How to Avoid Hidden Broker Referral Fees

How real estate referral fees work

Referred Broker often pays 25%-40% of their commission for your information. You can save this money instead.

1. An agreement to pay a referral fee is a form of pay-to-play.

A Referral Fee Agreement is signed between Referring Broker and Referred Broker. Your Referred Broker is the broker you will be working with to close the real estate transaction, either buying a selling a home. But who is the Referring Broker? The Referring Broker is an online Referral Fee Network that will often advertise itself as “unbiased, 100% free, top real estate agent” platform.

You may see a lot of ads from such networks on Google and Bing. In order to participate in this scheme, your Referred Broker agrees to pay 25%-40% of the total commission to be received at the close of escrow. This process is highly profitable to Referral Network and Referred Broker because the entire referral fee is easily incorporated into your Representation Agreement with excessive commissions.

2. Referral fees are hidden in your representation agreement

Referral fees are agreed without you and prior to you entering into a Representation Agreement with your real estate broker. When a broker receives your information from Referral Fee Network, the Referred Broker knows that a hefty referral fee must be paid once the transaction closes. After the signing of a contract for a transaction resulting from a referral, the Referred Broker must notify the Referral Network and inform it of the expected closing date, how much the transaction generated and how much Referred Broker received in compensation. These fees are hidden in the form of an excessive commission.

3. Referral fees prevent real estate brokers from competing for you

When a Referral Fee Network is paid from the agent’s final commission in the form of a referral fee, this act removes any incentive for the Referred Broker to give you their best rates. The reason for this is that most real estate brokers do not advertise their rates, you have to ask them what they charge. This means that the Referred Broker will quote you a very different price knowing that they have to part with 25%-40% of their commission. Moreover, it doesn’t cost anything for the Referred Broker if they miss your business – there are no upfront costs to join or use a Referral Fee Network.

The Referred Broker has an incentive to quote you his worst rates because it yields the highest revenue without a downside. Economists refer to this process as reverse completion. Reverse competition is competition not for you as the consumer, but for the middle-man who steers the consumer toward its network of brokers and away from competitors. According to economists, reverse competition results in low quality of service and higher commissions.

4. All matched results provided by any Referral Fee Network are biased

Matched results provided by any Referral Fee Network only include real estate agents who have agreed to pay the referral fee after the transaction is complete. Referral Fee Networks often claim to find and rank real estate agents independently, but they will never match real estate consumers with agents who have not signed their Referral Fee Agreement. A typical Referral Fee Network will only have a very small fraction of brokers who have a signed a Referral Fee Agreement with it. This is the core of the pay-to-play methodology that requires the Referral Fee Network to hide their status as a broker.

5. Blanket referral fees are illegal kickbacks

12 C.F.R. § 1024.14(g)(1)(v) (Regulation X) and RESPA 12 U.S.C. § 2607(c)(3) narrowly allow payments pursuant to cooperative brokerage and referral arrangements between real estate agents and real estate brokers. This limited exemption on kickbacks only applies to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity.

A Referral Fee Network never acts in a brokerage capacity, instead, it simply uses a "shell" or "sham" real estate licensed entity to collect referral fees from colluding Realtors. This legal gap directly contradicts the Business and Professions Code, where licenses are only issued to professionals who engage in their professional capacity, in this case, real estate agents exist to help consumers buy and sell homes. This limited provision to allow kickbacks between brokers was adopted into Real Estate Settlement Procedures Act (RESPA) because real estate is a local practice and brokers routinely refer business to others outside of their area. There is a big difference between a business arrangements and broker-to-broker referrals where a party acts as a sham under the RESPA or a bona fide provider of settlement services.

The business of a Referral Fee Network is reversed because it is a licensed broker that simply exists to sell consumers as leads, instead of helping you to buy or to sell your home. Today, almost the entire RESPA prohibition against kickbacks and unearned fees is bypassed by Referral Fee Networks that use a "sham" real estate entity as a loophole to collect kickbacks from tens of thousands of colluding Realtors. This is, by far, the most common real estate wire fraud scam in aggregate dollar-value because interstate wire communications (aka Internet) are used to defraud consumers to use broker-to-broker collusion schemes, falsely advertised as legitimate Realtor-matching services. Broker-to-broker collusion via the Internet costs all US consumers $15 billion in overpriced Realtor commissions annually.

Until CFPB (Consumer Financial Protection Bureau) decides to take action to fully enforce RESPA regulations, your only guard against unlawful commission kickbacks are good research and common sense.

