Broker To Broker Referral Fees; to Disclose or Not to Disclose…That Is (Still) The Question!
The National Association of REALTORS® Board of Directors and, later, NAR’s Delegate Body met recently to consider, among other agenda items, an amendment to Article 6 of the Code of Ethics. Article 6 reads as follows:
REALTORS® shall not accept any commission, rebate, or profit on expenditures made for their client, without the client’s knowledge and consent.
When recommending real estate products or services (e.g., homeowner’s insurance, warranty programs, mortgage financing, title insurance, etc.), REALTORS® shall disclose to the client or customer to whom the recommendation is made any financial benefits or fees, other than real estate referral fees (emphasis added), the REALTOR® or REALTOR®’s firm may receive as a direct result of such recommendation. (Amended 1/99)
While the Board of Directors approved amending the Code to require disclosure of real estate referral fees, NAR’s Delegate Body voted down the proposal by a narrow margin. As a result, Article 6 stands as it is without amendment, and does not currently require disclosure of broker-to-broker real estate referral fees.
In addition, the Illinois Real Estate License Act (RELA) does not currently require disclosure of broker-to-broker referral fees. RELA does require disclosure to a consumer when the licensee refers to a product or service provider in which the licensee has an ownership interest.
While this disclosure is not required by the Code of Ethics, or the Illinois Real Estate License Act, your brokerage might want to make its own independent business decision on whether it makes good business sense to advise your clients about the existence of broker-to-broker referral fees if applicable to their transactions. This might be for no other reason than transparency. Transparency is a definite buzz word in our industry right now.
Know that your Illinois REALTORS® Legal Team is currently examining and studying this issue more closely. The questions involve issues like, does this activity increase the cost to the consumer, does non-disclosure harm the consumer in any way, are there different types of referrals or even referral business models that could change the answer to the previous questions. As REALTORS®, keeping your clients’ and consumers’ best interests top of mind is the utmost concern. This is the lens through which Illinois REALTORS® will look.
NOTE: The general rule is that real estate referral fees are not required to be disclosed by license law and the code of ethics. There is a small exception noted in 225 ILCS 454/15-45(f) which does require disclosure of any referral fee (if there is one to be paid) when you are a disclosed dual agent in a sale or a lease and one of the clients wants out.
Stay tuned to all Illinois REALTORS®’ channels for more on this important topic.
About the writer: Prior to joining Illinois REALTORS® in 2022, Victoria (Vicki) Munson was an attorney in private practice focusing on real estate and estate planning matters. She enjoyed assisting buyers and sellers in bringing their transactions to the closing table. Victoria earned her bachelor’s degree from Western Illinois University and her Juris Doctor from The John Marshall Law School.
