Originally published: December 1, 2015
This bulletin deals with the topic of receiving and/or paying referral fees to third parties who may not be directly involved in a real estate transaction. Depending on the specific situation, this may not be permitted under the Real Estate and Business Brokers Act, 2002 (REBBA 2002) and in other situations written disclosure may be required. It’s important to know the rules for your specific circumstances, as outlined in this chart.
Registrant receiving referral compensation from an unregistered third-party
Permitted with written disclosure
Registrants may receive compensation for referring a client to other professionals or businesses, such as a lawyer, mortgage broker or contractor. However, section 18(4) of the Code of Ethics requires registrants to make written disclosure to their client at the earliest practicable opportunity, and before they receive any compensation or benefit. The obligation for written disclosure is the same no matter what form the compensation takes: cash, a gift or any other form of direct or indirect financial benefit.
In keeping with section 18(4) and (5) of the Code of Ethics, the disclosure must explain:
- that compensation may or will be received,
- the conditions under which the payment will be received,
- the amount or range of compensation the registrant will receive and where it is a range, the exact amount when it becomes known, and
- if a person related to the registrant receives the compensation, the disclosure obligations still apply. For greater clarity, if the registrant benefits from a third party receiving compensation, the disclosure obligations still apply.
In addition, any referral fees must be received through the employing brokerage. The brokerage is responsible for ensuring compliance with the legal requirements arising from receipt of referral fees, including REBBA 2002, tax laws, and any other applicable legislation.
Further, brokerages may establish their own additional policies and rules for their employees regarding the receipt of referral fees.
Registrants providing referral compensation for leads to an unregistered third-party
Compensation may not be provided to an individual or entity that is not registered under REBBA 2002 if the compensation would be considered to be in furtherance of a trade. This would be contrary to the provisions of REBBA 2002 for the registrant that is offering the compensation (section 30 of the Act) and for the person receiving the compensation (section 4(2)(b) of the Act). The form of compensation does not matter. It could be a cash payment, a bottle of wine or a gift card. No form of compensation is permitted to an unregistered third party.
Remember, according to REBBA 2002, “trade” means a disposition or acquisition of or transaction in real estate by sale, purchase, agreement for purchase and sale, exchange, option, lease, rental or otherwise and any offer or attempt to list real estate for the purpose of such a disposition, acquisition or transaction, and any act, advertisement, conduct or negotiation, directly or indirectly, in furtherance of any disposition, acquisition, transaction, offer or attempt, and the verb “trade” has a corresponding meaning.
Providing compensation for leads to a third party who is registered
Permitted with written disclosure
Compensation for referrals between registrants is permitted and must be disclosed to all parties. In some cases, written consent may be required, for example, if it requires changes to an existing commission agreement. Please remember that the compensation must be received by the registrant’s brokerage, then disbursed to the registrant.
Compensation to a buyer or seller
May be permitted with respect to the transaction they are involved in
Compensation in the form of a commission reduction, rebate, or other incentive is permitted only to a person with respect to the transaction to which they are a party. For more information, see the Registrar’s Bulletins entitled Commission rebates to clients and customers and Commission reduction agreements.
Information in this bulletin replaces the Registrar’s Bulletins Bird Dog Fees and Mortgage finder’s fees & referral fees.