The importance of putting your referral agreements in writing

QUESTION: In 2017, an agent I know (Ann) referred one of her friends (Pam) who was looking to sell her home and move to another state. I agreed to list Pam’s home and pay Ann a 25% referral fee if a sale resulted. Shortly thereafter, Pam changed her mind and we took her home off the market. Several weeks ago, Pam called and asked if I would list her property again. She also asked me to assist her in buying a new home in the area. I called Ann to tell her about these developments. Ann is now claiming that if there are successful closings, I will owe her 25% of my commission on the listing and on the purchase. Ann and I never talked about me representing Pam as a buyer and we never signed a written referral agreement. What do I owe Ann, if anything?

ANSWER: While your verbal referral agreement with Ann is legally enforceable, your failure to memorialize that agreement in writing means that, if you can’t resolve the dispute amicably, it will be up to an arbitration panel to decide on exactly what you and Ann agreed to. If you and Ann never put a time limit on when your obligation to pay a referral fee would end, you may very well owe the referral fee on the list side, even if your agreement was reached several years ago. Since Pam was initially planning to move to another state, and you and Ann never discussed Pam hiring you as a buyer’s agent, you have an argument that you never agreed to pay Ann any portion of a commission you might receive as Pam’s buyer agent.

NC REALTORS® has developed an excellent referral agreement – Standard Form 730. It addresses the issues that come up most often. First, it includes check boxes for the parties to identify whether the referring agent will receive compensation if there is a closing on the sale of the Prospect’s property, a closing on the Prospect’s purchase of property, or both.

Second, form 730 was amended in 2017 in an effort to address occasional misunderstandings over when a referring firm’s right to receive a referral fee comes to an end. The new wording included blank lines for the referring and receiving firms to agree on a date that the receiving firm’s obligation to pay a referral fee ends.

Finally, form 730 has check boxes to indicate whether the Prospect is aware of the referral and a reminder that disclosure of referral fees is required by the North Carolina Real Estate Commission. Specifically, Rule 58A.0109(b) obligates the licensee receiving the referral fee (i.e., the referring agent or firm) to timely disclose the compensation which the licensee expects to receive. We suggest that the referring agent or firm make this disclosure in writing, and obtain the Prospect’s written confirmation of that disclosure.