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Real estate referrals are a way to make money on something you already know how to do. The best part is that you don’t have to spend any money out of pocket as the broker making a commission from your referral.
Referral fees are given when one agent or broker recommends a customer to another agent or broker in exchange for a commission when the deal is completed. Referral fees for real estate may vary from 20% to 35% of the collected commission, although the average cost is about 25%.
A customer relocating out of state or to an area the agent is unfamiliar with might be the cause for a real estate agent recommendation. In other circumstances, a current customer may desire to look into commercial acquisitions or properties with which the present residential agent is unfamiliar.
We’ll go through common real estate referral fee rates, and how they operate.
Referring a Real Estate Client in Four Easy Steps
If you have the good fortune of being able to suggest an existing customer to a trustworthy agent and have never done so before, the process is simple.
Step 1: Create a template for your referral contract.
While most brokerages supply forms for agents to utilize in their real estate referral fee agreements, we wanted to give a template that you may personalize. Every referral contract should contain at the very least the agent and broker licenses on both sides of the transaction, the contract’s term, and the agreed-upon referral fee as a percentage of earned commission.
The names, addresses, and licensing information for both the referring agent/brokerage and the receiving one should be included in the first part of any real estate referral agreement. Everyone should be confident in their abilities to verify the agents’ and firms’ identities, locations, and licenses on both sides of the transaction.
Specificity is essential. The agreement should spell out how long the arrangement will continue, who is making the recommendation (the corporation or an individual agent), who the person(s) being referred are, and who the intended recipient is.
When all sides are on the same page, everyone understands what to anticipate from the agreement. It’s also crucial to specify how the charge (as a percentage) will be calculated. Calculating 25% of a gross commission is not the same as calculating 25% of a net commission. Be specific and explicit about how the cost is computed, who is paying it, when it is due (for example, within 30 days of closing), and to who it should be paid. Nothing should be left to chance.
Step 2: Obtain Client Acceptance
Gathering referral information and addressing any client concerns or questions begins with a meeting with your client. The most important aspect of the recommendation process is your customer. Not only must they use the mentioned real estate agent in order for you to collect your fee, but you also want to make sure you offer them a true favor in order to maintain your industry image. Make sure you know where they’re going and when they’re going, how soon they want to buy, their financial situation (are they already approved for a mortgage? ), what they’ll be searching for, and how serious they are about buying.
Not only discussing the facts of the move but also discussing the transition to another agency is a crucial part of the discussion. Have any of your former customers signed with a local agency or have someone in mind? It’s crucial to discuss the individual you know and trust with them, as well as what they stand to gain by utilizing them. Clients are significantly more likely to appreciate a recommendation to someone you think they can trust if they have had a positive encounter with you.
Step 3: Make the Recommendation
When you call your referral agent, you should have all of the necessary information to ensure that the process runs easily and fast. You’ll have your broker’s guidance to know what to anticipate, your client’s timetable and information to give the agent a heads-up, and a document that will likely have all of the parties’ information, as well as your typical real estate referral fee, ready for signing. If you don’t have another agent to send your customer to, there are services that may assist you in finding one, which we go over in further depth below.
Step 4: Agree on a fee
The normal 25 percent referral fee is accepted and well-received in most real estate referral fees, but if your broker permits it, you may be able to push it higher. If you have a customer who is already qualified for a mortgage, has already sold his prior home, is making a bigger purchase, and will likely be purchasing in the next month, you may up your referral fee request to 30%.
There may also be situations when you should ask your broker whether lowering the real estate referral fee to anything like 20% is okay. For example, if you have a buyer who is unsure about their buying timeline, it may need extra time or resources from the agent. While real estate referral fees are dependent on bringing in new business for the agent, keep in mind the sort of business you’re bringing in and how much of the agent’s time and resources this new customer will consume. Referral fees may eat up a considerable chunk of an already tiny commission check in certain locations where house values are low.
Once you and the agent you’re recommending have reached an agreement, make sure the agent signs your real estate referral form and double-check that their license is current.
Contact Your Broker if You’re a New Agent
Brokers normally supply both coaching and standardized forms that incorporate your brokerage’s brand and information if you have never done a client referral before. Don’t be afraid to ask for help the first time you make an agent reference, and to question your broker about the normal real estate referral fees they charge and if there is any opportunity for negotiation.
Real Estate Referral Fee Landscape
While the majority of agent-to-agent referral fees are simple, some scenarios may need extra considerations. Here are a few examples:
- Using the term “agent” to refer to someone who works in a different state.
- Commercial real estate referrals
- Companies that relocate people and the fees they charge
- In a market you’re unfamiliar with, finding an agent to suggest your client to might be difficult.
- Referrals from people who aren’t agents
Below, we go through each of these principles in further depth.
Referral Fees for Out-of-State Agents
Whether you’re in or out of state, the laws for real estate referral fees are the same. The broker, like most agent procedures, establishes the real estate referral fee and is the entity that authorizes payments. Out of state real estate recommendations are still subject to the usual real estate referral fee of 25%, with slight variances depending on your broker or scenario, and all parties must be licensed in the state in which they are practicing. As with any recommendation, make sure the agreement is in writing and check with your brokerage to see if they have any unique process or papers for out-of-state referrals.
