Referral Fees - Great Marketing Tool or Legal Liability?

By
Real Estate Agent with Real estate agent at Oak Real Estate

You're crazy booked for the next three weeks with numerous staging jobs.  A new client calls and says they have a big job, and they need it done pronto.  Aargh!  You just can't fit it in your schedule, so you refer the new potential client to another stager friend of yours, who happens to have agreed to give you a percentage of any job you send her way. 

Was this referral a great way to make a little money off all the hard work you've done marketing yourself, or did you just open up a legal can of worms with the new client?  I've been asked this question a number of times, so I thought I'd address it in a blog.

I believe that referral systems are a great marketing tool, which, when used right, can help you make a little extra cash and help develop mutually beneficial relationships.  Because the staging industry is largely unregulated at this point, there are no laws which I am aware of (although if anyone knows about any, let me know!) barring stagers from giving or receiving referral fees. The situation may be different if you are a Realtor or agent, but for stagers, I do not see any legislative barriers to this practice.

However, many staging accreditation or licensing programs require their licensees to sign off on a "code of conduct" or something similar, which may bar referral fees.  This is a binding agreement, so be sure to look over your applicable code of conduct or contract to see if there is a similar provision.  

There are many ways you can set up a referral fee system.  You could offer agents you work with a cut of any jobs they send your way.  You can set up an agreement with another stager to funnel excess work or jobs out of your area to them for a fee. If you've done a good job with your marketing, you may be receiving more calls than you can handle, and this would be a great way to still receive some benefits from your marketing.

If the idea of referral fees doesn't sit well with you (as I know they do not for some people), you can always cover all your bases and simply disclose the fact that you are receiving a referral fee, or simply just that you have a relationship with the other person involve.  You can always explain that you've picked this person to have a referral system with because you're sure that the quality of their work is just as high as yours.  That should dispel any hesitation on the part of your client.

Legal disclaimer:  This blog is intended to be for general informational purposes only - it does not create any attorney-client relationship, and it's not legal advice.  The law may be different where you live, and every situation is different.  Contact a lawyer licensed in your state directly to assess your individual situation. Thanks for reading!
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Boulder County REALTOR

www.oconnellhomes.com

303-868-3957

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Rainmaker
1,076,164
Wallace S. Gibson, CPM
LandlordWhisperer
Gibson Management Group, Ltd.
You should have had an agreement with the "new stager" friend in place BEFORE referring someone....advising "new client" you would get back to them after you check your schedule and THEN calling your "new stager" friend to get clarification would have been the way to go....have a clear understanding what they will pay you as well as what services, etc. they will provide.
March 16, 2008 01:58 PM
Rainmaker
57,589
Ann O'Connell
Real estate agent at Oak Real Estate
Thanks for reading, Wallace.  That sounds like a good way of structuring a referral system.
March 16, 2008 03:30 PM
Anonymous #3
Anonymous
Anonymous
Ann, personally I don't do referral fees.  I consider referring to another stager a professional courtesy and expect the same to apply should I be the one referred.  Its so easy for clients to find others in our profession, I just make it a little easier by referring.  I do see your point about the possibility of it becoming a liability.  Just one more reason to ditch the fee.
March 16, 2008 04:07 PM
Rainer
77,224
Yvonne Root
Home Stager - Northern Arizona
rooms b.y. root
Ann, thanks for once again bringing such good information to the table. You are a true treasure for the home staging industry.
March 17, 2008 01:34 PM
Rainer
210,826
Find a Notary Public needAnotary
QEC Internet Services
I love the disclaimer!  Enjoy your freedom from regulations.  I would hope you police yourself well to avoid regulations.  Regulations start popping us when people in the indusrty start smelling themselves and get a little too greedy.  I think it is a testimony when indusrty folks can police and regulate themselves in responsible manners.
March 20, 2008 01:22 AM
Rainmaker
71,131
Gary Barnett
Home Matters Property Stylist Group, Indianapolis
Home Matters
Hello Ann, like Terry we don't expect a fee for a referral.  The only time we would refer out work is if it is out of our service area and interestingly enough this is happening more frequently.  To us it is not about the money, it is about providing a professional, credible alternative to clients that called expecting results.  It is important to us that the client is happy with the results whether we do it or someone else does it.
March 20, 2008 08:22 AM
Anonymous #7
Anonymous
Anonymous
Great post, Ann!  I have really been thinking about this lately as my partner and I have been slammed with business and are booked out on vacant staging jobs through the next month.  We have been wondering what to do because we are still receiving inquiries about staging, but really want to focus on quality, not quantity.  We are now in the process of starting to meet with two other staging companies in town on a regular basis to share ideas, keep consistent with staging in Charleston, and to really get to know each other so that we feel comfortable referring business to each other if any of us are overbooked.  I have to agree with Terry in that I would not expect a fee.  I would rather a job get done correctly and know the client respect my referral than to take money. 
March 20, 2008 09:05 AM
Rainmaker
309,421
Michelle Minch
Home Staging Los Angeles & Pasadena, CA
Moving Mountains Design Home Staging, Pasadena, CA

Ann: If I accept a referral fee from another stager and they do a bad job for the client, am I legally liable for the other stager's poor performance (or perceived poor performance)? What about a painting contractor or carpet installer that I refer and collect a fee from?

I know most REAs give their clients 3 or 4 independent contractors to choose from for each task so that they cannot be held liable if the IC performs poorly (it does sometimes happen even with people who have performed well in the past).

Thanks in advance.

June 10, 2008 11:14 AM
Rainer
138,546
Kym Hough
Staged to Sell East Bay - Danville, CA
www.Staged-to-Sell

Ann, this is great information. I had no idea you were blogging here. I do know you are a great lawyer so I am so glad to find you here! Kym

June 10, 2008 11:39 AM
Rainmaker
57,589
Ann O'Connell
Real estate agent at Oak Real Estate

Hi Michelle - Overall, it's unlikely that you would be responsible, but the answer to your question would be highly dependent on the facts.  Your relationship with both the client and the service provider would be key, as would the manner in which you recommend the person.  Also relevant, of course, would be the character of the poor performance!  There is no hard and fast rule, so I have to give you the lawyer's answer: it depends!

Hi Kym - thanks for the kind words! 

June 10, 2008 07:25 PM
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Rainmaker
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Ann O'Connell

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