Introduction
The payment of referral fees between licensed real estate organizations is a common practice, so Worldwide ERC® drafted this policy statement in an effort to provide guidance on the proper placing and collection of referral fees.
In addition to brokerage firms, other licensed real estate organizations that may participate in referral fee arrangements can include:
- Licensed corporations (with in-house employee relocation or other employee benefits programs)
- Licensed relocation management companies (RMCs)
- Licensed affinity program, lead generation, or other groups
- Licensed internet referral networks
Worldwide ERC® research has shown that when real estate referral fee complaints arise, they are most often the result of a lack of awareness of the referral fee requirement at the beginning of the transaction by real estate licensees, consumers (which include employees and/or applicable program participants), or both. Complaints can arise on the departure/selling and/or the destination/buying sides of transactions if all appropriate parties are not properly informed. Frequent and numerous opportunities exist for buyers, sellers and real estate licensees to come into contact with each other (i.e., through social/local networks, phone and internet inquiries, open houses, etc.), which make disclosure and continuous education and communication efforts about the presence of referral fee relationships essential.
Because timing is a critical factor in determining what constitutes a properly placed referral fee request, this policy operates under a "first contract, not first contact" philosophy. In other words, properly executed, legal, contractual agreements may supersede relationships or contacts licensees have with consumers, depending on the order in which they come and subject to the provisions of state laws. Therefore, referral fee program disclosure, education and communication efforts are essential. These contractual agreements include, but are not limited to:
- Blanket agreements (and/or other contractual service agreements)
- Listing agreements
- Buyer brokerage agreements
- Purchase and sale agreements
Assumptions
The
Policy Statement on the Collection of Real Estate Referral Fees assumes the following:
- Referral fees can only be paid between licensed real estate organizations, as mandated by U.S. state and federal law.
- In some instances, consumers who opt to use real estate licensees outside the identified referral fee program network may experience a loss of or reduction in benefits and/or cost savings associated with the program.
- The parties receiving the referral fees (hereafter described as "referrers") have the primary responsibility for disclosing the referral fee requirements to the parties responsible for paying the fees (hereafter described as "referral recipients"). This must happen early in the transaction cycle, prior to the execution of a valid brokerage agreement (i.e., listing agreement, buyer brokerage agreement, purchase and sale agreement, etc.).
- Referral recipients also maintain a responsibility to inform those real estate licensees who might be impacted by the arrangement.
- Blanket agreements are defined as encompassing arrangements between brokers and various licensed organizations to pay a referral fee for all transactions involving the consumers associated with that specific employer/group, under defined and agreed circumstances. Brokers opting to participate in blanket agreements should disclose the policy details — and in particular, the obligation to pay the referral fee — to real estate licensees with whom they work. Blanket agreements do not absolve the referrer of responsibility to place referrals through the proper channels, and should not be used to circumvent the procedures outlined below.
- Appropriate referral program management depends on:
- Full, timely disclosure of the referral fee obligation
- Clearly defined processes that prompt a referral fee
- Supporting education and communication to help ensure all parties are aware of and agree to those prompts
1. PROPER PLACEMENT OF REFERRALS
Clearly defined procedures are necessary to ethically and legally support the collection of referral fees. Referrals can be established via phone, fax, e-mail, or e-commerce system. Best practices indicate that referrals outline specific details, including the amount of the referral fee, and that phone requests be followed up and/or be confirmed via other written means, such as fax/e-mail, e-commerce system, etc.
The referring party should exercise care to be sure the referral is being sent to only those individuals who have the authority on behalf of the brokerage firm to contractually agree to pay a fee or portion of the commission to the referring party. Again, best practices indicate that procedures should be in place for checking referral obligations on the part of both referrers and referral recipients.
The referral fee request should occur prior to the execution of a valid listing agreement, buyer/broker employment agreement, or purchase agreement.
2. DISCLOSURE
Referrers are obligated to disclose the referral fee requirement to the referral recipients.
Real estate firms participating in referral programs are responsible for disclosing the existence of business relationships which may obligate licensees to pay referral fees.
In the cases of blanket agreements, referrers still should make every effort to disclose the referral fee obligation according to the terms/timing requirements specified in the agreement.
As noted above, blanket agreements should not be used as means to avoid or circumvent disclosure responsibilities.
3. EDUCATION AND COMMUNICATION
The goal of referral fee education and communication is to ensure upfront that all parties are aware of, and agree to, the details of the referral requirements, including the obligation of the referral fee.
