You are here:

Buying or Selling a Home/Home builder referral fees

Advertisement

Expert: - 4/28/2010


Question
QUESTION: Hello Todd-

Is it legal for custom home builders in AZ to offer real estate agents referral fees or finder's fees for bringing them business?

Thanks,

ANSWER: Hello Nate - In the State of Arizona a REALTOR is not allowed to pay referral fees to receive a potential customer as a referral. A REALTOR may accept a referral fee paid by another Broker for the referral of potential business. There is also a potential a 'Procuring Cause' situation if  the listing broker offered a form of compensation to a buyers broker for introducing the buyer to the property. Should the buyers agent, in this example, have been determined to be the procuring cause the listing agent (builders broker) would owe the procurring broker (buyers broker) that same amount. Black's Law dictionary defines procuring cause as "The proximate cause; the cause originating a series of events, which, without break in their continuity, result in the accomplishment of the prime object. The inducing cause; the direct or proximate cause. Substantially synonymous with 'efficient cause.'" So, the answer is yes. That is why the builder has signs posted indicating "If you are working with a REALTOR your REALTOR must be present upon your initial/first visit to the sales office" or the like. - Todd Menard

---------- FOLLOW-UP ----------

QUESTION: Hello Todd- Thanks for the response.  I understand that scenario if the home is already built and listed.  Is it still legal for the builder to offer referral fees to REALTORS to send them business for customers/clients looking to build a house?   For example, if Builder X calls a real estate agent and offers you a 3% referral fee for any customers/clients you send to them that end up having their home built by them.   Is that ok?

Answer
Hello Nate - With the understanding I am not privileged to the entire builder offer of compensation to the broker in question... and providing there is no other part of the offer that might be interpreted as a violation the act of paying a referral fee "broker to broker" for activity that results in a closing of real estate sales or leasing would be considered legal. Probably is used to cover extenuating circumstances in your situation unknown to me at this time. The paying of referral or commission fees must be between broker to broker, and the paying of referral fees to an unlicensed individual would constitute illegal activity. To answer your question more directly, the way you posed your follow-up question the answer is the activity is acceptable provided the broker is compensated for the referring of business that actually culminates. Please remember I am not an attorney and this is not to be considered legal advice, rather it is to be considered real estate information any experience REALTOR should be able to provide. If you belive you have been wronged, you should seek the assistance of a real estate attorney. - Todd Menard

Buying or Selling a Home

All Answers

Answers by Expert:

Ask Experts

Volunteer

Todd C. Menard

Expertise

National Association of Realtors Code of Ethics and Professional Standards * Contract Questions: 05/05 Arizona Real Estate Purchase Contract, Exclusive Buyer Broker Contracts, Listing Contracts and associated contract documentation as it relates to boilerplate, covenants, contingencies, procedures and procedures. * ARMLS Arizona Regional Multiple Listing questions * Real Estate Professional Standards and Practices, Ethics, Obligations, Duties * Agency relationships in Arizona, Procurring Cause * Questions typicaly arising during the listing period * Questions typically arising during the escrow period * Questions about working with a real estate agent/REALTOR * Questions Related to New Home Builders

Experience

National Association of REALTORS Board of Director (2011) Arizona Real Estate Salesperson License (1991-1995), Arizona Real Estate Brokers License (1995-Present), Arizona Association of REALTORS Board of Directors (2008-Present), Arizona Association of REALTORS Professional Standards Committee (2008-Present), AAR Certified NAR Code of Ethics and Professional Standards Instructor, Southeast Valley Regional Association of REALTORS President-Elect (2011) Southeast Valley Regional Association of REALTORS Board of Directors (2008, 2009), Southeast Valley Regional Association of REALTORS Grievance Committee Chairperson (1998-2007), Southeast Valley Regional Association of REALTORS Bylaws Committee (2008-Present), Southeast Valley Regional Association of REALTORS Education Committee (2008), Arizona Association of REALTORS Forms Committee - Residential Purchase Contract (2005), Arizona Association of REALTORS Forms Committee - Residential Rental Agreement (2008), Arizona Association of REALTORS Forms Committee - Buyer Broker Agreement (2009), Arizona Association of REALTORS Presidents Advisory Group, Road to Professionalism (2009), Arizona Association of REALTORS GRI Curriculum Review Committee (2009), Arizona Department of Real Estate, Commissioner's Education Advisory Group Sub-Panel B (2010) Arizona Department of Real Estate, Commissioner's Statute and License Review Committee (2007)

Organizations
National Association of REALTORS, Arizona Association of REALTORS, Arizona Real Estate Educators Association (AZREEA), Arizona Regional Multiple Listing System (ARMLS), American Notary Association, Southeast Valley Regional Association of REALTORS (SEVRAR), Southeast Valley Regional Association of REALTORS Women's Council of REALTORS (2010-Present), Phoenix Association of REALTORS (1994-2000, 2005-2009), Scottsdale Association of REALTORS (1994-2000, 2005-2009), Maricopa/Glendale Association of REALTORS (1994-2000, 2005-2009),

Publications
"Real Estate in 2008"- Lifebushido Publishing (Contributory Author), SEVRAR Magazine, Internet Crusade, RealTown ListServe, Blogger.com, Active Rain

Education/Credentials
- AAR Certified Ethics and Professional Standards Instructor, Graduate REALTOR Institute (1993), Certified Negotiation Expert (CNE), Over 100 Hours of annual real estate continuing education, Annual Ethics and Professional Standards Development Workshops as required by the National Association of REALTORS, Approx. 36 hours of NAR Code of Ethics training annually, Numerous IDW, Seminars and Train the Trainer programs, Business Management Degree - 1981

Awards and Honors
2009 REALTOR of the Year Award, Southeast Valley Regional Association of REALTORS (10,000+ Members), Double Platinum Production Award ($45,000,000 Sales Volume)- Keller Williams Realty Int'l (2001), Top 15 Sales Production Keller Williams Realty International (2001), Top 5 Sales Producation Keller Williams Realty Southwest Region (2001), Top Recruiter Award - Keller Williams Realty Int'l, SW Region (2002), Who's Who in U.S. Executive (1983), Who's Who in U.S. Real Estate Professionals (2007)

©2012 About.com, a part of The New York Times Company. All rights reserved.