“Oh,” beamed Bob with a dismissive hand gesture “that’s the fee that we pay Sally Johnson’s firm.” He had no idea that a fuse had just been lit.
“Referral fee?” asked the Neals in unison. “You mean we’re paying a real estate commission on our building contract to Sally?” “Oh, it’s really not a sales commission,” Bob responded. “We call it a referral fee because any real estate sales commissions have to be listed and disclosed in any Realtor’s contracts by law. That’s probably why you were unaware of it until now.”
The Neals were incredulous. “Bob, we’re not paying a 3 percent fee to anyone just because they gave us a few names and numbers.” “This is standard within the industry. These payments are a portion of how Realtors earn their living through personal contacts, providing information and directing clients to fellow professionals,” explained Bob.
There was a brief silence until Bill spoke sarcastically: “I suppose now you’re gonna tell me that the architect had to pay a ‘referral fee’ to Sally also?” The answer was obvious by the look on Bob’s face.
Tokens of Appreciation. The Neals left Signature’s office and drove directly to the real estate firm. They confronted Sally. “My wife and I are appalled that your firm provides referrals to professionals, but only under the condition that you get a piece of the action,” said a disappointed Bill Neal. “You invested a total of about 10 hours of your time with Jackie and me. With the commission you were paid on our lot purchase, I would have assumed that compensation to you of $8,800 per hour would have been enough!”
As a result, the Board of Realtors and the local builders association agreed that any payments, merchandise, or other compensation in excess of $100 must be disclosed to all involved parties. Buyers, clients, and custom home pros should insist that all payments between professionals be disclosed. Asking a colleague to dinner or a ball game should be enough of a thank you. Calling exorbitant monetary compensation a “referral fee” does nothing but harm the integrity of the home building industry.
Dennis A. Dixon is an author, contractor, and speaker with 23 years of experience in the building industry. He can be reached at dixven@aol.com.
