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BCFSA’s Guidelines provide a practical application of the information and give suggested best practice guidance to assist real estate professionals. These guidelines provide BCFSA’s interpretation of RESA and all other applicable legislation.
In addition, BCFSA’s Guidelines may be a useful information source for the general public looking for information about standards of conduct for real estate professionals.
This guideline will help you understand how to properly refer your client to third-party service providers, how to deal with unanticipated referral fees you may receive, and the risks of dealing with lead generation services.
- Making referrals to third-party service providers.
- Receiving unanticipated referral fees.
- Lead generation services.
- Referral payments to unlicensed parties.
Recommending specific professionals to potential consumers or your clients could put you at risk for liability if something goes wrong.
BCFSA has established policies relating to making referrals to other professionals. These policies apply to all types of referrals that you may make and includes referrals to:
- Other real estate professionals;
- Home inspectors;
- Notaries public;
- Mortgage brokers;
- Financial institutions;
- Insurance brokers;
- Contractors such as plumbers and electricians.
You should provide a list of several service providers (at least three). This reduces the potential for your client to assume you are guaranteeing the work of the provider by requiring them to choose who they want to hire. Your client should then select their preferred service provider independently. If you choose to refer a client to another professional service provider, you should provide the client with a list of at least three service providers to choose from. You should also ensure that the service providers you are referring to your clients are qualified and licensed (if required). Many service providers have regulatory bodies and/or associations that oversee their conduct. You should search available online databases to ensure that the service provider you are referring is adequately accredited.
Any referrals you do make should be made in writing so that if a complaint arises, you can verify exactly who you suggested your client contact. You must also protect your client’s best interests by avoiding any conflicts and by disclosing any connection you may have to a third-party company your client may wish to engage.
For more information on conflicts of interest, please click here.
There are times where you may receive referral fees or gifts that are not anticipated. This can occur when another real estate professional pays you for a referral of one of your clients for which you did not request payment, or you receive an unexpected gift from a third-party service provider that you referred a client to.
For more information on remuneration, please click here.
Whether a disclosure of this referral fee or gift is required will depend on your relationship with the person you referred. If this person is a client who you are providing real estate services to, and you referred them to a third party who will be providing supplemental services, and you receive an unanticipated fee for the referral, that must be disclosed to your client. You must always disclose to your client any remuneration (monetary or otherwise) that you receive from anyone other than your client.
If, however, you refer someone to another real estate professional, and that real estate professional pays you an unanticipated referral fee, whether you have to disclose or not will depend on your relationship with the person you referred.
For example, if a referral fee is unexpectedly received, whether disclosure is required at that time is dependent on whether the person you referred is still your client at the time of receipt. If the answer is no, i.e. neither you nor your brokerage have been engaged to provide real estate services to the person in the intervening period, nor is there an ongoing client relationship, then disclosing receipt of the unexpected referral fee is not required. However, if you or your brokerage have been engaged by the person to provide real estate services in the intervening period or you have an ongoing client relationship with this person, disclosure of this referral fee, even though it was not expected, is required at the time of its receipt.
To avoid any confusion and inadvertent breaches of the Real Estate Services Rules (“Rules”), making it your standard policy to always disclose is prudent.
For more information on disclosure requirements, please click here.
Lead generation services are companies which sell leads to real estate professionals for a fee. This can be an ongoing structured payment or a fee per lead you receive. Lead generation services must be licensed to provide real estate services in B.C. The activity of soliciting for the purpose of providing real estate services requires a real estate licence.
The Real Estate Services Rules stipulate that the only time you can pay an unlicensed party (an individual or company) a referral fee is if:
- They do not engage in activities to solicit the names of people who may be interested in acquiring or disposing of real estate; and
- Making referrals and receiving referral fees is incidental to their main business.
Case #1: Licensee Paid Remuneration in the Form of Referral Fees to an Unlicensed Entity That Was Engaged in the Business of Soliciting Clients for the Purpose of Offering Real Estate Services.
