Don’t Forget the Referral Fee Disclosure

Dear Forms Guy: An acquaintance of mine wants to sell her cabin in the mountains. She knows I am a real estate broker so she asked me if I could recommend an agent up that way who she could list the property with. I’ve identified an area firm that I think would do a good job for her. I am completing the Referral Agreement (NCAR form 730) and have a couple of questions. Can you answer them for me? Sincerely, Beavis

Dear Beavis: I’ll do my best. Sincerely, Forms Guy

Beavis: Thanks. On the Referral Agreement form, after the place where you check whether or not the prospect is aware of the referral, there’s a “Note” that says I’m required by the rules to tell the prospect I may receive payment for the referral. My first question is, can I simply tell my acquaintance that I expect to be paid a referral fee if the cabin sells, or do I have to go into more detail?

Forms Guy: The rule in question is Real Estate Commission Rule 58A.0109. Subsection (b) of the Rule requires a real estate agent to make “full and timely disclosure” to a person of any fee that the agent may receive for services that he or she recommends, procures or arranges relating to a real estate transaction for that person. According to subsection (d) of Rule, full disclosure would include the amount of the fee that the agent may receive.

Beavis: But what I would be paid is a percentage of the commission received by the listing firm if the property sells. I can’t disclose the amount of my expected fee if I don’t know what the property is going to sell for or, for that matter, what the commission arrangement between the prospect and the listing firm will be.

Forms Guy: In this situation, it would be sufficient to disclose to your acquaintance the percentage of the listing side of the commission that you would be paid according to the terms of the referral fee arrangement with the listing firm.

Beavis: When do I have to make the disclosure?

Forms Guy: Subsection (d) of the Rule states that “disclosure is timely when it is made in sufficient time to aid a reasonable person’s decision­making.” In other words, before your acquaintance makes a decision whether to hire the firm you’ve referred her to, she needs to know about the referral fee arrangement.

Beavis: Do I have to make this disclosure in writing?

Forms Guy: Technically, no. But from a riskmanagement perspective, it would be foolish not to make the disclosure in writing.

Beavis: Does NCAR have a form I could use to make the disclosure?

Forms Guy: Yes, you could use the Confirmation of Compensation form (form 770). Or, for that matter, you could give the prospect a copy of the Referral Agreement. If you do that, it would be a good idea to have her sign and date something indicating that you gave her a copy of it in a timely manner in case a question about that came up later. If you don’t want to use either of those forms to make disclosure, you could also do it by email. Again, though, it would be wise to get a reply email confirming her receipt of your email so that there isn’t any question later that you’d made disclosure. v