What goes in a real estate referral agreement between agents?

A real estate referral agreement between agents in the United States names the two brokerages as the parties, identifies the referred client and the type of transaction, sets the fee as a percentage of a defined commission, says what counts as a closing, fixes how long the referral lasts, obliges the receiving agent to report, and states when and to whom the fee is paid. It also records that both sides hold an active licence, because that is what makes the payment lawful.

This article covers the form as it is used in the United States, where each state licenses real estate brokers under its own law. It is general information, not legal advice: the wording your brokerage requires, and the rules of your state's real estate commission, come first.

The form is usually one or two pages, and most disputes about a referral fee come from points the page left open: which commission the percentage applies to, whether a second purchase is covered, and what happens when the client or the agent moves.

Who are the parties, and why does the agreement run broker to broker?

The parties to a real estate referral agreement are the two brokerages, the referring one and the receiving one, with each agent named as the person who made or accepted the referral. The agreement runs broker to broker because, under state licence law, a sales agent earns and receives compensation through the broker who sponsors them, not in their own name.

In practice the two agents negotiate the referral, and the paper has to reflect the legal position: the commission on the sale is owed to the receiving brokerage, so only that brokerage can promise a share of it, and the share is owed to the referring brokerage, which then pays its own agent under their independent contractor agreement.

A well-drafted party block therefore carries, for each side, the brokerage's legal name, its licence number and state, the name of the broker or manager authorised to sign, and the agent's name and licence number. Many brokerages require the managing broker's signature on every outgoing and incoming referral; an agreement signed by the two agents alone may bind nobody who has the money. If you are a team member, the party is still the brokerage. The payment clause names the referring brokerage as payee, which is the line the receiving brokerage's accounting staff will follow at closing.

Which clauses does a real estate referral agreement contain?

A real estate referral agreement between agents contains ten working clauses: the parties, the referred client, the type of transaction, the fee and its base, the trigger, the term, reporting, payment timing, changes of agent or brokerage, and licence status. The table gives what each one settles and the point that most often needs tightening.

How should the referred client and the transaction be described?

The referred client should be named in full, with contact details and every person or entity likely to appear on the contract, and the transaction should be described by type, area and number of deals covered. A referral described only as "the Morgans, relocating" leaves open whether a purchase made in one spouse's name, or by the family's company, is covered.

Three details make the description hold. First, the names: list each adult who will sign, and add wording that extends the referral to a purchase or sale made by any of them alone, together, or through an entity they control. Second, the type: say whether the referral covers a purchase, a sale, a lease, or more than one of them. Where a client may rent first and buy later, say whether the lease, the purchase or both carry a fee. Third, the scope: residential or commercial, a metropolitan area or a whole state, a single transaction or every transaction during the term.

The agreement should also record the date of the introduction and state that the client was not already working with the receiving agent or brokerage. It should be signed before the client's details are passed on: signed afterwards, it depends on the receiving side's goodwill. What is specific to real estate is that the client's own representation agreement with the receiving brokerage, once signed, fixes the commission the referral fee will be taken from.

What is the referral fee a percentage of?

The referral fee is normally a percentage of the gross commission that the receiving brokerage receives on its side of the transaction, taken before that brokerage divides the money with its own agent. The agreement has to say this in so many words, because "25% of the commission" can be read at least three ways.

The first question is which side. If the receiving agent represents the buyer, the base is the buyer-side commission; if the agent lists the client's home, it is the listing-side commission; if the same brokerage ends up with both sides, the agreement should say whether the fee applies to both. The second question is which level: the brokerage's gross receipt, or the agent's share after the internal split. The third is what happens when the commission itself changes, because commission rates are negotiable and a client may agree a lower rate or a concession at the closing table.

The table applies a 25% referral fee to three bases on the same $640,000 purchase with a 2.5% buyer-side commission of $16,000. The receiving agent's split with the receiving brokerage is 80/20.

The first and second lines differ by $800 on one sale, with no bad faith on either side. Most forms settle it by saying the fee is calculated on the gross commission actually received by the receiving brokerage on the side named, before deduction of any agent split, team split, desk fee or franchise fee. The third line shows why "actually received" matters: a percentage of what is received follows the commission down if the rate is cut, where a percentage of an expected rate would not.

What counts as a closing, and when is the fee paid?

In a real estate referral agreement, the fee becomes due when the referred client's transaction closes and the receiving brokerage has received its commission, and it is paid within a stated number of days after that receipt. A signed purchase contract alone triggers nothing: no closing, no commission, no referral fee.

Tying the trigger to receipt protects both sides. The receiving brokerage does not owe a share of money it has not been paid, and the referring brokerage is entitled to its percentage of whatever does arrive, including a reduced commission.

