Fees Paid to Finders or Otherwise Unlicensed Individuals or Entities

Can pay a referral fee to an unlicensed person?  The answer is yes if that person has not performed any licensed acts in connection with the transaction for which the fee is being paid. B&P Code Section 10130 states, in part, “It is unlawful for any person to engage in the business, act in the capacity of, advertise or assume to act as a real estate broker or salesman within this state without first obtaining a real estate license from the department.” B&P Code Section 10131, in part, defines a broker as “a person who for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others: creates loans, secured directly or collaterally by liens on real property.”

Under the case, Tyrone vs Kelly, 9 Cal. 3d 1, the court defined a “finder” as a person whose employment is limited to bringing parties together, so that they may negotiate their own contract…”

The California Attorney General issued an opinion in 1995, (78OPS CAL ATTY GEN 71) that confirmed that a real estate broker can pay a commission to an unlicensed person for providing the name, telephone number and address of a prospective borrower provided that the unlicensed person did not obtain the information in the course of soliciting borrowers or lenders on behalf of another or others. The opinion also stated that the finder’s exemption can only apply if the activity is limited to arranging an introduction between the parties and the unlicensed person cannot be involved in any role in the negotiation of the loan.

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