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November 17, 2011

Mastermind for November 16th. Referrals from Friends

by mark mclean

This week’s Mastermind had a lot of us scratching our heads. It started harmlessly enough. An agent poses the question; what if I meet a guy who is willing to provide me with loads of potential clients. All he wants in return is to share in my success. Wait a second. Some guy is going to give you leads and you just have to share your commission with him? On the surface, that sounds like a pretty good deal. Or is it? The debate begins.

First of all, as real estate agents, are we breaking any rules here? I quickly run into my office and grab my copy of REBBA 2002. I know you all have your copy with you so follow along. Please turn to Page 80. The Act, by which all real estate agents and brokerages are governed, clearly states that paying any form of compensation to an unregistered person for activities that would be defined as “in furtherance of a trade” is prohibited.  While some agents might say that they are simply thanking someone for providing a referral, the Registrar looks at is as a “Bird Dog Fee”. 

Has that taken the wind out of your sails yet? Lets look at a case where a friend of yours has recommended to his neighbour that he should use you to sell his home. You are introduced to the neighbour. You list and sell the home. As a gesture of thanks you buy your friend a nice bottle of champagne. Have you broken the law? Afterall isn’t it part of our social fabric to thank people for helping us out? Clearly there has to be some give here. Nope. REBBA is the law, and the law is clear. But for a moment let’s look at this practically. First of all, I think it is safe to say that you would never be in a situation where you are in front of a judge defending your actions for something as simple as buying your friend a bottle of wine, however what if you paid your friend $5000 for helping you land that big sale? Does the amount of the referral matter? According to REBBA it appears to not really matter the ‘coin of the realm’. That is a bottle of wine or a cash payment. Should we treat the “crime” differently? On one side of the coin, an agent is gratefully acknowledging the help of a friend by giving him a small gift. But what if your friend tells you that he will recommend you to the neighbour if you pay him $5000 when the home sells?  Now you are fulfilling a contractual obligation to pay a great deal of money to your friend for providing you with a successful lead. There seems to be a decidedly unscrupulous undertone to this example. So perhaps the litmus test should not be the size of the referral but the intent. Of course, who am I to judge?

While REBBA is decidedly black or white on the subject of paying referrals to unlicensed persons, the above case demonstrates some grey area in the law. So, armed with this new knowledge, how do you proceed from here? Our Mastermind group brought up some really good points. We all agreed that paying someone a fee for a referral tends to water down the referral. We, as agents, need to ask for an endorsement rather than a referral because isn’t an unfettered endorsement our most powerful tool? Our simple response to anyone looking for a cash referral should be that giving you a fee would be illegal but that we promise to treat  any referral you send our way with professionalism and superior service.

Two other worthy notes to add on this subject. What about the mover or contractor who wants to show you his appreciation (an envelope filled with small unmarked bills for example) for recommending their service to your client? Yup. Also illegal. The best advice I would give you is to either not take it, or take it and give it to your client. Honesty is the best policy. Of course there is one other thing to consider; let your client know that you are receiving a referral. Believe it or not, there is a form for that at OREA.

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