Real Estate Kickbacks in New York: Referral Fees, Gifts, and RESPA

Kickbacks, Unearned Fees, and “Secret Profits” in Real Estate

What New York Licensees Need to Know (and How to Stay Out of Trouble)

Real Estate kickbacks in New York remain one of the most misunderstood and frequestly misapplied areas of real estate law few topics generate more confusion among real estate licensees than kickbacks, often described as unearned fees, secret or undisclosed profits, or improper referral payments. These situations rarely appear obvious at first. Instead, they often show up as “favors,” “thank-you payments,” or informal arrangements that seem harmless but can create serious legal and licensing consequences.

Understanding how New York law and federal regulations treat compensation, referrals, and gifts is essential for protecting your license and your reputation.

What Is a Kickback in Real Estate?

In simple terms, a kickback occurs when a real estate licensee receives something of value in connection with a transaction without full disclosure, informed consent, or legitimate services performed.

Kickbacks can take many forms, including:

• Cash payments or fee splitting
• After-the-fact referral fees
• Gift cards, trips, or discounts tied to referrals
• “Marketing” payments not supported by real services
• Hidden or undisclosed profit

What makes a kickback illegal is not always the payment itself, but rather the lack of transparency and the absence of a legitimate, disclosed basis for compensation.

New York Law: Real Property Law Article 12-A

New York real estate license law is governed by Article 12-A of the Real Property Law. While the statute does not always use the word “kickback,” it clearly prohibits improper compensation and undisclosed referral fees.

Section 442-L — After-the-Fact Referral Fees

Section 442-L prohibits brokers and salespersons from demanding or receiving referral fees after a transaction is already underway or completed, unless there is a legitimate basis for the payment and proper disclosure.

The purpose of this provision is to prevent secret referral payments and compensation that is not tied to an actual agency relationship or real services.

You can review Article 12-A of the Real Property Law on the New York State Senate website:
https://www.nysenate.gov/legislation/laws/RPP/A12-A

From a licensing standpoint, violations involving undisclosed compensation are treated as serious matters and may result in discipline, suspension, or revocation of a license.

Federal Law: RESPA and Kickbacks

In addition to state law, real estate licensees must comply with the Real Estate Settlement Procedures Act (RESPA).

RESPA Section 8 (12 U.S.C. § 2607)

RESPA Section 8 prohibits any person from giving or accepting a fee, kickback, or thing of value in exchange for the referral of settlement service business in connection with a federally related mortgage loan.

Settlement services include mortgage lending, title insurance, appraisals, inspections, and closing or escrow services.

RESPA also prohibits fee splitting where no actual services are performed.

The federal statute can be reviewed here:
https://www.law.cornell.edu/uscode/text/12/2607

Referral Fees vs. Kickbacks

Referral fees are not automatically illegal. The difference between a legitimate referral fee and an illegal kickback depends on disclosure, consent, and structure.

In New York:

• Referral fees between licensed brokers are generally permitted
• Compensation must flow through the broker
• All parties must have full disclosure
• Clients must provide informed consent when required

A referral fee becomes problematic when it is hidden, paid after the fact, or unrelated to a legitimate referral arrangement.

Closing Gifts Given By the Agent

Another common area of confusion involves closing gifts given by agents to their clients.

A genuine closing gift provided as a token of appreciation is generally acceptable when:

• It is not tied to referrals
• It is not conditioned on future business
• It does not influence settlement service choices

Problems arise when gifts are promised in advance, given to settlement service providers, or used as disguised referral compensation.

What If the Client Gives the Agent a Gift?

A question that often comes up after a particularly difficult transaction is:

“What if the client gives the agent a gift to thank them for exceptional service?”

This situation is generally different from kickbacks or referral fees, but it still deserves careful handling.

When a Client Gift Is Usually Permissible

A gift given voluntarily by a client is typically acceptable when:

• The agent did not request or solicit the gift
• The gift is given after services are completed
• There is no expectation of future referrals or special treatment
• The gift does not influence settlement services or transaction terms

A sincere “thank you” from a client for going above and beyond—particularly in a challenging closing—is generally not considered a kickback under New York law or RESPA.

Best Practices When Accepting a Client Gift

• Do not suggest or hint at gifts
• Avoid cash gifts when possible
• Inform your supervising broker if the gift is substantial
• Document the circumstances briefly in the transaction file

If a gift feels excessive or could reasonably be misunderstood, that is a signal to pause and seek guidance.

Final Thoughts

Most kickback violations do not arise from bad intentions. They arise from assumptions, informal arrangements, or a misunderstanding of where the line is drawn.

Transparency, disclosure, and broker oversight are the best protections a licensee has.