Real estate referral commissions:  I understand that an agent can earn
a referral commission by linking a buyer up with an agent in another
city.  I would like to know the following:
1) How is the referral fee calculated?  What percentage? 
2) How is the referral fee collected by the referring agent? 
3) Is it common for agents to get stiffed, never collecting the
referral fee. 

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Request for Question Clarification by weisstho-ga on 20 May 2002 07:44 PDT

What state are you in, please? 

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Clarification of Question by jmhines123-ga on 20 May 2002 10:23 PDT

I am in Maryland.  The specifics of the situation would be a MD agent
referring a client who is moving to PA to a PA agent. 

Hi there, 
 
Our search returned the following results: 
 
After finding out that your agent is in Maryland, I think this link is
exactly the information you are looking for:
 
&lt;a href=&quot;<a href="http://www.mdrealtor.org/how%20much%20are%20your%20career%20and%20freedom%20worth%20to%20you.asp">http://www.mdrealtor.org/how%20much%20are%20your%20career%20and%20freedom%20worth%20to%20you.asp</a>&quot;&gt;<a href="http://www.mdrealtor.org/how%20much%20are%20your%20career%20and%20freedom%20worth%20to%20you.asp">http://www.mdrealtor.org/how%20much%20are%20your%20career%20and%20freedom%20worth%20to%20you.asp</a>&lt;/a&gt;
 
In short, this is the stand by the state of Maryland and federal law
(enacted by RESPA):
 
&amp;quot;Maryland law and the federal Real Estate Settlement Procedures Act
(RESPA) prohibit both the payment and receipt of fees or other things
of value for the referral of consumers to mortgage lenders, mortgage
brokers, title insurance companies, settlement companies, attorneys
and other real estate settlement service providers. Violations of the
laws can result in civil and criminal monetary penalties, prison
terms, and the loss of your real estate agent's license!&amp;quot;
 
So the questions that you have asked are not valid under state and
federal law so any information that is available with regards to this
corresponds to illegal activity.
 
Here is what IS allwed by law: 
 
&amp;quot;Although real estate brokers and agents commonly split real estate
commissions, which is permissible, RESPA and Maryland law generally
prohibit the splitting of fees for other real estate-related
settlement services, and the payment of fees for the referral of
customers who use such services. To avoid civil and criminal
penalties, a prison term and the loss of your real estate agent's
license, you must refrain from accepting any impermissible referral
fees.&amp;quot;
 
This seems to be the ONLY time when mutual gain is allowable. Although
your specific situation deals with an agent outside of Maryland, the
federal law is still applicable.
 
These regulations in general seem to have been put in place in order
to prevent real estate related firms from charging higher fees or
rates. The following article uses a specific case to explain the law
more thoroughly:
 
&lt;a href=&quot;<a href="http://realtytimes.com/rtnews/rtcpages/20010827_fees.htm">http://realtytimes.com/rtnews/rtcpages/20010827_fees.htm</a>&quot;&gt;<a href="http://realtytimes.com/rtnews/rtcpages/20010827_fees.htm">http://realtytimes.com/rtnews/rtcpages/20010827_fees.htm</a>&lt;/a&gt; 
 
If any of the above information is unclear, feel free to post a
clarification. I hope this information helps!
 
Cheers, 
answerguru-ga  

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Request for Answer Clarification by jmhines123-ga on 20 May 2002 11:57 PDT

I believe that there may be a distinction between the kind of referral
I am asking about and those you reference in your answer.  I can see
where referral fees from mortgage lenders, home inspection companies
and others involved in the same transaction could lead to abuse – and
thus the laws you reference.
 
However, if I were to ask my agent “Mike, can you recommend a good
agent for me to speak with when I get to Lancaster, PA?”, would Mike
earn a simple referral fee for this?  

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Clarification of Answer by answerguru-ga on 20 May 2002 13:05 PDT

Hi, 
 
Yes I did understand your original question..to put it in terms of
your clarification, Mike would not (legally) earn any referral fee
since both he and the person he was referring you to are under the
category of "other real estate settlement service providers". You will
note that the source of the original information was from
mdrealtor.org, so it definitely applies to realtors.
 
Abuse could also occur in this case that you mention, since you may
end up paying a higher commission to the person in PA because they had
to make up the cost paid to Mike for the referral.
 
The only reason Mike would refer you to someone is out of common
courtesy and so that you could potentially pass on a good word to
others looking for a MD realtor.
 
Hope that answers your question, 
 
answerguru-ga  

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Request for Answer Clarification by jmhines123-ga on 21 May 2002 06:39 PDT

I have to agree with the person who posted the comment "The law prohibits 
such fees to "real estate settlement service providers," not from one 
agent to another."  

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Clarification of Answer by answerguru-ga on 21 May 2002 07:24 PDT

Hello, 
 
Firstly I just wanted to clarify that nobody here is a legal
professional...I did further investigation on the subject and came up
with the following to support my original answer:
 
"New legislation has been assigned to the House Financial Services
Committee that would make it clear that markups of third-party charges
are violations of the Real Estate Settlement Procedures Act,
regardless of who pockets the added amount."
<a href="http://www.imfpubs.com/">http://www.imfpubs.com/</a> 
 
If anyone has conflicting information I ask that you pass it
forward...thank you.
 
answerguru-ga 

The researcher is clearly answering questions outside of their field
of expertise -- missinterpreting real estate terms which then lead the
research to incorrect answers.

I think the answerer missed the point--it's illegal for an agent to
get a referral fee from a mortgage broker, escrow agent, etc., but I
don't think that means it's illegal for an agent to refer to another
out-of-state agent....

I believe the researcher misunderstood the law.  The law prohibits
such fees to "real estate settlement service providers," not from one
agent to another.  The law cited does not address the question asked,
in my opinion.

1) How is the referral fee calculated?  What percentage? 

It varies from case to case. 15-25% referral fees are pretty standard.
(15-25% of the gross sale commission of the agent after closing).

2) How is the referral fee collected by the referring agent? 

Generally the agent who refers the client will have the other agent
sign an agreement which acknowledges the referral and states the fee
agreed upon between the two agents. This fee is usually due after the
closing of the transaction.

3) Is it common for agents to get stiffed, never collecting the
referral fee. 

It happens sometimes.  Most agents appreciate receiving referral
clients and pay the referral fee without problems. An agent who does
not to get stiffed should insist on a signed agreement and monitor the
progress of the transaction.