Referrers
Referrers are responsible for developing and implementing education and communication programs for those who administer or participate in their referral programs. This may include, among others:
- Human resources personnel
- Different types of consumers as identified in the introduction
- Counselors, managers or other employees who counsel or assist individuals moving
- Department managers and others who notify or otherwise advise eligible consumers at the first discussion of the move
- Real estate licensees
- Real estate web site administrators and call center personnel
As failure to follow the proper referral fee program procedures may result in a loss of benefits, reduction in cost savings and/or additional "out of pocket" expenses to consumers, it is essential that such information be communicated to consumers at the start of the process.
Appropriate audiences should also be educated to the fact that individual agents cannot act on behalf of their companies. Therefore, blanket agreements must be signed by the broker and referral initiations placed with or confirmed by only those with the authority to accept them.
Referral Recipients
Referral recipients, or those who agree that they or their designated representatives will pay a referral fee, are also advised to establish a general training and communication program for the members of their affected audiences. These may include, among others:
- Real estate licensees
- Real estate web site administrators and/or call center personnel
- Relocation department personnel
- Branch managers
Best practices dictate that sound communication and educational efforts should include:
- Details of internal company referral policies, and in particular, the definition of what constitutes an obligation to pay a referral fee.
- Formal registration procedures to help eliminate duplicate referral fee requests and assist in determining the crucial timing aspect as outlined in the introduction above.
- A procedure through which agents can stay up to date on those organizations with whom referral arrangements exist.
- A list of helpful questions which licensees can ask consumers early in the process to determine if they are associated with referral programs. Worldwide ERC® has developed a
communication to aid brokers in educating their licensees about referral programs Worldwide ERC® has developed a referral fee explanation handout for consumers
4.
POLICY SUPPORT
The effectiveness of this policy depends on its adoption by those responsible for managing referrals. It should be reiterated that in addition to the above obligations on the part of the referrer, receiving brokers, too, have a responsibility to educate their licensees on proper referral practices. All parties in the referral transaction must comply with the policies outlined herein.
Should referral fee disputes arise, parties are encouraged to follow established internal procedures to resolve them. In addition, Worldwide ERC® also provides a resource to facilitate dispute resolution known as the Interchange, which is detailed in the following section.
5. RESOURCES FOR RESOLVING COMPLAINTS: THE INTERCHANGE
Worldwide ERC® maintains an online, confidential, referral fee complaint resolution mechanism known as The Interchange. It is designed to facilitate the communication of after-the-fact referral fee concerns and the collection of general information that will aid in Worldwide ERC®’s efforts to discourage and ultimately eliminate practices which are contrary to this policy statement. The Interchange is free of charge, and is available to anyone; membership in Worldwide ERC® or support of its policies are not required for use.
The Interchange has been created to help organizations raise specific issues or practices that may not be in compliance with this policy.
The Interchange operates in the following manner:
- Complainant submits the confidential details of the complaint via The Interchange web site.
- Complainant receives an e-mail confirming receipt of the submission.
- Respondent (the party against whom the issue has been raised) is swiftly notified by The Interchange.
- The respondent conducts the necessary investigation, evaluation and decision regarding the issue; replying to the complainant within 10 business days. If extenuating circumstances prevent a reply within this timeline, complainant is notified by e-mail.
As Worldwide ERC®'s role is to monitor the process by maintaining and operating
The Interchange, it serves as a conduit and facilitator only, and does not act as an arbitrator of disputes.
6. POLICY SUMMARY
The payment of referral fees between licensed real estate organizations is common.
Worldwide ERC® research has shown that when real estate referral fee complaints arise, they are most often the result of a lack of early awareness of the obligation to pay a referral fee on the part of real estate licensees, consumers, or both.
In some instances, consumers who opt to use real estate licensees outside an identified referral fee program network may experience a loss of or reduction in benefits and/or cost savings associated with the program. That fact should be communicated to all applicable consumers early in the process.
The parties receiving the referral fees maintain primary responsibility for disclosing the referral fee requirements to the parties responsible for paying the fees, early in the transaction cycle.
The parties responsible for paying the referral fees (i.e., the brokers who agree to the referral fee relationship) also maintain a responsibility to inform those within their company (i.e. real estate licensees and managers) who might be impacted by the arrangement.
Referral programs should incorporate disclosure, and education and communication mechanisms, with a goal of ensuring upfront that all parties are aware of, and agree to, the details of the referral requirements, including the obligation of the referral fee.
Blanket agreements do not absolve referrers of responsibility to place referrals through the proper channels, and should not be used to circumvent disclosure, education or communication procedures.
Should referral fee disputes arise, The Interchange is one available means to resolve them.