Agents should feel comfortable recommending their customers to trusted out-of-state agents in exchange for a portion of the final commission. A reference to another respected agent is especially welcomed when customers have learned to trust the agent with whom they’ve worked. When you suggest an existing customer to another agent or brokerage, you’re not just sending an agent; you’re also referring to the agent’s network.
Clients regularly call real estate agents to use their network of services from contractors to others specialized in home repair or renovation, especially while moving and not yet having an established group of folks they trust. Many customers will maintain long-term connections with their agents, so be sure you’re introducing someone you’d recommend to a family member. You’re not just suggesting one agent; you’re referring the whole network of that agent to supply services they’ll need now and in the future.
Real Estate Referral Fees: Commercial vs. Residential
Even if commercial transactions aren’t your strong suit, you can rest assured that the real estate agent referral fee structure and standard amount remain the same.
Most real estate agents claim a typical referral fee of 25%, with normal variations and flexibility ranging from 20% to 35%. In other cases, such as when they have a highly qualified client, such as a cash buyer who is ready to commit right away, some real estate brokers may skew their referral fee higher. If a beginner investor is only researching alternatives with a more distant likelihood of quick acquisition, real estate brokers may bias their referral fees lower.
Relocation Companies & Real Estate Referral Fees
Relocation firms may offer excellent service to the businesses they deal with, but the real estate referral fees they charge to those who are most important to ensuring a smooth transaction are sometimes much more than what real estate agent to real estate agent recommendations generally gets.
While a conventional real estate agent referral fee is 25%, relocation businesses often demand real estate referral fees of up to 40% or more of commissions. While executives moving for business may be selling and/or buying a property for a substantial amount of money, it’s always a good idea to run the statistics to see whether the numbers add up for the effort put in.
Where Can I Find Referral Agents?
While online referral services may charge a fee for real estate referrals, they also have the ability to produce large leads, which may help you grow your firm. By becoming a member of this network of brokers and agents, you will be able to both suggest customers to others (and earn a referral fee when they close) and get referrals from others (and pay the referral fee upon closing yourself).
The conventional real estate referral fee of 25% generally applies to several internet referral organizations who consider themselves matchmakers, such as Homelight. Others may see the real estate referral fee climb slightly with the value of the transaction or charge extra costs. We’ve produced a simple comparison overview of real estate referral sites and their real estate referral fees to explore a selection of online referral and matching organizations in further depth.
Homelight can assist you in locating an agent to whom you may direct your customer.
Using these services has both advantages and disadvantages. The real estate referral fees you may get from an internet firm much surpass the income you might create on your own. There is a network of individuals who are often pre-screened by businesses, enabling you to operate with more confidence.
When making real estate recommendations to someone you don’t know, employ caution and perform your own due investigation, just like you would with any internet business. Most websites examine MLS transaction history to ensure that this is someone who has recently closed on homes, and they also check their licensing when they join up for the referral service. To reduce your risk, double-check that the broker who is presenting or taking a lead has a current broker’s license in the state where they are doing business, and that the real estate referral fees are agreed upon by both sides.
Fees for non-agent real estate referrals
It’s amazing when a customer appreciates your work so much that they recommend you to their friends and relatives. Clients who recommend new business are adored by everybody! Unfortunately, you can’t split your commission with someone who isn’t a licensed agent, nor can you pay them for their services.
Clients who recommend friends and family might benefit from your continued contact and gratitude. While an unlicensed person’s recommendation is not eligible for a real estate referral fee or other types of greater remuneration packaged in various ways (such as a “bonus”), they are eligible for a modest token of gratitude.
Small gifts that you may provide to an unlicensed individual who has provided you with a real estate recommendation are not subjective and typically follow strict criteria. In most cases, donations are restricted to monetary amounts of $50 or less. Always double-check your state’s regulations.
Sending a letter of thanks after the recommended party’s house closing, possibly with a $10 Starbucks gift card and a message thanking them for thinking of you, is a nice example of acceptable communication and appreciation for a real estate recommendation from an unlicensed individual. Gifts offered to unlicensed individuals as a result of a real estate reference should be kept to a bare minimum. These are intended to be little tokens of kindness rather than money for services.
Final Thoughts
Referral fees in real estate may be a great way to supplement your revenue while also delivering a valuable service to customers who have grown to trust you for the job you perform and the services you give via your network.
Real estate referral fees, in our opinion, may be a win-win situation for all parties involved. While you may be in a position to recommend customers to others and earn about 25% commission on the final transaction, you may also see the value in acquiring new clients and willingly pay a prior agent a real estate referral fee while increasing your professional network.
While we urge you to take use of the tools in place to expand your network and revenue, keep in mind that the greatest recommendations are always to people you can trust. Placing your consumers in the hands of someone you know ensures that they get high-quality service and boosts your reputation.
Frequently Asked Questions
How are referral fees calculated?
Most companies calculate the referral fee by taking 20% of the customers’ total order. In this case, your $10 referral would earn you an additional $2 for a profit of $12
How do real estate referrals make money?
Real estate referral programs are designed to give referrals or bonuses for sharing your contact information with a realtor. The amount of the commission depends on what type of program is offered by the company but usually ranges from 3% to 9%. These commissions can be paid out straight away in cash, or deposited into an account that the user has set up with their referral broker.