The payment clause then needs three things: a deadline counted from receipt, the payee, and what accompanies the payment. The number of days is a drafting choice, not a legal standard. The payee is the referring brokerage. The accompanying document is a copy of the settlement statement or the brokerage's commission disbursement record, so that the referring side can verify the base without having to ask.

Some receiving brokerages instruct the closing or settlement agent to pay the referring brokerage directly from the closing, by a commission disbursement authorisation that lists each brokerage and its amount. Where the settlement agent accepts such an instruction, no second payment is needed afterwards.

How long does the referral last, and does a second transaction count?

A real estate referral agreement lasts for a stated term counted from the introduction, and it covers a second transaction by the same client only if it says so. Without an end date, the receiving brokerage carries an open-ended liability.

The term clause should fix an expiry date and then deal with the contract that straddles it: a purchase agreement signed during the term and closed after it should still earn the fee, and the usual wording says the fee is due on any transaction for which a contract is signed before expiry. A relocating buyer who will purchase within the year suits a twelve-month term; a client who plans to rent first needs longer or a renewal option.

A referred buyer who purchases a home and, eight months later, asks the same agent to find a rental property has become, from the receiving agent's point of view, their own client. From the referring agent's point of view, the relationship still comes from the introduction, so the page has to choose. The usual options are: the first closed transaction only; every transaction during the term; or the first transaction at the full percentage and later ones during the term at a lower one.

What must the receiving agent report?

The receiving agent's duty to report covers acceptance of the referral, first contact with the client, the signing of a representation agreement, an accepted contract with its expected closing date, and the closing itself with the final commission figure. A referring agent in another state has no other way to know that a fee has become due.

Useful wording sets an acknowledgement within a few business days, a written update when a contract is signed, and notice of the closing with the document that shows the commission received. The clause should also cover the negative outcomes: the client stops responding, chooses another brokerage, or decides not to move. A receiving agent who says so in writing closes the file cleanly, and a referring agent who has heard nothing for months has a contractual basis for asking.

What happens if the client changes agents or the agent changes brokerages?

A referral agreement should state that the fee stays owed by the receiving brokerage if the client is reassigned to another agent there, and should say what happens if the receiving agent moves to another brokerage and the client follows. The two cases have different answers because the contract is with the brokerage, not with the agent.

Reassignment inside the brokerage is the simple case. The receiving brokerage accepted the referral and collects the commission whoever its agent is, so the fee is unchanged.

A move to another brokerage is harder. The original receiving brokerage will not receive the commission, and the new one never signed anything. Three approaches are used. The agreement can require the receiving agent to obtain the new brokerage's written assumption of the referral before continuing with the client. It can be re-signed with the new brokerage as soon as the move happens. Or it can say that the referral remains with the original brokerage and the client is reassigned to another of its agents, which respects the contract but not always the client's wishes. Silence is the one bad choice: it leaves the referring brokerage with a claim against a firm that was paid nothing.

If the referring agent changes brokerage before the closing, the fee is still owed to the referring brokerage named in the agreement.

Why does the agreement state the licence status of both sides?

The agreement states that each brokerage and each agent holds an active real estate licence in its own state because a referral fee can be paid lawfully only between licensed parties, and the receiving brokerage needs that statement in its file. Each side undertakes to tell the other of any change before closing.

The clause does real work in two situations. An agent licensed in one state who refers a client into another state does nothing there except refer; showing property or negotiating in the destination state is licensed activity in that state. And an agent whose licence lapses between the introduction and the closing raises a question that state rules answer differently, which is why the date of the referral belongs in the agreement.

What does RESPA allow between real estate agents and brokers?

The Real Estate Settlement Procedures Act prohibits paying or accepting a fee for the referral of settlement service business, and its implementing rule, Regulation X, expressly leaves room for referral arrangements between real estate agents and real estate brokers. That exception is the federal footing on which every agent-to-agent referral fee stands.

According to the Consumer Financial Protection Bureau's text of Regulation X, no person may give or accept any fee, kickback or other thing of value under an agreement to refer settlement service business, and a violation of that section is a violation of section 8 of the Act. The rule adds that a referral of a settlement service is not, in itself, a compensable service, except in the cases the section lists. Real estate brokerage is a settlement service within the rule, so without an exception a referral fee between brokerages would fall under the prohibition wherever a federally related mortgage loan is involved.

The same section then lists what it does not prohibit. One item is a payment made under cooperative brokerage and referral arrangements or agreements between real estate agents and real estate brokers. The rule states the limit of that exemption in the same breath: it refers only to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity, and it has no application to fee arrangements between real estate brokers and mortgage brokers. Another listed item is an employer's payment to its own employees for referral activities.

