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Dealing with Referral Fees in Connection with Construction Projects

| Oct 19, 2016 | Commercial Real Estate, Real Estate Law |

As contractors may expect referral fees in connection to construction projects, it benefits project coordinators and property owners to be aware of industry standards. Sales commissions and referral fees and working standard percentages…is there an across the board standard? Paying appropriate/fair commissions and referrals may serve as an attraction for potential business, while inappropriate or substandard rates could hurt business.

First be aware of the difference between referral fees and sales commissions. Referral fees are paid to a person that provides a lead. Paying a referral is not a requirement, but it is a recognized courtesy. Some individuals will not provide leads without the promise of a referral fee. The referral fee is commonly seen between professionals. For instance, a remodeling contractor may receive a suggestion from their plumber that a specific acquaintance get in touch in connection to a project. In this situation, between professionals, a referral would probably be expected to change hands if the project is sold.

This professional courtesy can be bypassed if the referring party specifically advises you they do not want any fee. In some cases, they are simply happy to make the connection and assist in getting the job completed. But the referral fee should be offered between professionals.

The sales commission is paid to a salesperson when they complete a sale. The sales commission is agreed upon before hand. It is a requirement, not a courtesy. The agreement regarding the sales commission typically occurs when you hand a lead to a salesperson. The commission is simply a reimbursement for their efforts in selling the project as agreed.

If the salesperson generates the lead, they should be paid a referral fee. A smart project manager will actually advise sales teams that they will receive a referral fee on top of agreed upon sales commissions if they generate their own lead that is sold.

If you need additional assistance in determining industry standards in connection to paid sales commissions and referral fees for your southern California land development, please get in touch with one of the experienced business and real estate attorneys at The Law Office of Retz & Aldover LLP.