How Referral Fee Disclosures Might Impact the Mobility Industry
I'm all for transparency. That’s why, when the North West MLS (NWMLS) came out with new disclosure requirements, it caught my attention. They are broker-owned, so they tend to march to the beat of their own drummer, as they are not one of the many MLSs owned by NAR. They span throughout Washington and Oregon, serving over 30,000 real estate brokers. And they also happen to be the target of one of the many Compass lawsuits related to the ongoing industry feud over the Clear Cooperation Policy.
NWMLS is known to be quite progressive; they have been requiring buyer agency agreements for years before it became a national mandate due to the 2024 Sitzer-Burnett/ NAR Settlement.
Keep it transparent.
However, today I want to focus on their new ruling, which has taken effect throughout Washington state, and how it directly impacts the relocation, referral, and mobility business…referral fee disclosures. These disclosures regarding referral fees are being implemented in two ways: a standalone Referral Disclosure form and through updated broker services agreements.
The new Referral Disclosure form details the brokers involved in the referral (both the receiving and sending brokers) and the amount of the referral fee being paid. This information is supposed to be disclosed at the time of engagement with the buyer or seller.
I suspect that this process will ultimately spread across the country. As consumer groups begin to understand the value of this knowledge and demand greater transparency regarding the money changing hands, we will see increased pressure to implement these disclosures on a nationwide basis. Some states already require referral fee disclosures to the principals in the transaction, but I am not sure how rigorously it is enforced.
Referring past and present clients has been a great way for agents to earn passive income, keep their clients connected to them, and ensure they find a quality broker and agent wherever they are moving. Many agents can earn a substantial income simply by referring friends, family, clients, and casual acquaintances. However, what is often not disclosed when referring someone is the compensation the agent receives in return for that referral. I can confidently say that most people referred by one agent to another are unaware that money is being exchanged for that referral.
Not only are referrals an excellent source of income, but when done thoughtfully and correctly, they ensure the customer ends up with a high-quality brokerage and agent. This is particularly important when a family is moving cross-country to unfamiliar territory. Having a trained and experienced agent who has the expertise and empathy to help relocating families is critical for a successful move. If you haven’t figured this out yet, not all agents are cut from the same cloth.
But how will this impact corporate relocation?
The financial stability of the mobility industry relies on the premise that referral fees paid by the receiving broker and agent largely fund the corporate relocation process. However, to truly understand the potential impact, we must examine when referral fees are paid and by whom.
What I am not addressing here is the internal markups or capped agent splits that may occur within a brokerage with its own compensation from referrals. This is up to each brokerage and relocation department to determine how they handle it based on their legal counsel and interpretation of the laws.
The potential outcomes of these scenarios are my opinion, and I am not an attorney. You may completely disagree with them, and that’s fine. However, I would love to hear your opinion. Seek advice from an attorney before establishing policy or interpreting this law.
Let’s break them into three categories:
Online leads (buyers and listings) delivered from consumer or mortgage websites or portals.
Broker-to-broker buyer or listing referrals
Corporate relocation buyers or listings delivered by relocation management companies or corporations
1. Online leads- when online leads became a thing, back in the early 2000s, referral fees were not the way the portals got paid for their leads. It was pay-to-play. Brokers or agents bought zip codes or cities, and if they closed the leads, they kept the commissions generated. The challenge was that if brokers couldn’t close a certain number of deals, they would cancel their paid coverage, leading to significant turnover among brokers and agents. Along the way, many portals adopted the referral fee model, often in conjunction with some form of paid membership. Brokers and agents seemed more satisfied with this since they only paid for what they closed, and consumer satisfaction rose.
Here's what may happen: Now that the referral fee must be disclosed to the consumer, don’t you think that some consumers will question why that money couldn’t come back to them since it is coming out of the commission they are paying? The portal isn’t recommending the broker necessarily because they are the best broker; they just happen to be willing to sign on as a paying partner. This is why the Rocket/Redfin acquisition makes sense. It now becomes an in-house deal if the agent is a Redfin agent. It keeps it all in the family.
Now, we also see many mortgage companies hiring third-party entities to facilitate and collect referral fees for their leads given to brokers, and then share revenue with the mortgage company, since they cannot accept a transactional referral fee directly from the broker. This workaround becomes more complicated, as consumers may question why these players are receiving money for services they cannot see benefiting them.
