Paying a Realtor for Referrals: The Legal Line

Why this matters

A good agent can send a shop a dozen jobs a quarter, and the obvious way to say thank you is a cut of each ticket. In a financed home sale that cut can be a federal crime for both of you, and even outside a sale it can cost the agent their license. The trouble is that it looks exactly like a normal small-business referral program, the kind a shop runs with past customers, and nobody on either side usually stops to ask whether the rules are different. They are. This card lays out the two layers that decide it and runs one shop's proposed program through both. It is not legal advice; it is the map you take to the person who gives it.

Layer one: the federal rule

The Real Estate Settlement Procedures Act, RESPA, governs the closing of most home purchases and refinances in the United States. Its Section 8, codified at 12 USC 2607 and implemented in Regulation X at 12 CFR 1024.14, says three things that matter to a trade shop:

• No kickbacks. Nobody may give or accept any fee, kickback or "thing of value" under an agreement or understanding, written or spoken, that business connected to a settlement service on a federally related mortgage loan will be referred to anyone.
• No unearned splits. Nobody may give or accept a portion of a settlement-service charge except for services actually performed.
• Payment for real work is allowed. A payment that is genuinely for goods, facilities or services actually provided, at a reasonable value for what was provided, is not a kickback.

Three terms carry the weight, and each is broader than it sounds.

Federally related mortgage loan. Close to every residential mortgage: any loan made by a federally insured lender, backed by FHA or VA, or sold to the secondary-market investors. A cash purchase is outside it. A shop has no way of knowing in advance which deals will be cash, so any standing program will catch financed ones.

Settlement service. Regulation X, at 12 CFR 1024.2, defines it as any service provided in connection with a prospective or actual settlement, and its list names pest and fungus inspections and homeowner's warranties alongside the lender, title and agent services. A repair a seller agrees to in the repair negotiation, paid out of the seller's proceeds on the closing statement, sits squarely in connection with the settlement. A trade shop doing transaction work should assume its work is a settlement service for this purpose.

Thing of value. Not only cash. The regulation's list includes discounts, trips, gift cards, paying someone's expenses and the opportunity to take part in a money-making program. Season tickets handed over "because you've been so good to us" are a thing of value. So is paying for an agent's open-house catering.

The penalties are set in the statute at 12 USC 2607(d): criminal fines and imprisonment of up to one year, and civil liability to the person charged for the settlement service of three times the amount of that charge. Both the payer and the receiver are exposed. Enforcement runs through the Consumer Financial Protection Bureau, state attorneys general and private lawsuits.

The agreement does not have to be written. "Send me your listings and I will take care of you" over coffee is an understanding. A pattern of gifts that follows each referral can be read as one after the fact.

Layer two: the state rule

Every state licenses real estate agents through its own real estate commission, and those license laws reach further than RESPA in one direction: they apply whether or not there is a federally related loan, and sometimes whether or not there is a transaction at all.

The common shapes, which vary enough that you have to read your own:

• Compensation through the broker. In most states a licensed salesperson may be paid for licensed activity only by the broker they are licensed under. A vendor paying an agent directly is outside that channel.
• Disclosure. Many states require a licensee to disclose in writing to their client any compensation they receive from a service provider they recommend.
• Outright bars. Some states forbid licensees to accept referral compensation from vendors in a transaction at all, disclosed or not.
• Brokerage policy. Large brokerages often ban vendor payments to their agents regardless of state law, because the brokerage carries the liability.

The state layer routinely overrides the federal one in practice. A payment that RESPA does not reach can still be a license violation for the agent, and an agent who loses a license over your program is not going to send you work again.

What a shop may do instead

These are the paths that hold up under both layers, provided they are not a disguise for a per-referral payment:

• Be the vendor who makes the agent look good. Answering the phone, quoting inside the repair-request window, writing a findings letter a buyer's lender accepts. That is the actual reason agents refer, and nothing in either rule touches it.
• Get onto preferred-vendor lists on merit. Agents and brokerages keep lists of vendors they recommend. Paying for a place on a list, whether as a fee, a sponsorship or a share of jobs, is the textbook violation.
• Run educational events. Teaching agents what an inspection finding actually means is a normal promotional and educational activity, which Regulation X permits under 12 CFR 1024.14(g) so long as it is not conditioned on referrals and does not pay expenses the agent would otherwise bear. Covering the agents' continuing-education fees crosses that line.
• Co-market at your real share. A joint mailer is permissible when each party pays its proportional share of the cost. Paying the whole cost of a piece that promotes the agent is paying the agent's expenses.
• Buy advertising only at genuine market value, for a real audience, under terms that do not move with referral volume. The CFPB has publicly warned that so-called marketing services agreements are often kickbacks wearing an invoice. This is the arrangement to take to an attorney before signing, not after.
• Reward customers rather than agents. A credit to a past homeowner who refers a neighbor is an ordinary referral program and is not a settlement service.

