Referral Fee Transparency Gets a Kickback
By Alexander Lewicki, Esq., Director of Listings
“Referral fees,” “incentives” or “kickbacks” (i.e., payment to another individual for the referral of a client) have long been present in the real estate industry. These fees, which often amount to 25-30% of the total commission earned by the agent, are regulated under California law. And while the law is not exactly black and white, both the common law duty of honesty, as well as statutory rules prohibiting “secret profits,” indicate that full disclosure of these referral fees must be made to clients. But while technically required by law, the actual disclosure of these fees have been dubious, and enforcement by the courts and Department of Real Estate seldom. Until very recently, many agents were seemingly unaware of the requirement altogether.
Only a year removed from Sitzer/Burnett and the impactful class action lawsuits that mandated buyer representation agreements and brought a heightened level of scrutiny to the industries commission model, the National Association of Realtors finds itself in the spotlight once again. At the recent NAR meetings this past November, the 900+ board of directors voted in favor of amending Article 7 of its Code of Ethics to require the disclosure of real estate referral fees by all members. Despite reports that 80%+ of the board was in favor of the amendment, it failed to get ultimate approval of 2/3rds of the delegate body, and so the Code of Ethics was not amended as proposed. In the face of continued questioning of real estate agent fees, and still ongoing commission lawsuits, the NAR seemingly failed to push further toward full commission transparency. And many in the legal world were left questioning the decision.
The California Association of Realtors reacted quickly by releasing a formal press statement touting that it has “long championed compensation transparency.” Alongside this statement came a lengthy FAQ where the CAR legal team unequivocally tells members that disclosure of referral fees is required under California law. Later in December, CAR released a new form entitled “Realtor Acknowledgment and Disclosure,” which contains explicit line items to disclose the amount of referral fees being paid/received, along with a signature line for the principal of the transaction to sign attesting to their knowledge of the fees. To CAR’s credit, they have stepped up to protect consumers and champion transparency, just as they have stated. DeLeon Realty applauds them for taking action, and expects that the NAR follows suit at its next board of directors meetings slated for June of 2026.
One word of caution: a lesser-known way that these secret referral fees pop up is between agents within the same brokerage. Rather than represent a buyer themselves, a listing agent will instead have their colleague write up the offer and represent that buyer in exchange for a share of the commission. The listing agent now has a vested interest in that buyer’s outcome, and without the necessary disclosure, the seller is completely unaware that a conflict of interest exists. You can imagine how that would create a less than fair negotiation process. We hope that CAR’s push towards transparency ends this unscrupulous practice.
At DeLeon Realty, we take a strong stance: we don’t give any referral fees. And instead of passing along buyers on our listings in exchange for a kickback, we have a separate buyer’s team that waives 100% of the buy-side commission. Our stance is rooted in transparency; we want to do right by our clients. Rest assured, if another agent touts our services, it’s not because they are getting paid to do so.
Alexander Lewicki (DRE #02189814) | alexander@deleonrealty.com | 650.847.7407
DeLeon Realty, Inc. | DRE #01903224 | Equal Housing Opportunity
