When Can A Colorado Real Estate Broker Lawfully Pay Unlicensed Parties

by Michael Selinfreund, President/General Counsel of Cherry Creek Title Services, Inc.

This article is intended for educational purposes only and not as legal advice

November 9, 2015

Colorado Real Estate Commission Rule Position CP-12 forbids the payment of a commission or other valuable consideration for PERFORMING BROKERAGE FUNCTIONS (emphasis added) to a person not licensed as a Real Estate Broker.  Two clear exceptions are rebating part of the commission to the seller and rebating part of the commission to the buyer in a transaction.   An agreement to rebate a portion of the commission to the buyer must be disclosed in writing and communicated to the lender if the buyer is obtaining a new loan.   Disclosing the buyer rebate in the sales agreement meets the writing requirement and gives notice to the lender and all parties.  No notice is required for a gratuitous post-closing gift to the buyer such as a dinner gift certificate.

Now, on to the murkier issue of paying referral fees to the unlicensed person who is not a party to the transaction.  I did a trial regarding a substantial promised referral fee to an unlicensed party resulting from a large commercial transaction.  I defended the broker.   My client testified and denied ever making any promise of payment.   He lost all credibility when he was subsequently impeached by a voice mail he left in which he thanked the plaintiff for all she did; acknowledged the amount of the referral fee; and promised to pay her after the deal closed.  On cross-examination, the plaintiff willing admitted to performing numerous “brokerage functions” including presenting the opportunity to the purchaser; driving the purchaser to the property; touring the purchaser around the property; and even assisting in the negotiations.  Clearly, she believed the more she did, the more she was entitled to the promised referral fee.

I was sure I’d won at that point and asked for a directed verdict.  I provided the judge with legal authority defining typical brokerage functions.  He denied my motion and allowed the case to proceed to the jury.  Since my client clearly had lied under oath, the judge likely hated him, and the jury did too.  They held in favor of the plaintiff for the full amount she was seeking.  I appealed and won; however, since as a matter of law, such a payment would be illegal thereby unenforceable since she was not licensed, and she admitted under oath to performing numerous brokerage functions.

This cautionary tale demonstrates that if you’re a licensed Colorado Real Estate Broker wishing to pay referral fees to parties not possessing a Broker’s license (who are not parties to the transaction), make sure they do nothing more than refer you the lead.