“Our actions are like ships which we may watch set out to sea, and not know when or with what cargo they will return to port.”
– Iris Murdoch, Professional Novelist [Taken from Her Nove, The Bell]
In the Philippines, referral fees are uncommon in real estate transaction.
Most real estate service practitioners (RESPs) – particularly brokers – in the country are very much aware that any Jose, Maria or Pedro are still engaging in the unauthorized practice of real estate service despite the passage of RESA. I call these individuals “pseudo-brokers.”
And this unauthorized practice will not stop until an unlicensed individual is convicted of violating Section 29 of Republic Act No. 9646. It is quite apparent that said provision is being practiced in the breach more often than the opposite.
It must be stated here that there is no law in the country that pegs the “broker’s fee” at FIVE PERCENT (5%). For the longest time since I became a lawyer in 2000 I have heard people swear by this unwritten edict. Anything less than 5% is an affront to their being.
After the full implementation of RESA, I already lost several transactions when all I can offer to the pseudo-broker is a referral fee. I guess it is a price to pay to keep everyone honest and law-abiding.
But is a referral fee legally permissible under RESA?
In my humble opinion, the answer is YES. There are licensed real estate brokers who do not actively sell real estate. These are individuals who are employed full-time in a company (like bank managers).
They know that their participation to the transaction is limited to “capture” would-be clients and refer them out for a fee. They cannot do the tripping, research property prices and perform documentation and representations in the different government agencies involved in the transfer of the property from the seller to the buyer. In short, these licensed brokers who charge the fee do not add value to the transaction.
If legally permissible, what is the proper rate for the referral fee?
In my experience, it can go as low as 10% to as high as 25% of my share in the professional fee after taxes. I ask for an acknowledgment receipt from my colleague as proof to the BIR that I gave part of the money from the transaction as referral fee.
But, is a referral fee legally permissible under RESA if the referrer is a pseudo-broker?
Again, in my humble opinion, my answer is YES. I know my answer would seem to be controversial to my fellow real estate service practitioners. So, allow me to explain further.
If the pseudo-broker will refer a client (seller or buyer) to me and will add no other value to the transaction, then I will ask if he will accept a mere referral fee for his or her effort. If the pseudo-broker agrees then I will proceed with the transaction.
But, if the pseudo-broker will propose to make representations to government offices for the transfer of ownership of the property in exchange for half of the professional fee due on the transaction then I will not allow it and simply walk away from the deal.
As licensed real estate broker and attorney, I do not and will not condone the unauthorized practice of real estate. Most people who know me and have dealt with me have witnessed my attempts to persuade these pseudo-brokers to become licensed real estate brokers or at the very least, accredited real estate salespersons with PRC.
I seek to engage and convince pseudo-brokers to become legitimate and compliant with the provisions of RESA and register with the BIR. Yet, I respect the position of others who do not want to deal with pseudo-brokers at all.
So, here are 3 things you need to know on handling referral from RESPs or pseudo-brokers, alike.
First, referrals are a leveraging effort on the part of other RESPs. There is a crop of brokers out there who know that they cannot service their entire prospective clients all at once.
Therefore, they network with other RESPs operating in a particular area and who know the “lay of the land” to facilitate transactions more efficiently. For this they take and give referrals in exchange for a fee.
For me, this not unethical. It is just a case of leveraging pure and simple. Nevertheless, this leads me to my second point. Any referral fee should be settled upfront before any action on the transaction is started (like viewing or any other activity).
SDJ, whom I consider as a mentor because of his vast experience as a licensed real estate broker, always asks the other party who inquires about a property he advertised if he or she is a licensed broker.
If he or she is not then SDJ refuses to deal with the person. But, I take a different approach and engage the person further by telling him or her that I can only give a referral fee for his or her referral. If he or she agrees then the fee will be given if and when the transaction is consummated.
Of course, 9 out of 10 would disagree and insist on sharing half of the professional fee. At this time, I politely say my goodbye and cut the conversation short.
Third, referrals build goodwill on the part of the referrer with his or her fellow RESPs. In my case, I embrace the concept of leveraging but I do not ask for a referral fee.
If I do refer a prospective client to a colleague, I acknowledge that there is someone better skilled in handling the particular type of property. I also know that the prospective client will be in good hands because the RESP is competent enough to provide the best service to the client.
Teresa Boardman, a real estate broker in St. Paul, Minnesota said it best when she declared in her blog post: “The very best referrals do not come from real estate agents. They come to us from past clients, and from people who know us. There is no fee attached. We get the business because we did such an amazing job that someone wanted to recommend us to someone he cares about.”
Amen. Need I say more.