Beware of brokers bearing bucks

A while back, a real estate agent's flyer showed up in my mailbox. In it, Mr. Agent announced that he would pay $300 to anyone who referred a client to him.

Three hundred bucks. That's a lot of money -- enough to make anybody want to start combing through their mental Rolodex to find this guy a prospect or two. It's a pretty good deal for Mr. Agent, too. After all, $300 really isn't a lot of money to get him a client and a closed transaction he wouldn't have had otherwise.

So why wouldn't every real estate agent offer a deal like that?

Simple. Because it's illegal.

And it's not just a "little bit" illegal, or illegal only here and there. It's prohibited by federal law. The Real Estate Settlement and Procedures Act (RESPA) governs all real estate transactions that involve a goverment entity (like FHA loans) or a financial institution that is regulated or insured by the federal government (like every bank and mortgage provider). So RESPA applies to every transaction involving a loan, unless the funds are coming from underneath Uncle Barney's mattress.

12 USC Section 2607 (a) says, "No person shall give and no person shall receive any fee … [pursuant to a referral agreement]." The paragraph goes on to exempt referrals between two people who are both licensed to sell real estate. But referral fees between agents and nonlicensed people are not exempted. Both broker and recipient would be guilty of a violation. And what a violation it is -- punishable by fines up to $10,000 and a maximum of one year in prison!

Suddenly that three hundred bucks isn't looking so good, is it?

What baffles me is how any competent real estate agent could not know that. In our world, RESPA looms large over everything. It regulates what gifts we can receive and from whom we can receive them. It regulates what fees we can pay and to whom we can pay them. We're constantly being reminded of the long arm of RESPA and the penalties of running afoul of the regulations. If an agent doesn't know about RESPA policies, it makes me wonder what else he doesn't know.

Even if this practice wasn't illegal, I'd have a problem with it. After all, if you asked a friend for a referral to a good realtor, what criterion would you want them to use? Would you prefer "I know and trust this person" or "I know nothing about this guy, but I get three hundred bucks if I can get you to use him." I want people to refer me because they know I'm good at what I do and that I'll take good care of their friends, not because I've paid them off.

At any rate, beware of brokers bearing bucks!!