Industry shocked as Realtors say no to referral-fee transparency

“Summer, why the long face?”

My response? “I caught a hanger, Sarge.” Before I explain, let’s start here.

On Monday night, around 11 p.m., after spending the entire day buried in a heavy DRE audit, I couldn’t sleep. I finally opened the news from bed, in the pitch dark, with the blinding glow of my phone shining on my face (not a good thing).

Sitting right there in an Inman article was the revelation that Realtors voted against amending Article 6 of the Code of Ethics to require disclosure of referral fees to clients. Within minutes, I became utterly confused. Utterly.

A hanger in Houston

As if the industry isn’t still reeling from a massive class-action lawsuit followed by an equally massive settlement.

As if Sitzer | Burnett didn’t just shake the profession from top to bottom and leave entire sectors of the real estate community struggling to regain their footing.

And then there are the historic payouts and sweeping rule changes, along with the fair amount of angst from practitioners trying to navigate the new landscape.

But no, still, it’s true. Some Realtors are, in fact, against the disclosure of real estate referral fees.

Notably, this development comes from Houston, under a big, shiny banner declaring a “new NAR” that is supposedly outrunning irrelevance. This is where the “Delegate Body” voted against referral-fee disclosure.

Admittedly, I had to research who the “Delegate Body” actually is. According to ChatGPT (and vet this accordingly), the group is made up of the presidents of local Realtor associations across the country or their certified alternates, and they hold the final vote on changes to the NAR Constitution and Code of Ethics. 

What complicates this further is that Inman reports that 84 percent of NAR directors actually voted in favor of amending Article 6 to require referral-fee disclosure. Yes, you heard me right. They opted in to transparency, which I commend them for doing. But then the Delegate Body quietly stopped it.

The contrast is both fascinating and terrifying, no?

At this point, my brain did what it always does when I suddenly feel the urge to write: It searched for an analogy, a lyric, a moment from a film to capture the absurdity of it all. Immediately, I landed on one of my favorite movies, Rounders. Be patient here; I need to lay this out carefully.

In the film, Worm (played by Edward Norton) is a recently released felon. Mike McDermott (played by Matt Damon), his best friend, keeps reminding him he needs to play it straight now — no shortcuts, no cheating and definitely no scams. Worm nods and promises to abide.

Then comes the poker scene with the room full of municipal employees. It’s a weekly card game filled with city staff and police officers who all know each other and know the game well.

But eventually, Worm cannot help himself. He starts dealing from the bottom of the deck, slipping Mike a favorable card and stiffing the cop across the table. He thinks he is still slick enough to pull it off, even after prison and even after being warned that this is not the time.

What happens next is one of the most brutal moments in the movie. Worm gets caught. One of the officers sees exactly what happened, looks at his sergeant and says, “Caught a hanger, Sarge.” (poker slang for a card that was hanging out or wasn’t dealt properly). 

If you’ve seen this movie 50 times like I have, you still wish every time that it would end differently. Because afterward, once the truth is exposed, Worm and Mike get a severe beating. It’s not pretty.

Dealing from the bottom of the deck

The industry has a very real blemish on its record: a verdict, a national settlement and dozens of lawsuits still moving through the courts. On the flipside, we’ve been hearing months of messaging about reform, transparency, professionalism and winning back public trust.

It has felt like a genuine cultural shift was happening, signaling that things would be done differently and that the entire industry was on board.

If you ask me, that’s been the rewarding and progressive upshot to all the legal drama and forced changes. An industry movement toward clarity and disclosure around compensation. A more grounded “consumer-first” attitude.

That’s precisely why Monday’s news is not sitting well. When given a simple opportunity to be transparent about another form of compensation — referral fees — the Delegate Body shut the door.

And that’s the moment when I caught a hanger: Some Realtors still want to deal from the bottom of the deck. I guess they either don’t think they’re wrong or don’t expect to get caught.

Do right by the consumer

Years ago, I used to be apprehensive about telling real estate licensees that they needed to disclose referral fees to their clients. Agents would push back, challenge the premise, insist no one does it or say it was unnecessary.

The backlash was not singular. In fact, it was relentless and predictable. Compensation disclosure was often the most uncomfortable part of my conversations with brokerage clients.

Fast-forward to today, and the picture has completely changed. I tell people without flinching to disclose referral fees. Truthfully, I do not need to cite a statute or regulation. I do not need to reference a rule or a form.

Why? It is simply the right thing to do. And if that is not compelling enough for you, then think “risk management” and “avoiding liability.”

Disclosure of referral fees to clients is essential ethics and smart conflict-of-interest hygiene. Importantly, some state laws — like in California — already require disclosure of referral fees. So why wouldn’t the Code of Ethics, which is part of the Realtor brand and purportedly sets Realtors apart from general licensees, adopt this expectation universally?

And here’s the part that really stopped me, because I’ve written about this exact issue before. Earlier this year, I called referral fees the Twilight Zone of compensation disclosure. Monday’s vote made me feel like I’m still living in that same ZIP code. Apparently, some people prefer it here.

Disclosure is playing it straight

It seems that I could write about this forever, but I’ll save you the drawn-out speech and close with a simple message.

Professionals who collect or pay referral fees should disclose them to their clients. If licensees have an interest in settlement service providers they refer clients to, that should be disclosed as well. No law or code is required to understand what integrity looks like.

Besides, it would seem that at this moment, the Code of Ethics is not functioning as the “higher standard” many believe it to be. If it were, mandatory disclosure of referral fees would already be among its most basic tenets.

Trustworthy representation requires honesty about compensation. In fiduciary states, the obligation is even greater. Referral-fee disclosure should be standard practice in real estate. And I am far from alone in that belief; many licensees want the profession to move in this direction.

In the post-settlement era, choosing to keep compensation hidden will not age well. Frankly, we’ve already learned that lesson the hard way.

Transparency was never intended to be merely a buzzword. It needs to be an active choice that can be made right now, Realtor or not.

Or, you can always hold off (or wait and see), perhaps until someone — a client, a regulator or an attorney — looks at your hand, sees exactly what happened and says: “Caught a hanger.”

NOTE: The opinions and recommendations expressed in this article are based on Summer Goralik’s experience as a real estate compliance consultant and former investigator for the California Department of Real Estate. They are provided for informational purposes only and should not be construed as legal advice. Readers should consult with their brokerage and/or qualified legal counsel in their jurisdiction for guidance on specific situations.