How Do Real Estate Referrals Work? Fees, RESPA, and Disclosure

Real estate referrals work like this: a licensed agent who can’t personally serve a client hands that client to another licensed agent under a written agreement, and if the client closes on a property, the receiving agent’s brokerage pays the referring agent’s brokerage a fee — commonly around 25 percent of the gross commission. No closing, no fee. The arrangement is governed at the federal level by the Real Estate Settlement Procedures Act (RESPA), which permits agent-to-agent referrals but prohibits paying referral fees to unlicensed people or disguising kickbacks as something else.

How the Referral Process Works

A referral starts when an agent identifies a client they can’t handle themselves. The reason is usually geography, specialization, or license status: a buyer relocating to another state, a residential agent contacted about commercial property, or an agent on referral-only status who no longer practices actively.

The referring agent contacts a qualified peer or their brokerage, confirms they can take the client, and both sides sign a referral agreement before the introduction happens. The referring agent then hands over the client’s contact information and a short summary of what they need. From that point, the receiving agent runs the relationship: showing properties, writing offers, negotiating, and getting the client to closing.

The receiving agent typically gives the referring agent occasional status updates so the referring agent can answer questions if the client circles back. When the transaction closes and funds, the fee is paid. If nothing closes before the agreement expires, no one owes anything.

The Written Referral Agreement

The referral agreement is what makes the fee collectible. Without one signed before the client introduction, chasing payment later is difficult or impossible. Most brokerages use a template — either from a national trade association or built in-house — and both sides fill it in together.

A workable agreement identifies:

Both agents and both brokerages, with license numbers and office addresses.
The client’s name, contact information, and what they’re looking for (buying or selling, property type, target area).
The fee, stated as a percentage of the gross commission the receiving brokerage earns.
An expiration date, commonly six to twenty-four months out, after which the agreement lapses if no deal has closed.

Managing brokers sign, not just the agents. The fee obligation runs brokerage to brokerage, so the brokers’ signatures are what actually commit the companies. The receiving brokerage should also collect a completed IRS Form W-9 from the referring brokerage before paying. Without a W-9 on file, the paying brokerage has to withhold 24 percent as backup withholding and send it to the IRS.¹

How Much the Fee Is

The standard residential referral fee is 25 percent of the gross commission earned by the receiving brokerage. That percentage is applied to the full commission at closing, before the receiving brokerage splits anything with its own agent. Fees are negotiable, generally landing between 20 and 35 percent, and occasionally as low as 10 or as high as 50 depending on the situation.

Higher percentages tend to show up when the lead is especially qualified, when the property is high-value, or when a referral company rather than an individual agent sources the connection. Lower percentages come up when the receiving agent expects to invest heavy time or resources before anything closes.

A Worked Example

Say a home sells for $400,000 and the receiving brokerage earns a $12,000 commission. A 25 percent referral fee is $3,000. That $3,000 comes off the top, and the receiving brokerage then splits the remaining $9,000 with its agent under whatever internal agreement they have.

If the brokerage also takes a franchise fee, the order of deductions matters. In many shops, both the referral fee and the franchise fee come out before the agent’s split is calculated. A 6 percent franchise fee on the $12,000 gross is $720, so with the $3,000 referral fee also deducted, the agent’s split is calculated on $8,280 rather than the original $12,000. Order depends on the brokerage’s own policies and the agent’s contract.

What Changed After the NAR Settlement

Since the 2024 NAR settlement, offers of buyer agent compensation can no longer appear on MLS listings, and buyers have to sign a written representation agreement before an agent can show them homes. Buyer-side commission is now negotiated separately rather than posted by the seller through the listing. For any referral involving a buyer, both agents should confirm early how the buyer’s agent will be paid, since that number is what the referral fee percentage is calculated against.

How the Money Moves After Closing

When the deal funds, the settlement agent or title company pays the commission to the receiving agent’s brokerage. That brokerage’s accounting department then calculates the referral fee against the signed agreement and sends payment to the referring brokerage, usually by corporate check or electronic transfer. The referring brokerage pays its own agent under their internal split.

Individual agents never pay or receive referral fees directly from the other side. Every dollar moves brokerage to brokerage. That structure is what creates the paper trail for tax reporting and satisfies the regulatory rules. The whole cycle from closing to the referring agent getting paid usually runs ten to fifteen business days, though it varies with the brokerages and the transaction.

Who Can Legally Collect a Fee

To collect a referral fee legally, you need an active real estate license and an affiliation with a sponsoring broker at the time the fee is earned. Paying a referral fee to an unlicensed person violates RESPA and exposes both sides to criminal and civil liability.² Even with a current license, the money has to flow through your brokerage rather than to you personally. Lapsed licenses or agents unaffiliated with a broker are out.

Referral-Only Status

Many brokerages offer a “referral-only” or “referral agent” arrangement for licensees who don’t want to practice actively. The agent keeps an active license and a brokerage affiliation but doesn’t access the MLS, work directly with clients, or pay full association dues. They earn income only by referring. This status was created by industry trade associations rather than state regulators, so the specifics vary by brokerage. What matters legally is that the license is active and the agent is with a broker; the label itself carries no special weight.

What RESPA Allows and Prohibits

Section 8 of RESPA broadly prohibits paying or receiving any fee, kickback, or thing of value in exchange for referring settlement service business connected to a federally related mortgage loan. Section 8(c)(3) then carves out an exception for “cooperative brokerage and referral arrangements or agreements between real estate agents and brokers.” A licensed agent referring a client to another licensed agent, with a written agreement and payment moving through their brokerages, sits inside that exception.²

What RESPA does not allow: paying referral fees to unlicensed people, paying for referrals that aren’t tied to actual services, or dressing up kickbacks as marketing or consulting arrangements. The CFPB has specifically warned that “marketing services agreements” between settlement service providers can violate RESPA when the money is really compensation for referrals.³

Penalties

Criminal penalties for a Section 8 violation run up to $10,000 in fines, up to a year in prison, or both. On the civil side, violators are jointly and severally liable to the consumer for three times the amount charged for the settlement service involved.² Treble damages mean a consumer who uncovers an illegal kickback can recover a meaningful amount.

Taxes on Referral Fees

Referral fees are taxable income. For 2026 returns, the reporting threshold for nonemployee compensation on Form 1099-NEC rose from $600 to $2,000.⁴ So the paying brokerage must file a 1099-NEC with the IRS and send a copy to the receiving brokerage for any referral fee of $2,000 or more paid during the calendar year. The threshold is scheduled to adjust for inflation starting in 2027.¹ A fee below the threshold is still taxable income; the brokerage just isn’t required to file the 1099. Keep your own records either way.

Telling the Client About the Referral

For ordinary agent-to-agent referrals between unaffiliated brokerages, RESPA doesn’t impose a specific federal disclosure requirement. Many states do, under broader fiduciary or agency disclosure rules, and telling the client about the referral arrangement is a common best practice regardless — it heads off any impression that the referral was driven by the fee rather than the client’s interest.

The exception is an affiliated business arrangement, where the referring and receiving parties share common ownership. Federal law requires a written disclosure to the client at or before the time of referral, describing the relationship between the companies and giving an estimate of the referred provider’s typical charges.²

1
IRS.gov. 2026 Publication 15
2
Office of the Law Revision Counsel. 12 U.S. Code 2607 – Prohibition Against Kickbacks and Unearned Fees
3
Consumer Financial Protection Bureau. CFPB Compliance Bulletin 2015-05 RESPA Compliance and Marketing Services Agreements
4
IRS.gov. Publication 1099 General Instructions for Certain Information Returns – For Use in Preparing 2026 Returns