Two practical points follow. The agreement should describe both parties as real estate brokerages acting in that capacity, which is what brings the fee inside the exception. And the exception does not stretch to anyone else at the closing: a fee to or from a lender, a title company or another settlement service provider for sending business falls under the general prohibition and its other exceptions, and an agent-to-agent referral form cannot authorise it.

What does state licence law add? The Texas example

State licence law adds two rules that federal law does not: a referral fee may be paid only to a licensed broker, and a sales agent receives it only through their own sponsoring broker. Texas is used here as one example; the rule in your state is the one on your own real estate commission's pages, and it is not always worded the same way.

The Texas Real Estate Commission's published guidance for licence holders says that the Commission may take disciplinary action against a licence holder who pays any part of a commission or fee to anyone other than a licensed Texas broker or a broker licensed in another state. The same guidance says a licence holder may not pay cash to an unlicensed person for a referral, and that both the payer and the unlicensed recipient are exposed to sanctions. Under a Commission rule, merchandise worth $50 or less is not treated as valuable consideration, which is why a small gift to a past client is handled differently from a fee.

On the route of the money, the guidance is direct: all commissions must be paid through the agent's sponsoring broker, and a company that receives compensation on an agent's behalf must itself be licensed as a broker. The Commission also states that an agent may be paid on a referral made while the licence was active even if the licence is inactive or expired when the money arrives, and that after a change of sponsor the agent may be paid through the current sponsoring broker or through the broker who sponsored them when the right to compensation was earned.

What does a filled-in referral agreement look like?

A filled-in real estate referral agreement fits on one page as a list of the terms already described, each completed with a name, a date or a number. The sample below is an illustration with invented parties and terms; it is not a form to copy, and your brokerage's own form or your state association's form takes precedence.

• Referring brokerage: Harbor Line Realty, a licensed real estate brokerage in State A, by its managing broker; referring agent: Dana Ortiz, licensed sales agent sponsored by the referring brokerage.
• Receiving brokerage: Ridgeview Properties, a licensed real estate brokerage in State B, by its managing broker; receiving agent: Sam Keller, licensed sales agent sponsored by the receiving brokerage.
• Referred client: Alex and Jordan Morgan, individually, together, or through any entity either of them controls; introduced on the date of this agreement; not previously a client of the receiving brokerage.
• Transaction covered: the purchase of residential property in State B; the receiving brokerage to represent the client as buyer.
• Referral fee: 25% of the gross commission actually received by the receiving brokerage on the buyer side, before any agent split, team split or brokerage fee, and after any reduction or rebate agreed with the client.
• Trigger: closing of the transaction and receipt of the commission by the receiving brokerage.
• Term: 12 months from the date of this agreement; the fee remains due on any purchase contract signed within the term and closed afterwards.
• Later transactions: the first closed purchase only; no fee on later transactions or on persons referred by the client.
• Reporting: written acknowledgement within 3 business days; notice when a purchase contract is signed, with the expected closing date; notice of closing with a copy of the settlement statement or commission disbursement record.
• Payment: to the referring brokerage, within 10 business days of receipt of the commission, or directly from closing by disbursement instruction where the settlement agent accepts it.
• Changes: reassignment of the client to another agent of the receiving brokerage does not affect the fee; if the receiving agent moves to another brokerage and continues with the client, the agent obtains that brokerage's written assumption of this agreement first.
• Licences: each brokerage and each agent confirms an active licence in its state on the date of the referral and will notify the other of any change before closing; both brokerages act solely in a real estate brokerage capacity.
• Signatures: both managing brokers and both agents, with dates.

Every figure in that list (25%, 12 months, 3 and 10 business days) is a sample term chosen for the example.

How does the fee move through both brokerages' splits?

A referral fee is taken off the top of the receiving brokerage's commission, paid to the referring brokerage, and then divided once more inside each brokerage according to its own split with its agent. The worked example uses the sample agreement: a $640,000 purchase, a 2.5% buyer-side commission, a 25% referral fee, an 80/20 split at the receiving brokerage and a 70/30 split at the referring brokerage. All rates are illustrative.

Two things are easy to miss in that sequence, and they are better discussed with the four final amounts on the table than with the 25% alone. The referral fee reduces the amount the receiving brokerage splits, so the brokerage and its agent both carry it in proportion to their split; a receiving agent on an 80/20 split bears $3,200 of the $4,000 and the brokerage $800. And the referring agent does not receive the headline 25%: after the referring brokerage's own split, the agent holds $2,800, which is 17.5% of the commission on the sale.