Agents can collect home inspector referral fees
Can my real estate agent collect a referral fee when they recommend a home inspector?
The answer to your question is, generally yes. Your agent is allowed to collect a referral fee when they put you in touch with a home inspector or another service provider, such as a mortgage broker, stager, painter, or photographer.
Referral fees are common in real estate and other business transactions. A referral fee is a fee paid to the person who provides you with a lead.
However – and this is important – the law requires your agent share the details of any referral arrangement with you in writing. This will tell you if the agent is getting any direct or indirect benefit from the service provider for the referral so that you can decide how to proceed.
The written disclosure is required even if your agent is receiving gifts instead of money from the service provider to make the referral. For example, a provider might give the agent non-monetary gifts or favours for referrals. The agent must also tell you whether they have a personal relationship with the provider they are recommending – for example, if they’re family members.
Here’s what the disclosure must include:
- whether compensation or benefit will be received
- the conditions of the payment
- the amount or range of compensation
- whether someone else (such as a family member) will receive the compensation (the disclosure obligations still apply in this case)
In addition, referral fees must be paid to the agent’s brokerage and not directly to the agent. The brokerage is responsible for ensuring compliance with the legal requirements under REBBA. Brokerages may also establish their own additional policies and rules for their employees about the receipt of referral fees.
To sum up, it’s not unlawful for your agent to benefit from a referral, but there are rules in place.
Of course, there may be benefits to using a home inspector or other provider that your agent recommends. Your agent may have good insights about certain providers, their knowledge of the type of properties or areas you are considering, and whether or not previous clients have been satisfied with their work.
However, if your agent tells you that they would benefit from a referral they are making and you’re uncomfortable with that, there are other ways to find these services, including online searches and recommendations from friends, neighbours and family.
No matter which sources you use to find service providers, it’s always a good idea to shop around, do some research, and compare them to each other.
Finding good service providers can make a big difference in the buying and selling process and beyond. A referral from your broker or salesperson may be useful, but you should be aware of any benefit they’ll receive for it. As with all aspects of a real estate trade, it’s important to make informed choices.
If you have a question for Joe about the home buying or selling process, please email firstname.lastname@example.org.
This column is for general information purposes only and is not meant as legal or professional advice on real estate transactions.
Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.