Saying no without losing the agent

The request usually arrives casually. The answer that keeps the relationship names the rule, not the agent's character, and offers the thing you can do.

AGENT:  I send a lot of buyers your way. What's in it
        for me?
OFFICE: Honestly, I can't pay you for referrals on deals.
        It's a federal rule for both of us, and your
        broker would have my head too.
AGENT:  Everybody does it.
OFFICE: Some do. Here's what I can do: your clients get a
        quote inside their repair window, every time, and
        a letter their lender will take. That's what makes
        you look good at the closing table.
AGENT:  Fair enough.

Write down that the conversation happened, with the date. If an arrangement is ever alleged, a note that you declined one is useful.

One program, two outcomes

A residential HVAC and plumbing shop proposes this to the six agents who send it the most work: 10 percent of the ticket, paid monthly, on every job an agent refers. Run two real jobs through both layers.

Job A: a pre-closing repair. The buyer's inspection flags a leaking water heater. The seller agrees to replace it, and the shop's invoice is paid out of the seller's proceeds at closing. The buyer is financing with a conventional loan from a federally insured bank.

• Federal gate. Federally related loan: yes, a federally insured lender. Settlement service: the repair was negotiated in the repair request and paid through the closing statement, so it is connected to the settlement. Thing of value under an agreement for the referral: 10 percent of the ticket under a standing program is exactly that. Result: prohibited. The shop pays 10 percent and both it and the agent are potentially exposed to civil liability of three times the charge for that repair: a payment of a tenth of the ticket against a possible liability of three tickets, before the criminal exposure.
• State gate. In a state where agents may be paid only through their broker, the agent has also taken compensation outside that channel. The state result does not need to be reached, because the federal one already ends it.

Job B: a call two years after closing. A homeowner who bought through one of those agents two years ago calls because their furnace has quit. The agent gave them the shop's number. No sale, no loan, no closing.

• Federal gate. There is no settlement. RESPA's Section 8 is tied to settlement services on a federally related loan, and this job is neither, so the federal layer does not reach this payment.
• State gate. This is where the answer forks, and it forks by state. In a state whose license law regulates only compensation for licensed real estate activity, a fee for referring a furnace job may fall outside the commission's reach, subject to the agent's broker's policy. In a state whose rules require any compensation a licensee receives from a vendor to run through the broker or be disclosed to the client, the same payment is a problem unless it is handled that way. And the agent's brokerage may forbid it in every state.

What the shop concluded. The program as written cannot run, because a standing per-referral payment cannot be confined to Job B work: the shop does not know at intake which referrals will turn into closing-table repairs, and the first one that does puts the whole program inside RESPA. A program limited to non-transaction work survives the federal gate only for that work, and still has to clear the state gate per agent, so the shop dropped the payment entirely and put the effort into the quote turnaround instead.

What would make a narrower program viable. A shop that wants to try one for non-transaction service work needs, at minimum: written terms excluding anything quoted, performed or paid in connection with a sale; confirmation of the agent's state rules and broker policy before the first payment; and payment handled the way that state requires, which in some states means through the broker and in others is not available at all. That is three conditions, and the third is the one an attorney in your state has to answer. Walk in with the written program, the list of agents and their brokerages, and a description of how you would separate transaction work from ordinary service work at intake.

The tells that you are already across the line

• Payments or gifts that track referral volume, even loosely.
• Anything described as a "marketing fee" whose amount rises when referrals rise.
• A preferred-vendor list you pay to stay on.
• Covering an agent's own expenses: open houses, signage, client gifts, continuing education.
• A side arrangement your office manager knows about and your bookkeeper does not.

References

• 12 USC 2607 (RESPA Section 8), prohibition against kickbacks and unearned fees, penalties at subsection (d)
• 12 CFR 1024.2 and 1024.14 (Regulation X), definitions of settlement service and thing of value, and permitted payments
• Your state real estate commission's license law and rules on licensee compensation and vendor disclosure
• See related: The Realtor and Property-Manager Pipeline
• See related: Working With Home Inspectors Reference