Are referral fees legal? The Federal government, in passing major revisions to RESPA, has made the payment of referral fees and finder’s fees on residential deals of one-to-four families illegal. However, they deliberately and conspicuously did not prohibit the payment of referral fees on commercial deals.
1st Commercial Lending pays referral fees on deals other than one-to-four family dwellings. Additionally, we will inform the client that we are paying a referral to the referring broker out of the commission paid to us from the lender. This will prevent someone from ever claiming that you paid a secret kickback.
Why would 1st Commercial Lending pay a referral fee in the first place? We consider it a marketing cost. We also believe that those marketing dollars are better utilized in the hands of our clients than to a newspaper, periodical or direct mail vendor.
Our referral fee is 20% of the commission paid to 1st Commercial Lending, LLC. So for example, on a million dollar loan a one-point fee will be $10,000. Your referral fee is 20% of $10,000 or $2,000.
Should you desire to substitute a referral fee and instead have 1st Commercial Lending reimburse your client by either paying some closing costs (up to the 20% referral fee) or cash back, we are willing to entertain that arrangement. Additionally, if you want to get really creative, 1st Commercial Lending will entertain a substitution of the referral fee and provide a sponsorship to an organization of your choice, provide a contribution to a charity of your choice or contribute to a co-marketing campaign.
Referral fees are entirely voluntary and should be requested at the time of the referral.
