A new analysis by the Consumer Federation of America determined that 51 percent of consumers believe referral fees are unfair if they aren’t disclosed.

More than half of nearly 2,000 consumers surveyed consider referral fees unfair if they’re not disclosed to the consumer, according to a new study released Monday by the Consumer Federation of America (CFA), a consumer advocacy non-profit. 

Stephen Brobeck | Photo credit: Consumer Federation of America

The study claims that referral fees keep commissions high, lead to less commission income for real estate agents and do not ensure the best customer service.

“Referral fees are hidden from consumers yet reinforce high commission rates and provide an incentive for agents and agencies to make referrals only to agents willing to pay the highest fees,” said Stephen Brobeck, a CFA senior fellow and the report’s author, in a statement. “At the very least, agents should be required to disclose these fees effectively to the consumers who end up paying them.”

Referral fees within the industry can come in many forms. It can be an agent paying a fee — which often takes the form of a percent of commission — to another agent for the referral, or to a referral lead generation service.

“Many consumers instinctively understand that a 25 percent or 30 percent referral fee paid by their agent discourages that agent from lowering their commission and offering the best customer service,” Brobeck said.

The survey also found that since so many agents are competing for so few leads, referral fees in the real estate industry outpace other industries. Low or no referral fees would generally increase agent income and reward agents more for customer service, rather than paying a referral network or having a strong network among other agents, according to the report.

Referral agencies advertising their services on Google in four cities were analyzed by the Consumer Federation of America, which determined that 38 out of 100 referred agents had “little” or “recent” sales experience — quantified as having no sales or just one sale in the past year — or were located out of town. That out-of-town agent likely would have referred the consumer to a local agent, according to the CFA.

The study advises homeowners to be aware that any referral from an individual agent or referral firm is likely to generate a fee that will make it more difficult to negotiate a lower commission, and could lead to a lower quality of service.

It instead advises consumers to use agent searching services — such as Zillow’s agent finder tool — as data sources to conduct their own search and interview several local agents about their services, representation, commission level and any other fees.

Email Patrick Kearns

referrals
Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×