Are referral fees hurting consumers?

by Timothy Inklebarger

Referral fees are a way of life for many real estate agents who are glad to pay a substantial portion of their commissions to get the business, but a new report from the Consumer Federation of America shows the practice could be hurting consumers.

The study shows that high referral fees discourage agents from lowering their commissions, and a CFA survey of consumers reveals that 51% of respondents consider the practice unfair.

“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. “At the very least, agents should be required to disclose these fees effectively to the consumers who end up paying them.”

The report notes the widespread use of such fees and offers a comparison to those charged in other industries — at 25% and higher, real estate has among the highest referral fees of any industry.

Referral agencies studied in the report recommended agents based in other cities and those with little or no success selling homes, the report noted.

Learn more by reading the report here.

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