Real estate referral terms
Real estate referral terms describe who sends a client, who receives them, and how the brokerages split the commission when the deal closes. This glossary defines the words agents use, from referral fee and referral agreement to settlement service. Each term that has a legal meaning links to the federal rule or statute that defines it.
What is a referral fee in real estate?
A referral fee is a share of the commission that the receiving agent's brokerage pays the referring agent's brokerage after the client's deal closes. The two brokers agree on the percentage in writing before the client is introduced.
What is a real estate referral agreement?
A referral agreement is the written agreement between the referring and receiving brokerages, and it usually names the client, the referral fee and how long the agreement lasts. Keep the signed copy with your referral record, because it's the first thing either broker will ask to see.
What is a real estate referral agent?
A referral agent is a licensee who refers clients to other agents instead of representing them, often with the license held at a referral-only brokerage. Whether a state allows that arrangement, and on what terms, is up to its real estate commission.
What is a referral-only brokerage?
A referral-only brokerage holds the licenses of agents who only refer clients, and it passes referral fees through to them. It's a business arrangement rather than a separate type of license, and the details vary by state.
What are the referring agent and the receiving agent?
The referring agent is the one who sends the client, usually because the client is moving or needs help the agent doesn't offer. The receiving agent is the one who takes the client on and represents them in the deal.
What is the difference between a referral fee and a commission?
The commission is what the receiving brokerage earns on the sale. The referral fee is the share of that commission that goes to the referring brokerage under their agreement.
What is a finder's fee in real estate?
A finder's fee is a payment for introducing a buyer or seller, usually to someone who isn't licensed. Whether a licensee may pay or receive one depends on state license law, so ask your broker before you offer or accept one.
What is a relocation referral?
A relocation referral is a referral you make because your client is moving to a market you don't serve. Out-of-state realtor referrals walks through the steps, from the first call to closing.
What is procuring cause?
Procuring cause is the term the NAR Code of Ethics uses when REALTORS at different firms dispute who earned the compensation on a deal. Article 17 of the Code sends many of those disputes to mediation and arbitration through the local association, and Standard of Practice 17-4 lists which ones.
What is a settlement service?
In 12 CFR 1024.2(b), Regulation X defines a settlement service as "any service provided in connection with a prospective or actual settlement." Its listed examples include loan origination, title services, appraisals, inspections, homeowner's warranties and the services of a real estate agent or broker.
The term comes up most often with paid vendor programs. If you're weighing one, what a preferred vendor list is covers the questions it raises.
What is RESPA Section 8?
RESPA Section 8, at 12 U.S.C. 2607(a), says: "No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person." Section 2607(c) adds that "Nothing in this section shall be construed as prohibiting" several kinds of payment, including, in 2607(c)(3), "payments pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and brokers."
Regulation X implements Section 8 in 12 CFR 1024.14. For how Proferral itself is paid, see the FAQ.
What is an affiliated business arrangement disclosure?
In 12 CFR 1024.15(b)(1), Regulation X describes it as "a written disclosure ... of the nature of the relationship (explaining the ownership and financial interest) between the provider of settlement services (or business incident thereto) and the person making the referral." The rule sets its timing as "no later than the time of each referral or, if the lender requires use of a particular provider, the time of loan application."
This article is general information, not legal advice. Rules change, so confirm details with your broker or a real estate attorney.
Sources
- Consumer Financial Protection Bureau: 12 CFR 1024.2, Definitions
- Consumer Financial Protection Bureau: 12 CFR 1024.14, Prohibition against kickbacks and unearned fees
- Consumer Financial Protection Bureau: 12 CFR 1024.15, Affiliated business arrangements
- Cornell Legal Information Institute: 12 U.S.C. 2607, Prohibition against kickbacks and unearned fees
- National Association of REALTORS: Code of Ethics and Standards of Practice, Article 17
Proferral records the referral, not the fee
Proferral tracks the referrals you send to and get from other agents, and there's no place in it to enter a fee. Referral fees are settled between your brokerages, outside the app. How to track agent referrals covers what to keep in each record, and how it works shows how Proferral logs them.
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