Referral fees are a great way for licensees to make a little extra money without the intense workload that comes from being an agent for a seller or a buyer. That extra money does come with a few guidelines that you need to follow, though. First, what is a referral fee? Put simply, it’s money that you receive not for actually assisting a buyer or seller with their transaction, but by introducing that buyer or seller to a different agent who assists them. That receiving agent would then send a referral fee to you. Seems simple, right? 

The first complication comes from federal law. The Real Estate Settlement Procedures Act (or “RESPA”) specifically prohibits giving or receiving any “thing of value” in exchange for referrals of settlement service business in residential transactions. This would include referring a client to an agent. There is an important exception, though: RESPA doesn’t prohibit referral fees between real estate licensees. That means if you’re licensed and a current client is moving across the country, you can refer that client to an agent working in their new city and receive compensation for that referral. 

Some agents decide that they only want to do a referral business. Whether it’s because of a temporary move away from their home area or a situation where an agent wants to mostly retire but still have a little income flow, it makes sense to have a dedicated referral practice. The law allows this, and importantly, NAR has created a special designation just for this situation. A REALTOR^® who is doing only referrals can join what’s known as a Limited Function Referral Office (“LFRO”). This is a separate entity created by the REALTOR^® brokerage firm, and any agents working for that LRFO would factor in to the “size formula” dues that a REALTOR^® principal must pay to NAR. The agents must make referrals to the actual brokerage firm on a “substantially exclusive basis” and, importantly, they may not be “engaged to any degree in listing, selling, leasing, renting, managing, counseling, or appraising real property.” If you want to just do a few referrals on the side, an LRFO is not the place for you. 

Your status as a real estate licensee is also important. Remember, the RESPA exemption only applies to licensees, meaning that in order to accept referral fees you have to maintain your license. Virginia does not offer a “referral license,” so you must keep your salesperson or broker license active and in good standing to accept referral fees. 

For any other questions on referrals, you can always reach us on the Virginia REALTORS^® Legal Hotline.