This form is used by an agent when agreeing to receive a fee to be paid by another broker for the referral of a person who needs the services of the other broker and their agents, to document the identity of the person referred and the terms for payment of the referral fee.
Beyond the agent’s scope of services
Brokers and their agents often encounter prospective clients who need brokerage services beyond those the agent can or is willing to provide. These situations are often about the location of property the client wants or an expertise outside the broker’s scope of practice — a common scenario experienced by all professions.
How agents best serve some clients is to refer them to another broker or agent known to them to be capable of providing the brokerage service the client needs. Thus, the agent making the referral properly asks for a fee from the brokerage office accepting the referral. The referral fee is earned when the client enters into a real estate transaction in which the other brokerage office is paid a fee.
Here, the referring agent needs to document the referral to ensure collection of the referral fee the other agent promises to pay. A referral fee agreement form is entered into as the best evidence of the arrangement. [See RPI Form 114]
Agency relationships in real estate transactions
Three classes of real estate agents have been established in California:
- licensed brokers;
- licensed sales agents; and
- unlicensed finders.
Licensed brokers and sales agents owe fiduciary duties to the principals they represent. Fiduciary duties require brokers and their agents to perform on behalf of their client with the utmost care and diligence, as a protective shield in transactions.
Conversely, an unlicensed finder has no such fiduciary duty to members of the public. A finder’s function as an “agent” is limited to soliciting, identifying and referring potential real estate participants to brokers, agents or principals in exchange for the promise of a fee. They are locators, period.
Limitations are placed on the conduct of a finder. A finder lacks legal authority to participate in any aspect of property information dissemination or other transactional negotiations. [Calif. Business and Professions Code §§10130 et seq.]
Although not licensed by the California Bureau of Real Estate (CalBRE) or accepted as members of any real estate trade association, finders are authorized by state codes to solicit prospective buyers, sellers, borrowers, lenders, tenants or landlords for referral to real estate brokers, agents or principals. Thus, they, as an occupation, provide leads about individuals who may become participants in real estate transactions.
When an agent refers a prospective client to another agent, a referral fee agreement is used to document the referral. The referral fee agreement is designed as a broker-to-broker referral form. A referral is between brokers and is not to be confused with a finder’s fee agreement, as a finder is an unlicensed individual employed for the purpose of soliciting and locating clients for a broker and their agent. [See RPI Form 115]
An associate licensee, whether a sales agent or broker-associate, conducts their real estate activities by authority of their license, but always through their employing broker as called for in their Independent Contractor Employment Agreement. [Bus & P C §10137; see RPI Form 506]
The Broker Referral Fee Agreement published by RPI (Realty Publications, Inc.)is used by an agent when agreeing with another broker or their agent for their payment of a fee in exchange for the referral of a client who needs the services of the other broker. Further, the Broker Referral Fee Agreement is used to identify the person referred and document the amount and terms for payment of the referral fee. [See RPI Form 114]
The first section of the Broker Referral Fee Agreement identifies the agents involved in the referral as the Referring Broker and the Recipient Broker, as well as their Associate Licensees. It also designates the prospective client as either a:
- landlord/lessor; or
- [SeeRPI Form 114]
The referring broker will receive no other fees on transactions the referred prospective client enters into through the services of the other broker. Further, the referring broker and their agents undertake no activities after making the referral that create a fiduciary duty owed to the prospective client. Their involvement is limited to the referral of the prospective client only. Accordingly, a provision in the referral fee agreement states the referring broker will not advise or participate in any negotiations with the prospective client.
The remaining sections of the form provide for:
- the identity of the prospective client;
- a description of the real estate involved, if applicable;
- the compensation to the referring broker;
- the conditions under which the referral fee is earned by the referring broker; and
- a mediation provision. [SeeRPI Form 114]
Although an oral agreement between brokers for a referral is fully enforceable, a documented agreement clearly sets:
- the agreed conditions for the fee to be earned;
- the amount to be paid; and
- when the fee will be paid.
Thus, the written Broker Referral Fee Agreement serves as evidence of the terms agreed to for payment of the referral fee earned, which otherwise might not be fully clarified in an oral agreement, or worse, later forgotten.
Form updated 05-2016 to include the Form Description at the top, white header/footer convention and RPI branding.
Form navigation page published 09-2016.