November 23rd, 2020 at 1:57 pm
Multiple Choice Question: Can you give your client a gift as a “thank you” for the referral business? Pick the best answer:
A. Yes.
B. Yes as long as the transaction does not fall under RESPA, which generally pertains to sales transactions involving one-to-four residential units with a federally-related mortgage loan.
C. Yes, if you give the gift at the time of referral, but not if you wait until close of escrow.
D. No.
Answer: Answer A is the best answer. It’s true, as stated in Answer B, that the Real Estate Settlement Procedures Act (RESPA) generally prohibits you from giving a gift or anything else of value in exchange for the referral of business. It’s also true that RESPA generally pertains to sales transactions involving one-to-four residential units with a federally-mortgage loan. So for residential transactions, if your client had ask you for a referral fee, you would generally be prohibited from agreeing to pay.
However, in this situation, there was no true exchange or “quid pro quo.” Your client merely gave you a referral without asking for anything in return. Under these circumstances, you can give your client a small token of your appreciation for the referral. To address Answer C, you can give the token of appreciation at the time of referral or at close of escrow. Unfortunately, however, RESPA does not provide us with any guidance on precisely how much money you can spend on a small token of appreciation. You are nevertheless well-advised not to give too extravagant of a gift to steer clear of even an appearance of an improper referral fee.
For more information about referral arrangements, C.A.R. has a legal Q&A on Referral Fees & RESPA (password-protected for C.A.R. members only).
– Happy Thanksgiving everyone! Even during these difficult times, we still have a lot for which to be thankful.
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