Navigating Referral Fees
| August 17, 2021
Licensee referrals have become a common practice among the real estate and mortgage brokerage industries. Many licensees have established strong relationships with third-party service providers, and from time to time they may refer their clients to an insurance broker, financial planner, home inspector, house cleaners, another industry member, etc.
Referring a client to another person for service, assistance, or business is often accompanied by a referral fee. Licensees refer a client to use the services of a third party when it is in the best interest of their client—even if they will collect a referral fee.
Collecting a referral fee is perfectly legal, but it must be disclosed to the client by the licensee who will be receiving the fee.
Before a mortgage licensee refers a client to a third-party service provider and before receiving a referral fee or other compensation for the referral,
they must disclose to their client, in writing:
• that the client’s confidential information will be shared with a third party
• what information is being shared (name, address, contact info, etc.)
• they will be receiving a fee or other compensation for the referral
After providing these disclosures, the client must give their consent, in writing, to the licensee to share their information with a third party. Remember, a client’s name, phone number, and email is considered private, confidential information.
If you do not receive written consent from your client to make a referral you cannot under any circumstance release their personal information and in turn you are not entitled to receive a referral fee.
Remember, whether you make a referral to a licensed or unlicensed person you must always have consent from your client, in writing first. Clients have the right to know with whom and what information is going to be shared. As well, clients need to know if a fee is anticipated so they can assess if the referral is based on the qualifications of the service provider versus the financial gain of the licensee.
Referring other licensees
When you make a referral, you trust the person or company you’re referring someone to has the appropriate licence to provide that service. If you are referring a client to another licensee, it is your responsibility to take reasonable steps to ensure the person has a licence to carry out the service for the client you referred.
Referring Unlicensed Individuals
A brokerage can pay a referral fee to an unlicensed person if the activities of that person do not require a licence under the Real Estate Act.
If the services of the unlicensed person fall under the definition of a trade in real estate, property management or a deal in mortgages, the brokerage must not pay a referral fee to the person.
Receiving and Paying a Referral Fee
It is important to note that all referral fees must be processed through your
Mortgage licensees cannot receive a referral fee payment directly and cannot directly pay someone a referral fee.
When a referral fee is received, the brokerage will then pay the specific mortgage licensee in accordance with the brokerage’s policies and any agreements that exist between the mortgage licensee and their brokerage.
When a referral fee is to be paid, the licensee should have brokerage approval for the referral arrangement and then follow brokerage procedure for processing the payment to another brokerage or unlicensed person.