Good morning. Want proof that traditional real estate commissions are inflated by at least 25%? Here's evidence straight from the industry itself.
When a real estate agent refers a client to another agent, they're paid a 25-40% referral fee just for making an introduction. That's it. One phone call or email introduction = thousands of dollars.
The Math That Exposes Everything
Here's a text I received this week from an agent offering a 40% referral fee:
Let's break down a simple example:
Buyer purchases $700,000 house
Total buyer agent commission: $19,600 (2.8%)
Referring agent (who made one introduction): $7,840 (40%)
Working agent (who did everything else): $11,760
The referring agent earned $7,840 for a 5-minute phone call. Meanwhile, you're told this 2.8% commission is "standard" and "non-negotiable."
How Referral Fees Inflate Your Costs
These referral fees happen everywhere in real estate:
Agent-to-agent referrals between states
Through formal networks like Leading Real Estate Companies of The World, where member brokerages pay annual dues and exchange high referral fees (often 30%+) for client introductions
The result? "Standard" commission rates are inflated to cover these referral costs. Whether you're referred or not, you're paying rates that include built-in referral markups.
Traditional brokerages have structured their entire pricing around supporting this referral infrastructure—costs that get passed directly to consumers through higher commission rates.
What This Means for You
If agents can afford to pay $7,000+ for a simple introduction while maintaining profit margins, their base commissions are artificially inflated. The markup is built into every transaction—whether there's a referral involved or not.
These brokerages call alternatives 'discount' service, but the math proves they're the ones charging inflated rates. When no referral fee is paid, they pocket the entire markup.