A real estate referral involves placing a customer in the hands of a competent individual to provide them with the real estate services they seek. While real estate agents want to be the customers’ go-to resource for everything real estate, there are situations when clients make requests that agents can’t deliver.
Real estate referrals come into play when a real estate agent is either unlicensed or unqualified to assist a client in a property’s acquisition or sale in a certain geographic region or for a specific real estate type.
In this article, we’ll tackle the question: how much is a referral fee? while also giving you several tips on referring real estate clients. Read on!
How Much Is the Typical Referral Fee?
A typical referral fee in real estate can range from 20 to 50 percent of the gross commission the agency you recommend pays, but the industry standard is 25 percent of the gross commission paid by the agency you recommend.
The amount might vary based on various criteria, and there’s room for an agent to negotiate a major proportion of the commission if they believe their efforts merit it.
Commercial real estate transactions may not be your specialty. However, the expected real estate agent referral fee structure and the standard amount are the same as with residential real estate.
Several real estate brokers increase their referral fees in specific circumstances, especially when they have a highly qualified client, like a cash buyer who is ready to commit quickly.
If a real estate professional refers to a newbie investor who is only investigating options with a remote likelihood of a quick acquisition, the referral fee can be skewed lower.
Who Pays the Real Estate Referral Fees?
Typically, the receiving agent’s broker is responsible for paying the referral fee for real estate transactions. These fees are due from the receiving company within ten days of closure and are deducted from the gross commission owed to the firm representing the referred customer.
Depending on the settlement procedures in place, real estate referral fees are usually paid in one of two ways: either the referral fee is recorded on the settlement statement and paid by the settlement agent, or the referral fee isn’t recorded on the settlement statement and paid directly by the receiving real estate firm.
Real Estate Referral Form
A real estate referral agreement form is the only document required for a referral. This fundamental agreement is between the two referring agents’ brokers and details how they’ll share the commission, the referral length, and other information.
It’s the referring agent’s job to provide the referral contract. However, the receiving licensed real estate broker has the option to negotiate the terms.
Handling Real Estate Referral Fees with Out-of-State Agents
Real estate introduction fees are subject to the same restrictions whether paid in-state or out-of-state. As with most agreements, the broker ultimately determines the real estate referral fee and is the entity authorizing the payment.
For out-of-state real estate referrals, the usual 25 percent real estate referral fee still applies, with slight modifications based on your personal real estate broker or your circumstances. Also all parties must be licensed in the state in which they practice. As with any recommendation, make sure the agreement is in writing and check with your brokerage to see if they have any special agreements or paperwork they would like you to use for out-of-state referrals.
Agents can undoubtedly feel free to refer their customers to out-of-state brokers they trust and receive a portion of the final commission. Referring to another reputable broker is especially welcome when customers have learned to trust the broker with whom they’ve worked.
By recommending current clients to another agent or real estate brokerage, you’re not only suggesting an agent but also the network the person can provide. Clients regularly call real estate agents to use their network of services, from contractors to others specializing in house maintenance or renovation, especially when they are relocating and haven’t established a group of folks they trust yet.
Many clients will maintain long-term connections with their agents, so make sure you’re introducing someone you’d recommend to a family member. You’re not only recommending an agent, you’re also referring to their entire network.
When to Make a Real Estate Referral
Let’s assume you’re a licensed real estate agent with a client looking to buy a beach property in a turf state. Despite how close both states are to each other because your prospect resides in a turf state, it means that even if you have a license from your resident state, you can’t do business in the client’s region.
The solution is to refer this client to a real estate agent licensed in the their state. You (or, more precisely, your real estate broker) will earn a share of the commission in return for that referral.
Another scenario in which a real estate referral fee could be appropriate is when your client needs services that you’re licensed to provide, but you don’t have the knowledge or ability to confidently represent their best interests.
How Profitable are Real Estate Referrals?
Referrals can bring in lots of money for both parties. You can make money as a referral agent by doing almost nothing; all you have to do is ensure you’re working with a trustworthy partner agent. Getting numerous recommendations reduces the amount of time you spend finding clients if you’re the recommended agent.
