Essential Elements of an Advance Fee Agreement

Published: August 4, 2026

DRE has started to see an increase in submissions of advance fee materials from real estate brokers who want to collect an advance fee or an upfront fee as compensation for their services.

Before a real estate broker can collect an advance fee, the broker must comply with Business and Professions Code (Bus. & Prof. Code) section 10085 and Commissioner’s Regulation 2970. A real estate broker must submit their advance fee materials to the DRE for review and approval. The materials include an advance fee agreement, accounting format, and any advertising or promotional materials. Only after DRE issues a “no objection” letter is the broker, under the terms applicable, allowed to collect an advance fee from a client to perform a real estate service.

Just because a broker may have successfully satisfied the requirements set forth in Bus. & Prof. Code section 10085 and Commissioner’s Regulation 2970, the broker still must be aware that their fiduciary duty regarding the collection of an advance fee from their client is not over. A real estate broker has a responsibility to follow specific requirements when collecting advance fees, which includes handling advance fees as trust funds. A real estate broker is required to follow the requirements of Bus. & Prof. Code section 10145 and Commissioner’s Regulations 2831, 2832, 2834, and 2835 any time trust funds are collected. A properly designated trust account in the name of the broker must be used, and exact record-keeping requirements must be followed. However, when an advance fee is collected, there are additional requirements a real estate broker must adhere to besides the listed code sections above.

Advance fees must also be handled accordingly as described in Bus. & Prof. Code section 10146. Requirements include, but are not limited to, depositing advance fees into a trust account, providing quarterly accountings of trust funds to the principals, and withdrawing funds only when they are expended for the benefit of the principal or five days after verified accountings are mailed to the principal.

Commissioner’s Regulation 2972 details the quarterly accounting content that must be provided to the principal as required by Bus. & Prof. Code section 10146 on how their advance fee is being earned and spent by the real estate broker. The accounting must include information such as a description of services rendered or to be rendered, the amount of advance fee allocated or disbursed, and copies of advertisements if disbursements were made for advertising.

As a reminder, Bus. & Prof. Code section 10146 also states that if advance fees are not handled in accordance with that section, it is presumed that the agent has violated sections 505 and 505a of the Penal Code and the principal may recover treble (triple) damages and reasonable attorneys’ fees.

Additionally, advance fees for loan modifications on residential 1-4 unit properties are prohibited per Bus. & Prof. Code section 10085.6.

For more information about the requirements for advance fee agreements, see DRE’s publication: https://d re.ca.gov/files/pdf/adv_fees_essential_elements.pdf.