Landlord Forum: Bird Dog Fees

A once common practice of giving bird dog fees (giving someone money, rent discount or other value for a lead which

bird dog fee rental leads

Compensation, no matter how small, makes it practicing real estate. Image courtesy of jannoon028 at FreeDigitalPhotos.net

results in a new tenant) is not legal in Kentucky. The Kentucky Real Estate Commission (KREC) will treat it as practicing real estate brokerage without a license – a class A misdemeanor for first offense, class D felony for subsequent. Frankly this seems to be overkill; you give $50 to someone for a referral who rents from you and they’re practicing without a license? The KREC has made it clear, though, they think it is. The theory is that $50 is still compensation for putting a renter and property owner together in a transaction (the definition of brokerage).

As I know the practice is still widespread, other than ceasing to offer a bird dog fee, what are the options?

  • Hope you don’t get caught. I don’t recommend this, but the chances of getting caught and having a prosecutor care enough to do something about it probably aren’t great. Likely only you and the lead provider will ever know of the transaction, and technically it is the lead provider who is at risk since they are the ones receiving compensation (thus practicing without a license). However, you enticed them to do so, which while there isn’t a specific section of Kentucky real estate law which makes that a crime, there probably is a general statute which might. Further, if you are a real estate licensee, even if the general law doesn’t apply to your enticing this, you are still under the KREC and they may likely take exception.
  • Be prepared to argue an exception; there is a very specific exception for property management without a license in KRS 324.030 5(b) “Receives as his primary compensation the use of a rental unit;”. In other words, if you limit the bird-dog fee reward just to existing tenants as a reduction of their rent, their primary compensation is towards their use of a rental unit. You might get a prosecutor to agree with you (I certainly would agree with you, but what I think doesn’t count), despite what the KREC thinks. Who wants to be the test case on that one? If you think this will work, but want to be sure, seek KREC approval for your specific offer first, being sure to emphasize how the 324.030 5(b) exemption should apply.
  • Encourage referrals without offering compensation. Just ask people to give you referrals. They just might do it since you asked. Maybe you can find a small way to sufficiently say “thanks” after a tenant has brought you a referral without promising them any compensation initially. Tenants have an incentive sometimes to recommend friends or family move near them without you offering compensation. Tenants with a sense of family or community tend to be better tenants in many cases as well.

In the big picture, you aren’t likely to get that many referrals just because you offer something like $50. Tenants will recommend you based on their experiences (did you take care of the heat promptly when it went out, etc.) and other factors. You’re probably better off making sure your sales efforts are effective and efficient than worrying too much about trying to bring in referrals through compensation.

 

 

Category: Property Management

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