In the 12 years that I have been licensed with the State of Indiana as a Real Estate Broker, I have been asked this question from time to time. And the answer is very simple, it is against the law. Here is the statute: "The incompetent practice rule of the Indiana Real Estate Commission, 876 IAC 1-1-40 defines “incompetent practice” to include: Paying a commission to or otherwise compensating a person who is not licensed for performing the services which by law require a license. This rule means that a real estate licensee cannot pay a referral fee to or otherwise compensate a person who does not have an active real estate license. The following acts are illegal in Indiana:
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Payment of a referral fee to a moving company
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Payment of a referral fee to non-licensee
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Payment of referral fee directly to salesperson rather than broker
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Referral fees paid to inactive salespersons
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Sharing commission with an attorney who is not licensed
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Sharing commission with a salesperson whose license is held at the Indiana Real Estate Commission
Licensed agents are permitted to give thank-you gifts, but even that is regulated.
"Indiana License Law is very clear that the payment of commission or fees associated with the sale of real property must be made to licensed professionals. Payments for referrals, "finder fees", and any other form of compensation can only be paid directly to a licensed broker, AND the payment must originate through that broker's company. Furthermore, the Real Estate Settlement Procedures Act, Truth-in-Lending, and various other regulations have strict rules prohibiting such practices. Payment to unlicensed individuals would garner swift action by the Indiana Real Estate Commission, and such payment is incompetent practice." - Joel Buzzard, Troyer Real Estate School Owner & Instructor
A case in point happened to me for the first time this year. An acquaintance referred a couple to me and thereby also to my associated firm, Sotheby's International Realty, as a prospective buyer for a property. After two showings, these prospective buyers made an offer on the property, which was accepted. Two days later, this acquaintance submitted a 1% commission request of me for his referral.
When I realized his request was in earnest, I tried to explain that doing so would be illegal and I could lose my license according to the Indiana Real Estate Commission. He responded that I was "not doing the right thing". There are many examples of how people are gracious enough to refer friends, acquaintances, and associates to make a business connection. No remuneration is ever expected and that is the right thing to do. This incident made me realize that much of the public is unaware of this legality unless they have learned of this restriction by taking the state's licensed real estate broker's course.
I am most grateful and appreciate the many referrals I receive in my business, and every day I refer friends, family, associates, and clients to trusted service providers to complete the referral circle.
