What are the responsibilities of brokers regarding the disclosure of referral fees?
QUESTION: I am a licensed agent in Wilmington. A broker I know in Winston-Salem referred a prospect to me who is interested in buying a vacation home near the beach. We have worked out a referral arrangement and signed Standard Form 730 to confirm our agreement. The form mentions that the rules of the North Carolina Real Estate Commission require the “Referring Firm” to disclose to the prospect that payment may be received. What rule is the form referring to? And do I have any disclosure obligation as the agent receiving the referral?
ANSWER: The rule referenced in Form 730 is Rule 58A.0109(b) of the Real Estate Commission’s rules. That rule states that a licensee shall not receive compensation of more than nominal value for services which the licensee “recommends, procures, or arranges” relating to a real estate transaction for a party without full and timely disclosure to that party.
As the agent paying the referral fee, rather than receiving it, rule 109(b) does not impose any disclosure obligation on you. That obligation is solely on the party receiving the referral fee.
The Real Estate Commission has written that the purpose of the disclosure rule is that a party has the right to know that an agent making a referral is not necessarily providing disinterested advice when making a particular recommendation. The existence of the referral fee could conceivably affect the prospect’s decision on whether to hire the party receiving the referral.
Rule 109(b) requires that the licensee’s disclosure be made in a timely fashion. To comply with this requirement, the disclosure should be made at the time the referral arrangement is agreed to and before the prospect enters into an agency agreement with the receiving firm/agent. Ideally, the agent making the referral should confirm the disclosure in writing and request that the prospect confirm in writing (e.g., by return email) receipt of that disclosure.
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