Real estate agents are a natural source of note leads, and it’s tempting to pay them for referrals. Here is the basic law, in all states, on paying real estate agents.
Agents are paid only through their broker
A real estate agent is never allowed to accept money from anyone except his broker. Every dollar the agent takes in must be payable to the broker and go through the broker’s account. The broker then pays the agent as the two of them have agreed.
As a note investor or broker, property buyer or seller, you are never really dealing with the agent, though some agents try to convince outsiders that they are the decision maker.
Why outside money creates a conflict
Referral fees fall under agency law. Generally, a real estate broker or agent can be paid only under the signed agreement with his client, and has a legal duty to tell the client about every dollar taken in.
Think of it this way. You hire an agent (and his broker and company) to sell your house, and agree in the listing agreement to pay them a percentage of the price if they find a buyer.
If you learned they had taken money from someone else to do something else with your property, wouldn’t you be concerned? The agent and his company are supposed to be working for you, nobody else. What might they have been doing for someone else on your property? Agreeing not to show it until another property sold? Refusing to show it to buyers of a certain race?
If that happened, you’d have a legitimate complaint against the broker and the agent, and they would probably both lose their real estate licenses.
When a referral fee may be acceptable
Ask the agent who he represents and how he gets paid. If the agent isn’t representing any of the parties, he may have a legal right to take your money if you find a buyer for the note. That could be a very clean deal, and you could pay him without a problem.
For example, say the agent and his company handled a sale last year in which the seller took back a note. The agent remembers it and thinks the note holder may want to sell, so he refers it to you. As long as the agent and broker have no remaining agency duty to their former client, it would probably be all right for them to accept a referral fee from you.
Never pay an agent directly
Never pay an agent directly on any kind of real estate deal. He can’t legally take any outside money that doesn’t first go to and through his broker. If you knowingly pay him directly, you’d be a conspirator in an unlawful scheme and could face criminal or civil penalties for your part.
