Referral fee

Key Takeaways

• A referral fee is a share of a commission paid for sending a client to another brokerage, and in Washington it moves firm to firm.
• RCW 18.85.301 makes it unlawful for a licensed firm, broker, or managing broker to pay any part of a commission to a person who performs real estate brokerage services without a license in a state, a United States possession, or a foreign jurisdiction with a real estate regulatory program.
• An individual broker never collects a referral check directly from the other firm. RCW 18.85.301 routes a broker's compensation through the firm's designated broker.
• A firm may not pay part of its commission to a broker or managing broker who is not licensed to do business for that firm (RCW 18.85.301).

What It Means

A referral fee is the slice of a commission one brokerage pays another for handing off a client. The business case is simple and legitimate. A broker recognizes that a buyer or seller falls outside their market, their price range, or the time they actually have, and passes that client to someone who can serve them well. The receiving firm closes the transaction and the referring firm collects an agreed percentage of that firm's side.

The percentage is negotiated and put in writing before the introduction is made, normally as a share of the receiving firm's commission rather than a flat dollar figure. Getting the agreement signed early is what keeps the money conversation out of the closing week.

What turns referral fees into a compliance topic is the question of who may be paid. Compensation for brokerage services flows between licensed Brokerage firms, and an individual Broker receives a portion from their own firm under the supervision structure our post on broker versus managing broker licenses lays out. Paying an unlicensed person a cut for steering business is the classic violation, and the federal Real Estate Settlement Procedures Act separately targets kickbacks and referral fees among settlement service providers.

How It Works in Washington

RCW 18.85.301, titled Sharing commissions, is the controlling rule in Washington, and it draws three lines. First, a licensed firm, broker, or managing broker may not pay any part of a commission or other compensation to a person who performs real estate brokerage services and who is not a licensed firm, broker, or managing broker in any state of the United States or its possessions, or in a foreign jurisdiction with a real estate regulatory program. Second, a licensed firm may not pay any part of its commission to a broker or managing broker who is not licensed to do business for that firm. Third, brokers and managing brokers may not pay any part of their commission to any person, licensed or not, except through the firm's Designated Broker.

Read together, those lines produce the pattern the course teaches: the money moves brokerage to brokerage, then down to the individual through the designated broker. The statute carves out one narrow exception, allowing a commission to be shared with a manufactured housing retailer licensed under chapter 46.70 RCW on the sale of personal property manufactured housing sold in conjunction with the sale or lease of land.

Two habits keep a referral clean. Confirm the other party's license status with the Department of Licensing before signing anything, and be clear on the scope of your own license before you accept a referral into a market or a property type you are not equipped to handle.

Example

Marisol Vega is a broker at Cascade Realty in Spokane. A former client's brother calls from Bellingham, ready to buy. Marisol does not work that market, so Cascade Realty's designated broker signs a referral agreement with Bay Street Brokers in Bellingham for 25 percent of Bay Street's side of the commission.

The house closes at $612,000. Bay Street's buyer side fee is 2.5 percent, or $15,300. Bay Street's firm pays Cascade Realty $3,825 on that referral. Cascade Realty then pays Marisol her 70 percent split of the referral, $2,677.50, through the firm. No check ever passes from Bay Street directly to Marisol, and no check passes from either firm to a licensee outside its own roster.

Now change one fact. Suppose Ted, an unlicensed neighbor, had toured the buyer through listings and put the deal together, and Marisol promised him $500 out of her share. That $500 is what RCW 18.85.301 forbids, because Ted performed brokerage services while holding no license in any state. The referral to Bay Street was never the problem; the payment to Ted is.

Common Mistakes and Exam Traps

• A referral fee and a commission split are different transactions. A split divides one firm's commission among that firm's own licensees, while a referral fee sends part of a commission to a separate firm for the handoff.
• A broker cannot accept a referral check straight from the other brokerage. Compensation reaches the broker through their own firm's designated broker.
• Calling the payment a gift card, a finder's fee, or a thank you does not change the analysis. The question is whether the person performed brokerage services without a license.
• Paying a brokerage licensed in another state is not automatically a violation. RCW 18.85.301 reaches people who are not licensed in any state, United States possession, or foreign jurisdiction with a real estate regulatory program.