Glossary / Commissions and splits
Also known as: Referral commission
A referral fee is a share of a commission paid to a licensed broker for referring a client to another broker who completes the deal. It is usually a percentage of the commission, paid broker to broker under a written agreement, and state rules generally bar paying it to unlicensed people.
The Pennsylvania Association of REALTORS states that "a license is required to collect any sort of fee for the referral," and that unlicensed people, including past clients and attorneys, cannot be paid for referrals. It recommends a written agreement processed through the referring agent's brokerage. The Texas Real Estate Research Center says the referring party "must hold an active Texas real estate license at the time the referral is made," and that fees to sales agents must be paid through their sponsoring broker. Rules vary by state, so check yours.
A referral fee usually comes off your gross commission before you see anything. The Close lists referral fees among the deductions between GCI and net commission. According to the Texas Real Estate Research Center, referral fees typically range between 20% and 35% of the total commission earned.
Timing is set by the referral agreement. The Texas Real Estate Research Center recommends that the written agreement document the fee amount and when it will be paid. On a lease with a staged commission, you will want to know whether the referral fee is due as each installment arrives or in full at the first payment, because that changes how much cash you hold in between.
Put every referral fee in a written broker-to-broker agreement that states the percentage and when it is paid.
For example, on a hypothetical $50,000 commission with a hypothetical 25% referral fee, the referring broker receives $12,500 and $37,500 remains for your side before your brokerage split.
