Does Alabama law allow apartment communities to pay referral fees to residents and/or real estate agents?
Referral fee laws are a confusing, tangled mess – and that’s true both at the federal and state level. They’ve confused many an agent, many an HOA/COA director, and many a referrer over the years, and they’ve gotten more than a few agents in trouble.
One thing to keep in mind – you cannot reason your way through these rules. You just have to know the specifics of the federal and state laws.
The State Level
The short answer is that Alabama does not allow non-licensed individuals to receive any kind of referral fee.
At the state level, you have to abide by the Code of Alabama, Title 34, Professions and Businesses, Section 34-27-30:
It shall be unlawful for any person, sole proprietorship, partnership, corporation, branch office, or lawfully constituted business organization, as the Legislature may from time to time provide, for a fee, commission, or other valuable consideration, or with the intention or expectation of receiving or collecting a fee, commission, or other valuable consideration from another, to do any of the following unless licensed under Articles 1 and 2 of this chapter:
(3) Negotiate or attempt to negotiate the listing, sale, exchange, purchase, rental, or leasing of real estate situated within the State of Alabama.
(4) List or offer or attempt or agree to list real estate for sale, rental, lease, exchange, or trade situated within the State of Alabama.
(7) Aid, attempt, or offer to aid in locating or obtaining for purchase, rent, or lease any real estate situated within the State of Alabama.
(8) Procure or assist in procuring of prospects for the purpose of effecting the sale, exchange, lease, or rental of real estate situated within the State of Alabama.
Taken together, these provisions put the kibosh on pretty much any compensation for referrals for anyone except licensed agents.
Put more briefly, we have this from the Arizona Department of Real Estate:
- Referral or finder’s fees in residential sales or leasing may not be paid to an unlicensed person.
- Only a licensee may receive compensation resulting from a real estate transaction and such compensation should be paid at the direction of the licensee’s broker.
There’s no exception in the law for residential properties with more than 5 units, commercial property, or HOAs and condominium associations. Alabama has one of the broader prohibitions against non-licensed individuals receiving fees for this kind of activity.
The Federal Level
At the federal level, you should be aware of RESPA, the Real Estate Settlement Procedures Act, which generally prohibits brokers from charging an unearned fee where “no, nominal or duplicative work” was done.
There was a lull in enforcement for a few years, but it looks like the Consumer Finance Protection Bureau is now enforcing breaches of this law. See here for the various exclusions under this act, though, as they pertain to referral fees and “kickbacks.”
The law is not designed to prohibit legitimate referral fees to entities that have actually done the work to justify them.
To be on the safe side, you could encourage whoever was generating the referrals to get a real estate license. That way the association can pay the tenant or referrer a referral fee on the up and up!
If you’re with the association and someone is asking for a referral fee, here are some things you can do to protect yourself:
- Obtain the referrer’s name, company name, license number and a written confirmation that their real estate license is active.
- Keep a copy of everything in your transaction provider.
Writing about personal finance and investments since 1999, Jason Van Steenwyk started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.