Why can't I give a referral fee to a real estate agent?

by MPA18 Aug 2015
I really don't understand why I can't legally give a referral fee to a real estate agent that gives me a deal. It seems like it would be a perfect way to lock up the agent's business. Why is the state tying our hands?
--Monte from Louisiana

That is a really good question which has been asked by many within this industry and it is an area where many agents and loan officers continue to skirt the law. While I can't comment on state laws, I will note that states do vary with regard to allowing licensed real estate agents to participate in the lending process. I will focus on the federal law with a notation that I am not an attorney, but can offer a general coverage of the topic.

Referral fees (or kickbacks) are not allowed by RESPA because they add to consumer costs. If you think about it, if a lender paid an agent $1,000 for each deal referred, the cost to the lender increases by $1,000 per transaction. Eventually, that increased cost will be passed on to the consumer.

You might argue that the marketing costs are lowered, and that is why traditionally loan officers can pay for "marketing services" provided by agents -- not specifically for a referral. And even there, the law and implementation of the law have not been really clear. This brings up another question -- what do you say when an agent asks for a referral fee (besides no)? More on that important question next week.
--Dave Hershman


Dave Hershman has been the leading author and a top speaker for the industry for decades with six books authored and hundreds of articles published. His website is www.originationpro.com. If you have a reaction to this commentary or another question you would like answered in this column? Email Dave directly at dave@hershmangroup.com.    

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