Real estate referrals have become very common, specifically agent-to-agent referrals. 82% of real estate transactions are made from referrals (as well as repeat business). But how exactly do these types of referrals work, and how can real estate agents benefit from them?
This article will review how real estate referral fees work, delve into real estate referral companies, and explore what best practices referral agents should follow. We’ll also answer some of the most frequently asked real estate referral fee questions.
As much as real estate professionals strive to be the go-to resource and all-around expert, sometimes a client’s request is something they simply can’t deliver. They might not have the time, resources, or expertise. In these situations, referring your client to another agent is often the best way to serve them and their needs. Referrals can be made between any estate agents as long as they operate in the USA and are licensed.
For further clarity, here are two of the most common scenarios where real estate referrals happen:
Let’s say you’re a real estate agent working in Pennsylvania, and you have a client who wants to purchase a lake house in New Jersey. Even though these states are right next to each other, New Jersey is a turf state , and as a Pennsylvania license holder, you’re unable to conduct business in New Jersey.
However, you can refer your lakefront client to a real estate agent licensed in New Jersey. In exchange for that referral, you (or your broker ) will receive a percentage of the commission on the New Jersey transaction.
As a licensed real estate agent, you can facilitate several different types of transactions, but if a client comes to you with a specific task you’re not familiar with, a referral might be the best way to provide them with the service they require. While you are technically licensed to help them, a referral will at least get you a percentage of the sale if you’re not familiar with it.
Agents bring in more real estate leads and increase their prospects by asking and charging for referrals. The simplest type of referral asks a past or current client to refer you if they know anyone who needs to buy or sell a home.
However, agents can also provide other agents with referrals. Simply put, they’ll hand over someone from their sphere or a lead that can work with them. Typically, a real estate referral fee is a portion of the commission paid to another real estate agent or broker in exchange for a client referral.
Not only can individual real estate agents make referrals, but so can real estate referral companies. These can be licensed third-party companies or online services. In this section, we look closely at these real estate referral companies.
These are companies that specialize in real estate referrals . They generally fall into two major categories:
Some examples of companies offering their l as referrals are Sold.com, The OJO Network, OpCity, ZillowFlex, and Referral Exchange. While these are good options for some, their typically steep referral fees (up to 40%) are usually more than most agents are willing to pay.
There are different types of real estate referral companies, so they may differ in how they operate.
Real estate referral companies typically act as intermediaries or middlemen mediating real estate with potential clients. These companies often have extensive networks of real estate professionals across various locations and specialities. When a client needs an agent in a specific area or with particular expertise, the referral company matches them with suitable professionals. Upon successful transaction closure, agents usually pay a commission percentage referral fee.
Real estate referral networks are slightly different and like online referral marketplaces. These networks can charge higher referral fees than those charged by licensed agents. However, the advantage of using networks like this is that you can build up your out-of-state network.
There are plenty of great tools on the market that can help you streamline and simplify your real estate referral process. In this section, we cover the types of tools that can help you out.
The short answer is yes. Electronic signature platforms make soliciting and tracking your referral contract quick and easy. You can store the documents in one place for reference, ensuring that you get a timely signature back from the other party because they quickly sign it anywhere at any time. We recommend using SignNow . Their online platform is highly accessible, easy to use, and affordable.
Although they were not made specifically for real estate, their plans and features were designed with real estate agents in mind, so they’ll benefit your tech stack for referrals and other transactions.
A real estate CRM with transaction management options is a game changer regarding referrals. Sometimes, the most challenging part of the real estate referral process is tracking the progress of your referrals after you’ve given them. A real estate CRM with a transaction management tool will be a great solution.
However, the provider listed in our guide of the best real estate CRMs for 2024 will have features that will fit your needs.
Still have some things to ask about real estate referral fees? Find answers to some of the most frequently asked questions below.
Real estate referrals occur when one licensed agent passes a client on to another licensed agent to serve their client’s needs better. The referrer then charges a referral fee, or a finder’s fee, to the agent they referred the client to. A referral fee is usually a one-and-done situation.
In real estate, referral agents refer potential clients to specific real estate listings or buying agents for a predetermined percentage of their commission. In most cases, the standard referral fee is 25% of the gross commission on a single side of the real estate transaction.
However, there’s no set standard for a referral fee rate, and, like every other aspect of real estate, a referral fee is entirely negotiable. It falls anywhere between 10%-50% of the total commission. That’s a lot of money you could be making (that otherwise would be left on the table), whilst referral networks are an excellent opportunity to consider when developing a real estate lead generation strategy .
Commission and referral fees are two different things. A referral fee is paid out of the commission of a real estate transaction, usually paid by the seller. Note that the commission of a sale doesn’t increase to accommodate the referral fee.
Since real estate referral fees aren’t set in stone, you can always negotiate. Is it reasonable to go for it, or just leave it alone? Here are a couple of scenarios when you should negotiate.
Say you have a buyer who wants to purchase income properties in a state where you’re not licensed. Since you’re referring to a client who will be making not just one but multiple purchases, you might want to consider bumping up that referral commission to 30% or even higher. Don’t push your luck too much, but if you provide a client well worth the other agent’s time, it will be profitable for all parties involved.
On the other end of the spectrum, picture yourself receiving a lead just starting its real estate journey and still very high up in the funnel. For instance, they aren’t prequalified and may need a lot of work and nurturing to get them under contract. As the agent receiving the referral, you may consider trying to negotiate the typical 25% down to around 20%. It’s something to consider if you’ll have to spend a lot of time and resources to make the transaction happen.
Tip: Even though negotiating is completely legal regarding referrals, the partnering agent is not obligated to accept your proposal. If you push too hard during the negotiation, you may risk losing the warm lead altogether, so proceed cautiously.
You should create your real estate referral contract. To make and receive referrals, we suggest using the same format every time so you’re familiar with the terms and know what to expect from the other party. You can switch out the conditions of the agreement if they change, but you’ll still have the format you’re familiar with.
When you make a referral, just like the agent you’ve given the referral to, you get paid when the transaction closes.
When an accepted offer has been written on your client’s behalf, the signed contract will include a clause that entitles you to the agreed-upon referral percentage (again, typically 25%). When the transaction closes, the closing company will cut an additional check to your broker for your portion of the commission.
Once your broker has your referral fee, it will be like any other transaction in the office. They’ll treat it like any typical real estate sale, pulling their percentage of your split and issuing the check for your portion.
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As long as you have a contract, you’ll have legal standing to receive your referral fee. However, you risk not receiving your fee payment if the relevant parties haven’t signed an agreement.
Here are our top tips for real estate referrals:
If you’re dealing with a referral agent with whom you haven’t previously done business, you must do research and be as comfortable as possible before moving forward. Ensure you have all your ducks in a row before moving forward with the client so there isn’t any confusion about who gets the money. Double-check that the conditions agreed upon are correct before signing any contract, and get their signature before proceeding with property searches.
If referral networks aren’t for you, consider checking out our list of the best real estate lead generation companies .
About the Author
Chris Heller brings 27 years of experience in real estate. Chris serves on the Agent Advice Editorial Board and is the President of OJO Labs. Chris brings deep expertise having held influential industry positions including CEO of mellohome and former CEO of Keller Williams Realty International.
Last Updated: 8/19/2024
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