6. How to avoid paying referral fees

As a consumer, you have a choice to find your real estate agent any way you like, but if you want to avoid paying hidden referral fees, kickbacks, and unearned fees, the only way to do so is to avoid using any online Referral Fee Network. There are many Referral Fee Networks out there and many specifically hide their brokerage status, claiming to be impartial matching platforms.

7. A comprehensive list of real estate broker Referral Fee Networks

For your benefit, the following is a list of the most commonly known real estate Referral Fee Networks that in some way engage in consumer brokering in exchange for referral fees:
Zillow Flex
Zillow 360
Xome (sham subsidiary of Mr. Cooper)
UpNest
Tomo Brokerage (sham subsidiary of Tomo Mortgage)
SOLD.com
Rocket Homes (sham subsidiary of Rocket Mortgage)
ReferralExchange (aka TopAgentsRanked)
Redfin Partner Agent Program
ReadyConnect Opcity (sham subsidiary of Realtor.com)
Ramsey Solutions ELP
Opendoor Partner Agent Program (aka Opendoor Brokerage)
Open Listings Partner Agent Program
OJO Labs (aka Movoto.com)
Nobul
Neighborhoods.com (aka 55places)
National Association of Exclusive Buyer Agents (NAEBA)
mellohome (sham subsidiary of loanDepot)
Localize (aka Localize.City, LocalizeNYC)
LemonBrew
Landed Down Payment Program
IDEAL AGENT
HomeStory Rewards
HomeLight
homegenius (sham subsidiary of Radian)
Home Captain
FastExpert
Estately (sham subsidiary of Realogy)
EffectiveAgents.com
Clever Real Estate
Blend Realty (sham subsidiary of Blend Labs)
Better Real Estate (sham subsidiary of Better Mortgage)
Agent Pronto

These are ALL broker-to-broker collusion schemes, where "partner agents" unlawfully agree to pay massive kickbacks to receive your information and engage in market allocation, consumer allocation, false advertising, unlawful kickbacks, wire fraud, and price-fixing practices in violation of, inter alia, 18 U.S.C. § 1346, 18 U.S.C. § 1343, 15 U.S.C. § 1, 15 U.S.C. § 45, 12 U.S.C. § 2607, C.F.R. § 1024.14. As a consumer, you will always significantly overpay for Realtor commissions subject to hidden kickbacks and pay-to-play steering promoted in these schemes. United States federal antitrust laws prohibit consumer allocation and blanket referral agreements between real estate companies.

Be smart; do not allow your information to be "sold as a lead" to a double-dealing Realtor in exchange for massive commission kickbacks paid from your future home sale, or your future home purchase.

Comments:

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Blanket Referral Fees FAQ

Are real estate referral fees legal?

Yes and No. RESPA (12 U.S.C. 2607) Section 8 narrowly allows payments pursuant to cooperative brokerage and referral arrangements between real estate agents and real estate brokers. This limited exemption on kickbacks only applies to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity.

Can real estate brokers receive or pay referral fees?

Yes and No. A provision to legally allow kickbacks between brokers was adopted into RESPA because real estate is a local practice and brokers routinely refer business to others outside of their area. However, a broker Referral Fee Network never acts in a brokerage capacity, instead, it simply uses a real estate license to collect referral fees.

The business of a Referral Fee Network is reversed because it is a licensed broker that simply exist to sell consumers as leads, instead of helping you to buy or to sell your home. All blanket referral arrangements between real estate brokers in the United States constitute a violation of the Sherman Act.

What is the best broker referral service?

The best thing for consumers is to skip any online referral fee services. There are many Referral Fee Networks out there and many specifically hide their brokerage status, claiming to be impartial matching platforms. Most Referral Fee Networks add a hidden blanket 25%-40% referral fee into your agreement with any broker that they recommend.

Referral Fee Networks often claim to find and rank real estate agents independently, but they will never match real estate consumers with agents who have not signed their Referral Fee Agreement.

How do broker referral services work?

Brokers who participate with Referral Fee Networks do not pay any upfront costs. However, due to the added referral fees, a recommended broker has an incentive to quote you her worst rates because it yields the highest revenue without a downside. Economists refer to this process as reverse completion.

Reverse competition is competition not for you as the consumer, but for the middle-man who steers consumers toward its network of brokers and away from competitors. According to economists, reverse competition results in low quality of service and higher commissions.

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Last updated: March 29, 2020
First published: June 04, 2019