Inman News received several comments from readers questioning the legality of a real estate flier advertising a $1,000 reward to the person who finds a buyer for a property in the San Francisco Bay Area (see story).

Readers asked whether a person without a real estate license who is not directly involved in a real estate transaction can receive money for finding a buyer for a property.

Federal law clearly prohibits this sort of reward, said a mortgage lawyer.

And under state real estate licensing law, the offer itself is not illegal but it could become a violation depending on the actions of the listing agent who is offering the reward and the person who seeks the reward, according to a spokesman for the real estate regulatory agency in California.

The flier states, “Wouldn’t you like to have your friends or family live in your neighborhood and receive a little extra spending money? If you find a legitimate buyer and escrow closes on or before Nov. 30 … we will pay you $1,000 at close of escrow.” The reward notice also includes the listing agent’s contact information, and the other side of the flier is a typical for-sale advertisement with property details and color photos.

Mark K. Rabidoux, a mortgage lawyer in Ann Arbor, Mich., said, “From a RESPA perspective, this offer is illegal. It is offering a thing of value (money) for the referral of settlement service business. The agent could offer people money for using his services themselves, but not for referring friends and neighbors. In other words, I can be paid for referring myself, but not for referring others.”

He added, “From a real estate license perspective, you have to look at the license statute in the state in which the offer is made to determine whether getting paid for the bare referral of a prospect constitutes performing real estate agent services.”

Tom Pool, a spokesman for the California Department of Real Estate, said that the reward offer is not illegal on its face, though it is fraught with potential problems.

The legality depends, he said, on whether the $1,000 is properly disclosed to parties in the real estate transaction and whether the person who finds the buyer violates real estate licensing laws.

Pool said that an unlicensed person could receive the money in this instance as long as that person does not engage in any active solicitation, which requires a real estate license in California. “If Uncle Bob is looking for a house and I tell Uncle Bob to go look for it, I haven’t engaged in any solicitation,” for example, Pool said.

And payment of a referral fee to a person without a real estate license is OK in the state, he said, “as long as it’s disclosed to principals” in the transaction.

But if an unlicensed person seeking the $1,000 reward posts a notice on a bulletin board about the house and directs interested buyers to contact that unlicensed person, this example is considered solicitation by an unlicensed real estate professional and is illegal in the state, Pool said.

“I always caution brokers who want to advertise this type of incentive: You do not know how someone is going to react to that offer,” Pool said.

Different states have different real estate laws, and the offer of rebates by real estate professionals to consumers is illegal in some states.

Mike and Eve Alexander of Buyers Broker of Florida commented in the Inman News blog about the reward offer: “In some states (like Florida) you cannot pay a real estate fee to an unlicensed person unless they are a party to the transaction.”

Chris Farrugia, a Realtor for VIP Realtors in Southwest Florida, agreed in his blog comment, “I can tell you that in Florida this is illegal.”

And Doug Quance, associate broker for Solid Source Realty Inc. in Georgia, commented, “Some agents must enjoy explaining themselves to their brokers and their state’s licensing authorities.”

Meanwhile, Mark Thomason, a Realtor for Asante Real Estate Group in California’s Silicon Valley, commented that he has seen a far larger reward offer — $50,000 for the licensed real estate professional who refers another real estate professional representing a buyer in the purchase of a $10 million home in Los Gatos, Calif. “Pretty good marketing, I would say,” Thomason stated in the blog.

Inman Blog challenge: What kinds of creative incentives are being offered in your market? Click here to join the discussion.

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