2. Broker-to-broker referrals- Broker networks such as Leading Real Estate Companies of the World and the Anywhere Leads Network earn a huge part of their revenue from the portion of the referral fee that they take from the broker for the privilege of being a member of the network. The network doesn’t actually facilitate the referrals; it simply offers a system that allows the broker to process the referral through their system. Brokers are held accountable for meeting annual referral goals because feeding the network brokers also feeds the organization that oversees the network. I want to point out that networks offer excellent networking opportunities, along with best practices, education, etc. So they do provide a lot of back-end value to the broker.
Here’s what may happen: As buyers scrimp and save to find down payments and try to figure out how they are going to pay the buyer’s agent’s commission if the seller won’t pay it, how are they going to feel if they see anywhere from 25%-35% of their commission going to an outside broker and a network they may have never even heard of? We may see emboldened customers who ask for the money to be credited back to them or opt to forego the referral assistance and conduct their own research to find an agent themselves.
3. Corporate relocation referrals- Relocation Management Companies (RMCs) charge brokers anywhere from 35%-42% of the commission for the privilege of handling their referrals. Some RMCs share revenue back with the corporation through a non-transactional workaround that eliminates the need for the corporation to hold a broker’s license. But since the RMCs are brokers, the referral fees paid to them must also be disclosed to the transferees. There may actually be some corporations that are unaware of the amount of the referral fees charged to brokerages on their transferees, and that is all about to change. Since the transferee receiving full benefits packages typically aren’t paying their own expenses for the move, they shouldn’t really care about the practice. However, it should be discussed upfront in their benefits plan counseling to avoid any surprises.
Here's what may happen: Lump summers that were allowing RMCs to manage their moves may forego that assistance to ask for the percentage of their deal to be credited back to them from an agent or broker of their choosing.
Let’s self-govern this time.
When the consumer or transferee finally understands all the financial nuances that may occur behind the scenes in a real estate transaction, it’s a good thing. But, it does mean that the corporation, RMC, online portal, relocation department, brokerage, and agent need to do some up-front explaining in the name of transparency and compliance.
Disclosing referral fees is the right thing to do. We should prepare ourselves, as this requirement is likely to spread across the country. It is better that the industry self-governs instead of waiting for a class action lawsuit, as we have just experienced last year, which forced changes by outside parties. When we self-govern, we can create processes that make sense and hold everyone to the same standards, rather than letting those unfamiliar with our industry dictate our actions.
We need to help those being referred know that it is not just about the referral fee. It comes down to professionally explaining the value of our assistance in selecting a quality broker and agent and how they will ensure an excellent real estate experience. And that means a thoughtful selection process, not just a random routing of referrals. These relocating families have specific needs and wants, and they should be treated accordingly. We need to show the value we bring from our connections and earn that referral fee.
FYI: Here is the actual legislation regarding the most recent Washington disclosures:
“RCW 18.86.080
Compensation.
(1) In any real estate transaction, a firm's compensation may be paid by the seller, the buyer, a third party, or by sharing the compensation between firms.
(2) An agreement to pay or payment of compensation does not establish an agency relationship between the party who paid the compensation and the broker.
(3) A seller may agree that a seller's agent's firm may share with another firm the compensation paid by the seller.
(4) A buyer may agree that a buyer's agent's firm may share with another firm the compensation paid by the buyer.
(5) A firm may be compensated by more than one party for real estate brokerage services in a real estate transaction.
(6) A firm may receive compensation based on the purchase price without breaching any duty to the buyer or seller.
(7) To receive compensation for rendering real estate brokerage services from any party or firm, a real estate firm must have a services agreement containing the following:
(a) The terms of compensation, including:
(i) The amount the principal agrees to compensate the firm;
(ii) The principal's consent, if any, and any terms of such consent, to compensation sharing between firms and parties; and
(iii) The principal's consent, if any, and any terms of such consent, to compensation of the firm by more than one party;
(b) In a services agreement with a buyer, whether the appointed broker agrees to show the buyer properties if there is no agreement or offer by any party or firm to pay compensation to the firm; and
(c) Any other agreements between the parties.
(8) In lieu of obtaining a services agreement, a broker rendering real estate brokerage services to a buyer solely for commercial real estate may disclose in writing to the buyer, before the buyer signs an offer with regard to such commercial real estate, the sources and amounts of any compensation the broker has or expects to receive from any party in conjunction with such transaction. The disclosure shall be set forth in a separate paragraph titled "Compensation Disclosure" in the agreement between the buyer and seller or in a separate writing titled "Compensation Disclosure."
(9) A firm may receive compensation without a services agreement for the provision of a broker's price opinion, as defined in RCW 18.85.011, or a referral by one firm to another firm if the referring firm provided no real estate brokerage services in the transaction.”
