(Ontario)
Question:
What are Referral fees and Finder’s fees?
Answer:
A referral fee paid between two brokerages is paid once the sale has closed and it is taken from the commission paid to the brokerage who transacted the sale. The referral fee would then be sent to the referring brokerage and processed through the usual manner in order to pay it to the applicable salesperson.
A finder’s fee is different as this would be a fee paid to a salesperson for referring a consumer to someone. Typically, a finder’s fee is from a lender for referring a buyer to them for financing. The finder’s fee would be paid to the brokerage and then dispersed to the salesperson.
A Brokerage can only pay a referral fee to another Brokerage. Usually, it’s 25% of the commission to be charged.
Funds can be redirected to either of the two parties to a transaction, that is, the Buyer and the Seller (cashback).
No payments can be made to anyone else who refers business. That would be a “bird dog fee” and would be illegal.
A finder’s fee, for example, from a Home Inspector, likely about $50.00 for referring them business, is money for the client. It has to be disclosed, and if the client says “keep it”, then it may be retained.
Brian Madigan LL.B., Broker