It's not common to have a realtor refer you over to a builder, but when that does happen, Realtors tend to only do it with builders that will pay them a commission. I had this experience once many years ago and the tract home builder did not charge us any commission. That would seem to be unreasonable in my opinion.

The realtor found the new construction for us. we came into the process halfway through since the previous builders backed out. It wasn’t a referral, the realtor has never worked with the builder before (assuming everyone is honest), its just odd to me that the builder would take profit off the commission. its cost-plus so makes sense for most things, just not this.

Yes, the builder needs to cover the cost of resources they spend on the project plus make a reasonable profit to stay in business. That amount can be structured a variety of ways. Your Realtor found the new construction and they are entitled to their normal commission. If I were building on a cost-plus-a percentage-of-the work basis, I would simply pass the Realtor's commission through to my clients with no mark-up.

Hmm i dont think i was clear. ofc the commission is part of it. thats perfectly fine, we want that. i am questioning is the ”plus” part of the commission. our builder is including the commission (perfect) and then is including a fee on top of the commission (what im asking about). so if our commission was 20k, we are paying the 20k PLUS the 10% (made up numbers) fee from the builder for overhead and profit. is paying the builder 10% for the commission common practice/ethical? there are other items (e.g., land) that are not included.

I read you correctly. I wouldn't charge anything on top of the Realtor's fee. While it's a necessary expense, it's not one which reflects any real value added by the builder.

Sorry, my clarification was more for prev comments. your response was enlightening and very helpful

I would ask your builder if they'd be willing to waive the additional fee on the commission.  That's totally reasonable. 

This must be regional, but many builders in our area will not pay any commission and Realtors know it. Most custom Builders will not pay any commission for a referral over to them. Unless the realtor is helping you negotiate the contract and work details of the home build, I also don't think it's reasonable for the realtor to get a full 3% Commission just for referring you over to the home builder.

Honestly, im very thankful for our realtor. we are building in a different city and he is constantly checking on things, anything local we need with vendors, etc. def has done above and beyond. i will ask, im guessing since we signed the contract they will say no but if you count interest and fees, its like an extra 15k on top of the commission. just seems excessive

Referral fees demanded by Realtors for "referrals" of potential clients to custom home builders is the dirty little secret of the home building business. In our area if a Realtor gives a client a list of builder names--no matter how long--they'll lay claim to a referral fee of 2% to 6% of the contract price if any of the builders on their list get to contract with the particular client. There's not much value added by handing over a list and the fee is rarely disclosed to the client by their Realtor.

I would ask them to remove it. You could also reach out to industry groups like NAR and HBA to see how common this. You might even reach out to your state's AG's office.

That’s helpful, will do

Post the language of your contract.