Liability for Referral

Referral fees come under scrutiny by Government - The Negotiator

The referring agent runs the risk of liability whether they are paid or not. They should make it quite clear that:

1) they believe the new agent is competent in the area in which they are retained,

2) they have experience with that agent, and

3) they can be contacted with any future questions.

The referring agent is at greater risk if there is a referral fee. They are now on the payroll. Let’s assume 25% of 2.5% of a million dollar property. That’s $6,250.00. That’s a lot of money. The referring agent should at the very least search the internet, and search the RECO website etc. They should also contact the agent and ask whether they can reasonably take this matter on. Most of the time when there’s trouble, it’s due to the fact that the agent was “too busy”. For $6,250.00, that’s the least that one should do.

What is the relationship between the referring agent and the person:

1) client,

2) customer or

3) consumer?

If the person is a client, then the fiduciary obligation of accounting requires disclosure.

It should be noted that for many professionals, there is no actual referral fee at all (lawyers, accountants). So, the standard should be a little less.

For real estate agents, it’s frequently 25%. This requires a good deal of work to justify the referral fee. Family doctors are in the referral business all the time. That’s their job. They have to know who the specialists are in order to make a proper referral. They undertake a good deal of research before they recommend a new specialist. They are likely paid less than $100.00 for the referral.

Unfortunately, many real estate agents don’t even do the basics, and that means that there’s a substantial risk if something goes wrong.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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