The licensee was at all relevant times licensed as a trading services representative with a brokerage, but was also employed by an unlicensed corporation (the “Unlicensed Corp.”) as a customer investment representative. Her duties with the Unlicensed Corp. included assisting the manager to develop clients in China, collecting market information and promoting “advantage spaces,” and replying to customer inquiries. The Unlicensed Corp. referred real estate clients to the licensee and in turn the licensee remitted a 90% referral fee to the Unlicensed Corp. The licensee submitted the appropriate documents to the brokerage and her managing broker noted that the referral fee amount was very high and unusual. The managing broker reiterated that the Unlicensed Corp. must not be doing anything that would be construed as acting as a licensed realtor and that the licensee must ensure this. The licensee completed eight deals, with clients referred to her by the Unlicensed Corp. and completed the appropriate disclosures for referral fees. The brokerage paid 90% of the commissions earned on the eight deals directly to the Unlicensed Corp. The licensee then found out that the Unlicensed Corp. was advertising her services on their website without her permission and terminated her relationship with the Unlicensed Corp.
The Licensee was found to have committed professional misconduct, in that she:
- Paid remuneration in the form of referral fees to the Unlicensed Corp., who were engaged in the business of soliciting clients for the purpose of offering real estate services, specifically on the eight transactions;
- Provided real estate services other than on behalf of the brokerage, when she provided real estate services to clients of the Unlicensed Corp.; and
- Engaged in conduct unbecoming a licensee when she encouraged unlicensed activity by providing real estate services to the Unlicensed Corp. and paid remuneration to them in the form or referral fees.
Contraventions: section 66(1) [Payment to unlicensed persons prohibited] of the Real Estate Services Rules, section 7(3)(a) of the Real Estate Services Act [Must not provide real estate services outside of brokerage], and section 35(2) of the Real Estate Services Act [Conduct unbecoming a licensee].Read the full case
As a managing broker, it is your responsibility to ensure that when a brokerage pays a referral fee to an unlicensed party, that party is able, under the Real Estate Services Rules, to receive the fee. If the unlicensed party is a providing services that require a licence (e.g. lead generation) in order to receive the referral, they cannot be paid. It is prudent to advise and discuss with any third party making a referral as to whether the brokerage is permitted to pay a referral fee before accepting the referral.
It is also prudent that you maintain the appropriate trade records to reflect monies being paid out as a referral. Please read the Document Retention Guideline for more information.
At times, your real estate professionals may opt to pay referral fees out of the commission they have earned instead of through the brokerage. A brokerage policy advising your real estate professionals of the rules around paying referrals to unlicensed third parties will serve to protect them and will also provide them with the information they need to provide to unlicensed parties. This will ensure those parties aware that they are not offside of licensing requirements in expecting compensation for making the referral.
- Section 4, RESA, No recovery of remuneration by unlicensed person
- Section 7, RESA, Relationships between brokerages and other licensees
- Section 27, RESA, Payment into trust account
- Section 2.11, Real Estate Services Regulation, Exemption for persons providing referral services
- Section 66, Real Estate Services Rules, Payment to unlicensed persons prohibited
- Section 85, Real Estate Services Rules Records related to referral fees received by a licensee
- Section 86, Real Estate Services Rules, Records related to referral fees paid
Referral fee received: means remuneration received by a licensee in relation to sections 56(1) (b) or (c) [disclosure of remuneration] or section 58 [benefits in relation to services provided] of the Rules
Referral fee paid: means remuneration paid to any person who refers another person to a licensee or a licensee to another person for the purposes of a licensee providing real estate services.
Remuneration: includes any form of remuneration, including any commission, fee, gain or reward, whether the remuneration is received, or is to be received, directly or indirectly;
Trust account: means, in relation to a brokerage,
- a brokerage trust account maintained under section 26 [obligation to maintain trust account] of the Act, or
- a commission trust account maintained under section 31 [payment of licensee remuneration] of RESA;
Trust account record: means the record referred to in section 80 (a) [trust account and general account records] of these rules as it applies to a trust account;
Trust ledger: means a trust ledger required under section 81 (a) [pooled trust account records] of these rules.