The previous article was about some of the requirements when the buyer or seller is themselves an agent.
Articles 6 and 7 touch on issues regarding agents’ receiving referral fees. The essence of it is: it’s okay, but it has to be disclosed to the agents’ client.
The full copy of the Code of Ethics is here.
Article 6 – Accepting Referral Fees.
I have a “Recommended Lenders” page. If you were my client, I referred you to them, and they paid me a commission or referral fee or something, I would have to disclose that and you would have to say “that’s okay”. (I don’t do that with any of the lenders or vendors I recommend). That seems pretty simple, but it can be a gray area. For example, I’ve had lenders ad title companies buy my lunch (and sometimes I theirs), or had lenders contribute money to co-marketing endeavors (for which the RESPA rules are quite strict regarding each person paying an amount commensurate to their portion of the advertising).
The 6-1 expands this definition to include referring clients to other businesses in which the agent has an interest. For example, I know of an agent who is also a licensed inspector. That is a little obvious, but I also know of brokers who have an ownership interest in title companies. If they were to refer customers to that title company, they would have to both disclose that and get the OK from their client. Pretty common sense stuff.
The bottom line is – if I profit by sending your business to certain vendors, you have to know about it and consent (ideally in writing).
Here are NAR’s example scenario’s of when Article 6 has been violated.
Article 7 – Compensation from Multiple Sources.
This sounds the same as Article 6 – but the other cases referred to getting paid for a referral or referring someone to a business the agent has an interest in. Article 7 instead talks about agents receiving compensation themselves for a service they provided in the transaction. This is probably a pretty rare occurrence. NAR provides an example in which an agent gets a finders fee from the a buyer who buys the agent’s listing (from whom they are also getting a commission) without the seller’s knowledge. The pitfall in this scenario is that the agent was incentivized to get a deal agreed to, even if it meant persuading the seller to to come down to the buyer’s offer, against the seller’s best interests. The agent should disclose that he has a deal with the buyer for a finders fee.
Disclose and consent! Next is Articles 8 – not commingling funds! I think I spelled that right….