsoRD0eLAC&pg=PA73&lpg=PA73&dq=california+real+estate+law+referral+fee+unlicensed&source=web&ots=Ns1RHZLxfa&sig=Xce8O6eXS0c7qcqHvHSXFdmfkQ4&hl=en&sa=X&oi=book_result&resnum=3&ct=result

Here is the actual law in legalese: http://law.onecle.com/california/business/10137.html

Here is a referral chart based CAR issued regarding referral laws: http://www.avivarate.com/Note/ReferralFeeChart.pdf Refer to page 2, #8 "Yes, if only introduction"--meaning that bird dogs can't have any part in the the negotiations (which they don't), or defining the price (which they shouldn't). As defined specifically by these laws, referrals in California are PERFECTLY legal--doesn't need to be a gift or things of that nature. Get your facts straight.

Oct 02, 2008 01:28 AM #9
Anonymous
Anonymous
Craig

What if the licensed agent is not licensed in the state that the transaction takes place in?

In other words is it legal for a Texas agent to pay an Arizona agent a referral fee for a buyer that was generated by the Az agent for the Texas Property?

Dec 19, 2008 07:13 PM #10
Anonymous
Anonymous
RE

If you are not a licensed agent of any sort (e.g. a private investor), you can pay anybody, anytime.  It is up to the receiver of payment to determine if any licenses they have can cause THEM problems. 

 

Feb 12, 2009 10:54 PM #11
Anonymous
Anonymous
Sandy Williams

I'm a Birddog in Ca, but I brought a buyer and seller together in texas and I wanted to collect a finders fee. Is that legal??

Nov 07, 2009 03:42 PM #12
Rainmaker
54,730
Kathy Fisher
Parker Properties - Decatur, TX
Realtor Wise County Texas
The ONLY way a Licensed agent (REALTOR) can pay someone a referral fee is IF THEY ARE BOTH LICENSED AGENT'S! No other types of fees (BIRD DOG, FINDER'S FEES, WHATEVER YOU WANT TO CALL IT) ARE LEGAL!
Nov 08, 2009 06:14 PM #13
Anonymous
Anonymous
L Piper

Hello Guys so what your saying if im birddoging for an investor im (GOOD*LEGAL) ?

Feb 01, 2010 09:12 AM #14
Anonymous
Anonymous
Neotrac

So, all agents and brokerages in Texas cannot pay for advertising...is this true?

If you indeed can pay for advertising, then I guess you can't pay your advertiser based on their performance  (i.e. for ACTUALLY getting a potential client in front of you)...surely not!

So, if I am an excellent internet marketing person and can drive tons of prospects into your office...you can't pay me to do it?

 

Mar 07, 2010 03:47 PM #15
Anonymous
Anonymous
John Clasen

Hazel L, I am having trouble accessing avivarate.com, can you send me a link?

Thanks, John C

jrc411@verizon.net

Jan 31, 2011 06:21 PM #16
Anonymous
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Rainer
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Mark Schwartz

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