For many agents, real estate referral fees can be a significant revenue stream. Whether you’ve been referred business by another real estate agent, are looking to refer out clients of your own, or are interested in making referrals part of your team’s operations, it’s smart to get up to speed on the ins and outs of referral fees for real estate agents.
In this quick guide, we walk through what real estate referrals are, the typical fee structure for a referral commission, and how to craft effective referral agreements.
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What is a real estate referral?
A real estate referral is when a licensed agent refers a prospective buyer or seller to another licensed agent to handle the transaction. The referred agent becomes the buyer or seller’s main point of contact, and the referral agent receives a fee if the transaction closes.
Referrals can be beneficial for all parties. A lead often regards a referred agent as more trustworthy, and the referred agent gains a new, motivated client. The referral agent also benefits because they can maintain a positive relationship with the lead, take work off their to-do list, and receive a referral fee.
The most common reasons for real estate referrals
Referrals happen a lot. These are some of the most common reasons a licensed real estate agent will refer out business:
- They’re on vacation or otherwise busy.
- They don’t specialize in the lead’s area (including geographic area and type of real estate).
- They are retiring and going through their network.
- The dollar value of the deal is lower than their preferred threshold.
- They focus predominantly on referrals, not real estate transactions.
What is a typical real estate referral fee?
Typically, real estate referral fees are 25% of the gross commission the referred agent receives. This is the standard amount, but it is not set in stone. For example, retiring agents may request a higher percentage for dispersing their network, or two agents may negotiate to reach an agreed-upon rate. Real estate lead companies are a different matter entirely and may charge 30% or more.
It’s important to note that a referral fee is only paid if the deal closes. A real estate referral fee is based on the commission, and no close means no fee payment.
One note: it is possible to receive referrals from non-licensed individuals, but many states limit the payment of real estate referral fees to those without a real estate license.
Who pays the real estate referral fee?
Referral fees sometimes come from the referred agent’s broker. After close, the brokerage will receive notice of the gross commission and submit payment to the various parties involved: they take a portion as previously agreed upon, the referral agent receives their 25% (or a different agreed-upon amount), any team leads or partners receive their portion, and the referred agent receives the rest. In other cases, the title company will handle all of the real estate referral fee payouts. Regardless of who handles the real estate transaction, the referral commission comes out of the referred agent’s commission.
The exact payment process depends on the settlement procedures of the transaction, but real estate referral agents generally receive their fee within ten days of close.
How can I ask for a real estate referral fee?
Asking for a referral fee is simple, especially if you make it part of the initial referral conversation. When you decide to reach out to make a referral to another agent, it’s best to settle the fee amount before connecting them with the client. Discuss the fee, forward them a real estate referral fee agreement for signature, and then connect the lead and the agent through a text, email, phone call, or in-person meeting. This strategy is ideal because it removes any potential misunderstandings later. It also allows you to secure the agreement when you are still in a strong negotiating position.
How much does a real estate referral agent earn?
Because referral agents depend on the referred agent’s commissions for their fees, there is no standard earning amount. The exact amount will vary based on the number of leads you refer, how many of those deals are successful, and how much those deals are worth.
How much will I pay a referral agent?
If you are the referred agent, you will generally pay the referral agent 25% of the gross commission amount, though that can vary based on negotiations, as mentioned earlier. Your brokerage or the title company handling the real estate transaction should manage the referral commission payment on your behalf. As a real estate agent, you will never directly pay a referral agent.
Why should I pay a real estate referral fee?
There are several reasons why paying a referral fee makes smart business sense, including:
- Maintaining good professional relationships: Agreeing to pay a fair referral fee makes agents more likely to refer business to you again. Conversely, not agreeing to pay can sour your relationships with fellow agents and harm your professional reputation.
- Lowering the cost of bringing in business: The cost of traditional marketing per successful real estate lead is high, and there’s no guarantee of a real estate transaction at the end of it. Agreeing to pay 25% on commission only if the deal goes through is a reasonably conservative cost of doing business.
How do I structure a real estate referral agreement?
Properly structuring a real estate referral agreement is a critical part of protecting both yourself and your fellow agent. These agreements should not be complex. Instead, they should simply lay out the referral, the referral fee, and the details of the real estate transaction. Many state real estate organizations offer a template agreement that real estate agents can freely use, and many brokers and real estate companies work with attorneys to create a template they strongly prefer. The National Association of REALTORS also provides a standard referral contract form.
What should every real estate referral agreement include?
No matter which template you use, be sure to include these elements:
- Referring source (real estate broker/agent contact details, name, address, etc.)
- Receiving real estate broker/agent
- Breakdown of referral fee
- Terms of the agreement
- Signatures from both parties (and real estate broker)
- Contact details for the client referred
- Any other pertinent info regarding the referring agent’s existing relationship with this client
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