You must establish a formal referral fee agreement beforehand, to avoid any misunderstandings. As a real estate agent’s business advances, it’s a smart idea for them to have a boilerplate referral agreement on hand in case these circumstances arise.
Oftentimes, you’re not the best person for the job, especially when selling outside your area of specialization. You can eventually establish a reputation as a real estate referral agent, someone who knows who to contact for an agent recommendation.
Even after retiring and no longer accepting direct employment, many real estate professionals continue referring people to real estate agents.
Tips for Getting Referrals
Many individuals start by asking their local colleagues for referrals. However, keep in mind that a local referral agent or broker is more likely to be your competitor than to make a real estate recommendation.
The world has become a much bigger place. Nowadays, most real estate professionals obtain leads from sites like Trulia, Zillow, and others.
In this case, you’re required to pay for the referral. After that, you register with a third-party marketplace and are notified whenever a person is seeking an agent. In a world where internet marketplaces are just as competitive as brick-and-mortar real estate brokers, this may come in handy.
Additionally, the fees you pay for third-party marketplace referrals are far less than the amount you’d need to pay for referrals from a licensed realtor or agent. If you want to boost your real estate career, it might be worthwhile to sign up for one of these third-party sites. You have to pay a fee, but you may get more leads.
How Realtors are Paid
Understanding how real estate agents are paid is critical to learning how referral fees work in real estate. The law requires sales commissions to be paid to the brokerage firm only at the close of the deal. Furthermore, the brokerage company then deducts a portion of the commission from that amount and pays the agent a percentage of that amount.
Non-Agent to Agent Referrals
It’s amazing when a referred client appreciates your work so much that they recommend you to their friends and relatives. 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 refer friends and family may benefit from your continued relationship and gratitude. While an unlicensed person’s referral isn’t eligible for real estate referral fees or other types of greater compensation that may come in various ways (such as a bonus), they’re eligible for a small token of gratitude.
Small gifts that you can offer to an unlicensed person who has provided you with a real estate referral often follow specific requirements. In most cases, gifts are restricted to monetary amounts of $50 or less. Always double-check your state’s regulations.
Tips for Referring Real Estate Clients
Adopt a Standard Referral Contract
Referral contracts should at least include the agent and broker’s information on both sides of the real estate transaction, the contract period, and the specifications of the agreed-upon referral fee as a percentage of the earned commission.
Every real estate referral agreement must contain the names, addresses, and license information of both the referring and receiving agent/brokerage. Every party involved in the transaction must trust their competence in validating the identity, location, and license of the agents and corporations on both sides of the real estate transaction.
The agreement should also specify how long the contract will last, who is making the recommendation (a corporation or an individual agent), the recommended individual, and who’s supposed to be the receiving party.
Gain Client Approval
Meeting with customers is essential to obtain information and resolve any difficulties or issues they may have. Your customers are the most important element in the referral process.
Not only do they have to use a recommended real estate agent for you to charge a fee, but you also want to make sure they’re happy with your service, to maintain your reputation. So, building relationships with your clients is a smart move to ensure they enjoy your service.
Make the Referral
Before contacting your referral agent, ensure you have all the information needed to make the process run smoothly and swiftly. You’ll need your broker’s guidance to know what to expect, the time frame, and information from your client to pre-inform the agent, including a document that contains both parties’ information, including your standard real estate referral fees.
Negotiate a Fee
As previously stated, you can expect most real estate referrals to include a standard 25 percent referral fee. However, you may be able to push this upward if your broker allows it.
For example, if your client qualifies for a mortgage, has already sold their property, is making a bigger purchase, and will most likely make a purchase within the next month, you may increase your real estate referral fee request to 30 percent.
Conclusion
Real estate referrals are a reliable means of obtaining clients, especially if you’re short on prospects. You can recommend an agent for a client if you don’t provide the service the individual needs. A referral fee from a real estate transaction is also a form of passive income you can earn even while you go about your business.
That said, it’s crucial you start building relationships with these clients to improve your reputation and increase your chances of being recommended by them to a family member or friend.
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