Real Estate Referral Fees: Who Can Pay, Who Can Receive and What RESPA Allows

A real estate referral fee is a share of the commission that one broker pays another for sending a client who goes on to buy, sell or lease. In the US, these payments between brokers are allowed by an exemption in RESPA, the federal law that bans kickbacks for referring settlement services such as mortgage loans, title insurance or inspections. State licensing law then decides who may receive the money: California and Texas, for example, restrict payments to people without a licence.

How an agent-to-agent referral fee works

An agent meets a client who is moving to another area, or who needs a speciality the agent does not cover, and passes them to an agent who does. Before the introduction, the two brokerages agree in writing on the referral share. When the transaction closes, the receiving broker collects its commission and pays the agreed share to the referring broker, which then pays its own agent under their agreement. In California, a salesperson may only accept compensation for licensed activity from the broker they are licensed under, so the money travels from broker to broker.

Example with round numbers, for illustration only: if the receiving broker earns a $9,000 commission on the sale and the agreement sets a 25% referral share, the referring broker receives $2,250. Shares vary by market and by deal. Our referral fee rates by industry show the ranges we observe, and the calculator on that page turns any share into an amount.

Who may pay and who may receive a referral fee

Who may be paid for a referral is a matter of state licensing law, and the rules differ from one state to the next. Two examples from state sources:

• California: a licensed broker may not compensate anyone for acts that require a real estate licence unless that person is a licensed broker, or a salesperson licensed under that broker. A broker may pay a commission to a broker of another state, and compensation shared between licensees must be paid through the responsible broker (Business and Professions Code, section 10137).
• Texas: the Texas Real Estate Commission says a license holder may not give an unlicensed person valuable consideration for referring a potential buyer or tenant. Merchandise with a retail value of $50 or less does not count as valuable consideration, but cash, rent credits and gift cards that can be converted to cash are not allowed (Texas Real Estate Commission).

Breaking these rules puts the licence at risk: in California, the real estate commissioner may suspend or revoke the licence of an agent who breaches section 10137. Before you promise anything to a past client, a friend or another professional without a licence, ask your state real estate commission what is allowed.

RESPA Section 8: the ban on kickbacks for settlement services

Section 8 of the Real Estate Settlement Procedures Act (RESPA) is implemented by 12 CFR 1024.14, part of Regulation X. The rule says that no person may give or accept any fee, kickback or other thing of value under an agreement to refer settlement service business involving a federally related mortgage loan. It adds that a referral is not a compensable service, apart from the exemptions the rule lists (12 CFR 1024.14 on the CFPB website).

Settlement services are defined broadly. They include originating the loan, a mortgage broker's services, title services, an attorney's services, credit reports and appraisals, inspections, mortgage and hazard insurance, and the services of a real estate agent or broker (12 CFR 1024.2). In practice:

• A lender, mortgage broker, title company or home inspector may not pay an agent for sending clients, and the agent may not accept the payment.
• The ban covers cash and any other thing of value, a term the rule defines broadly.
• The agreement does not have to be written or even spoken: a practice, pattern or course of conduct can be enough to establish it.

The exemption for referrals between agents and brokers

Among the payments Section 8 permits, the rule lists payments under cooperative brokerage and referral arrangements or agreements between real estate agents and real estate brokers. It specifies that this exemption covers only fee divisions within real estate brokerage arrangements, when all parties act in a real estate brokerage capacity, and that it does not apply to fee arrangements between real estate brokers and mortgage brokers. A split of the commission between two brokers therefore fits the exemption. A payment from a lender or a mortgage broker to an agent for a referral falls under the ban.

Penalties

Under the statute, a violation can be punished by a fine of up to $10,000, imprisonment of up to one year, or both. The people involved are also jointly and severally liable to the person charged for the settlement service, for three times the amount of the charge (12 U.S.C. 2607(d)).

How to document a real estate referral

Write the arrangement down before the introduction and have both brokers sign it. A clear agreement covers:

• the two brokerages, the agents involved and their licence numbers;
• the client's name and what they plan to do: buy, sell or lease, and where;
• the referral share and what it is calculated on, for example the receiving broker's gross commission;
• when the share is paid, for example within a set number of days after the receiving broker is paid at closing;
• how long the referral stays valid if the client pauses the search and comes back later;
• what happens if the transaction falls through or the client closes with someone else.

For a first draft, the referral agreement generator fills in the parties, the fee, the payment trigger and the validity of an introduction. Check the result against your state's rules and your broker's policies before anyone signs.

A note for the UK

Estate agents in the UK also receive referral fees. Guidance published in 2019 by the National Trading Standards Estate Agency Team notes that solicitors, conveyancers and others commonly pay estate agents to refer sellers and buyers to them. It says an agent should disclose in writing any referral arrangement, who it is with, and the amount of any transaction-specific referral fee, and it warns that failing to disclose referral arrangements may lead to criminal prosecution under consumer protection law or to action under the Estate Agents Act 1979 (NTSEAT guidance on transparency of fees). For introductions in UK financial services, see introducer fees in the UK.

Frequently asked questions

Can a real estate agent pay a referral fee to someone without a licence?

It depends on the state. In Texas, the real estate commission says a license holder may not give an unlicensed person valuable consideration for referring a buyer or tenant, apart from merchandise worth $50 or less, and in California a broker may not pay an unlicensed person for acts that require a licence. Ask your state real estate commission before you promise anything.

Can a real estate agent accept a referral fee from a lender or a title company?

Not on a federally related mortgage loan. RESPA Section 8 and 12 CFR 1024.14 ban any fee, kickback or thing of value for referring settlement service business, and lending, mortgage broking and title services are all settlement services.

Are agent-to-agent referral fees legal under RESPA?

Yes. The rule exempts payments under cooperative brokerage and referral arrangements between real estate agents and real estate brokers, when all parties act in a real estate brokerage capacity. State licensing law still decides who may receive the money.

Who pays the referral fee in a real estate transaction?

The broker who receives the client pays it to the referring broker, out of the commission earned when the transaction closes. The buyer or seller does not pay it on top.

Does a real estate referral agreement have to be in writing?

Put it in writing anyway. RESPA treats an unwritten understanding, or even a pattern of conduct, as an agreement for the purposes of the kickback ban, so keeping an arrangement informal does not take it outside the ban, and a signed agreement is the simplest proof of the share you are owed.

How much is a real estate referral fee?

The brokers negotiate the share, and no regulator sets a standard rate. Our referral fee rates by industry show the ranges we observe, and the calculator on that page turns a share into an amount.

This page gives general information about US and UK rules and is not legal advice. Check with your state real estate regulator, your broker or a lawyer before you pay or accept a referral fee.