Consumers place significant trust in the recommendations provided by real estate professionals. Whether referring a client to a mortgage broker, home inspector, lawyer, contractor, or another industry professional, licensees are often relied upon to connect consumers with trusted expertise.
While referrals can benefit consumers and support a successful transaction, they can also create disclosure obligations if a recommendation may result in a referral fee, bonus commission, gift, or other benefit being received through the brokerage.
Consumers deserve to know when a recommendation may be connected to a financial or other benefit. Transparent disclosure helps clients make informed decisions and supports trust in the professional relationship.
Compensation Comes in Many Forms
Compensation extends beyond the commission earned through a real estate transaction. It can include:
- Referral fees
- Bonus commissions
- Marketing allowances
- Gift cards
- Tickets to sporting events, concerts, or conferences
- Travel incentives
- Discounts on products or services
- Cash payments
- Gifts or rewards tied to referrals
- Other financial or non-financial benefits
A common misconception is that disclosure is only necessary when the compensation is substantial. In reality, the amount is often less important than the fact that a benefit exists. If a referral or recommendation could result in compensation or another benefit, consumers should be told. Licensees should also obtain a client’s informed written consent before sharing their personal information as part of a referral, so clients understand who their information will be shared with, why it is being shared, and whether anyone may receive a benefit from the referral.
“I Don’t Know the Exact Amount”
One area that frequently causes confusion is referral arrangements where the amount of compensation is not known in advance.
Examples include:
- A mortgage broker advises that a referral fee will be paid, but the amount depends on the mortgage obtained.
- A relocation company provides compensation based on the value of a completed transaction.
- A builder offers a bonus commission that varies depending on inventory levels or sales targets.
- A service provider offers incentives that change throughout the year.
Some licensees assume disclosure is not required because they do not know the final amount. However, while the exact amount may be unknown, the existence of a potential benefit is often known. Real Estate Act Rules s.45 recognizes that clients should know when a referral or recommendation could result in compensation or another benefit for a licensee. If the amount is known, it should be disclosed. If it is not yet known, licensees should advise the client that a benefit may be received and provide additional details once the amount has been determined. This information helps clients make informed decisions about whether to proceed with the referral.
Common Referral Situations
Home Inspector Referrals: A home inspector offers a gift card for client referrals.
Mortgage Broker Referrals: The mortgage brokerage pays a referral fee when a client’s mortgage closes.
Bonus Commission Programs: A builder or developer offers a bonus commission on certain properties sold during a promotional period.
Out-of-Province Referrals: A referral to a real estate professional in another market results in a referral fee.
Preferred Service Provider Programs: A service provider offers incentives in exchange for referrals from a brokerage.
In each of these situations, consumers should be informed of any financial, incentive, or other benefit connected to the recommendation.
Referral Arrangements Are Brokerage Matters
Referral fees, bonus commissions, and similar incentive arrangements should be handled through the brokerage, not directly by individual licensees.
Licensees should not enter into private referral or compensation arrangements with service providers, builders, mortgage brokers, home inspectors, or other third parties without the knowledge and approval of their brokerage.
If a referral may result in compensation or another benefit, discuss the arrangement with your broker before proceeding. This helps ensure appropriate oversight, addresses disclosure obligations, and confirms how any compensation will be handled through the brokerage.