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Referral FeesReferral Fees

Coalition Corner:Business training tools for HR staff, real estate licensees and other service professionals in the relocation and real estate industries

© 2005, Employee Relocation Council/Worldwide ERC® Coalition

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Program Objectives

• This program supplements a monthly editorial feature in ERC’s Mobility magazine

• In this segment, users will learn:– How to define a real estate referral fee– To name “trigger mechanisms” that help outline

proper procedures– How to define “blanket agreements”– The importance of clear and timely communication

for all parties impacted by referral fee programs

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Referral Fees Defined

• A real estate referral fee is a portion of a broker’s commission paid to a party that provided either a listing or selling prospect to that broker

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Referral Fee Programs

• Referral fee programs are commonly used to generate additional business and income for:– Real Estate Practitioners/Brokerage Firms– Relocation Management Companies (RMCs)– Corporations

• Referral fees can be generated on either the departure (selling) side, or destination (buying) side of a move

Important Note: Referral fees can only be paid to another entity holding a real estate broker’s license

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Referral Fee Programs

• The Coalition’s Policy Statement on the Collection of Referral Fees (http://www.erc.org/coalition/library/referral_policy.shtml) outlines two basic strategies to follow when placing a referral:

– Proper/timely disclosure of referral fee program details

– Supporting education/communication for those impacted

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“Trigger Mechanisms”

• The party receiving the benefits of referral fees has primary responsibility for timely disclosure of program details. Certain “trigger mechanisms” can help define the process:

– Service orders from an employer, RMC, or affinity group establishing the referral, ideally provided to real estate relocation department or other authority

– Notice to a licensee by an individual covered by a referral fee program arrangement (and written confirmation by licensee)

– Acknowledgment by a licensee of a “blanket agreement” in separate, written form, ideally used in conjunction with the above two steps

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“Blanket Agreements”

• A “blanket agreement” occurs when a move management organization and a broker outline a referral fee arrangement in exchange for volume of business

• Brokers opt to sign such “blanket agreements” at their own discretion, and agree to pay a referral fee on any transaction for that particular client/employer

• Regardless of how contact was made between the employee/program participant and agent, a referral fee will be owed to the referring party if such an agreement exists

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Referral Fee Programs

• “Referrers” (employers, RMCs and affinity groups) need to be responsible for communicating the details and expectations of the referral fee program to the appropriate audiences:

– Transferring employees/affinity program members

– Department managers and others who notify or advise transferees/program participants

– Relocation/HR managers and other personnel who counsel transferees/program participants

• Communications should note that relocation/affinity benefits may be negatively impacted if disclosure/program rules are not followed

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Referral Fee Programs

• Brokers should also be responsible for communicating the details and expectations of referral fee programs to their appropriate audiences:

– Relocation department personnel– Branch managers– All licensees in the firm

• Communications should note the proper “trigger mechanisms” as well as questions for the licensee to ask – early in the process – that may help alert him/her to the fact that a referral fee may be warranted

Note: See http://www.erc.org/pdf/BrokerStop.pdf

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In Conclusion

• Properly structured and communicated referral fee programs are an accepted practice in the relocation industry

• Complaints generally arise when licensees are unaware of the requirement at the beginning of a relationship, so timely and clear communications about the details and expectations of the program to all parties involved are essential