A real estate referral fee is a fee that a real estate agent or broker charges for referring a client to another agent or broker. An average referral fee is 25% of the entire commission for one side of a deal. A referral fee is a commissions paid to a real estate agent for finding a buyer for a property. There is no set standard for the referral fee rate, and it is something that can be negotiated.
This article will review why referrals are sometimes necessary, and how real estate referral fee agreements work.
What Is a Real Estate Referral?
If an agent or broker thinks that another real estate professional would be better equipped to help a client, they may refer that client to them. Although real estate professionals try hard to be a dependable source of information about all things related to real estate for their clients, there are some occasions when a client’s request is something we cannot fulfill. If you’re not able to help a client, it’s best to refer them to another agent who can.
Most Common Reasons for Real Estate Referrals
Most referrals happen because of one (or more) of the following circumstances:
Out of Market Transaction
Your client wants to purchase a beach house in Delaware, and as their real estate agent, you work to make their dream a reality. While it may be outside of your Maryland territory, you use your experience and knowledge to help them through the process of finding and purchasing a beach house in Delaware. Despite being located close to each other, Delaware is a turf state, so as a Maryland license holder, you are not allowed to do business there.
You can find a real estate agent who is licensed to work in Delaware to help your beach house client. If you refer someone to buy a property in Delaware, you will receive a portion of the commission.
If a client requests help for a transaction type that the Realtor is not familiar with, it is best to refer the client to someone else. The Realtor is technically licensed to help, but the client deserves the best service possible.
For example, if you have a client who you have previously helped with residential real estate transactions, but they now want to sell an industrial building, you can use your expertise to help them.
If you have no experience working on commercial transactions, you may not be able to give your client adequate advice on pricing, negotiation, or closing conditions. The best practices for residential real estate may not be the same as those for commercial or industrial real estate. It would be best for your client to consult with a commercial and industrial real estate agent.
Get Client Approval
Even though referrals can be a great way to make money in real estate, always remember that your client is the most essential part of the referral process. You won’t receive a fee unless the agent you’re referred to works with you, and you should only provide referrals to agents you trust.
Before making a referral, meet with your clients to gain an understanding of their needs. This will make them feel that you are invested in their care. Make sure to ask your friends about their plans for moving, including when they intend to sell their old home and/or buy a new one, their financial situation, and what type of property they’re interested in. Address any questions and concerns your colleagues have during your meeting.
The more information you can gather about your clients, the better prepared you will be to help them transition to a new agent. Saying to someone privately that you want to refer them to a new agent implies that you think the agent will be better able to meet their needs than your current agent.
It is important to tell your clients why you are referring them to someone else and why you trust that person or program. If you have provided clients with a positive experience, they are much more likely to value a referral to someone you trust.
Find & Enlist an Agent That You Trust
In order to receive a referral fee from a real estate transaction, you must find a reliable agent in your referral’s desired location or area of expertise. The best way to find trustworthy agents is to network with them and build genuine relationships. Although most real estate agents are social, they don’t always have a go-to agent in every location. That’s where real estate referral companies come in handy.
There are many different types of referral networks of all sizes, but a few of the top online networks are:
- ReferralExchange (the referral network recommended by the National Association of Realtors)
- Agents Referral Network
- Premier Agent Network
- Coldwell Banker Realty Referral Network
- Zillow Flex
When making online referrals for real estate, be cautious and do your own research to make sure the person you’re referring is reputable. Most sites check MLS records to make sure that someone has recently closed on a property. The license activity is usually checked when signing up for the referral service.
To protect yourself, make sure you check that the broker offering or accepting any leads has a current license for the state they are operating in. Make sure the realtor referral fees and expectations are clear to both parties. You can speak to the receiving agent about your client before agreeing to refer them.
In addition to the typical 25% real estate referral fee, many online referral companies also require a sign-up fee to be part of the network.
Negotiate the Referral Fee
The average real estate referral fee is 25%. This is usually expected and welcomed by the recipient. You can sometimes negotiate the fee you get paid, and receive a greater proportion of the final commission check. You may choose to increase your fee in certain circumstances, for example if your client is already qualified for a mortgage, has already sold their previous residence, is making a larger purchase, and is likely to buy within the next month.
You may want to ask your broker if your referral fee can be decreased to about 20% in cases where you want to refer someone. If your client seems unreliable or uncertain about their timeline, it may be wiser to set a shorter timeline. Referral fees for real estate agents are based on giving another agent new business, but not all clients require the same amount of resources. In some areas, home prices are relatively low and referral fees can take a significant portion of the commission check.
Make the Referral
The referral agent or network will need the following information from you: Your name, the name of the person you are referring, their contact information, the reason for the referral You will have the timeline and approval from your client, a clear contract and expectations, and a plan to transition clients to their new agent. You will have a clear idea of what your responsibilities are and what is expected of you. It is important to introduce your client and referral agent to each other, either by phone or email, so that their relationship gets off to a good start.
Try this email template to make a smooth connection and build trust:
Dear [Receiving Agent] and [Client(s)],
I am writing to introduce you all and formally begin your home search or sale in the location.
Hello, this is the Receiving Agent who will be assisting you with this transaction. I believe that [Receiving Agent] will be very useful to you in [search/sale] because they have a lot of experience working with buyers and sellers in [location].
Hi, [Receiving Agent], This is [Client(s)] who is excited to be [purchasing/selling] a home in [location]. As discussed, here are the details of [Client(s)] [home search/home sale]:
[Add details in short paragraph or bullet form.]
I will now let [Receiving Agent] continue on with the rest of the conversation! If you have any questions, please let me know and I’ll be happy to help. I am interested in hearing about your progress and will ask for updates on your situation.
[Add your signature]
After you have ensured that both the clients and the receiving agent have all the correct information, your job is not done. If you set someone up on a blind date, make sure to contact both people after a month to see how it went. Showing that you care about the individuals involved in a transaction will make them more likely to trust you. Real estate businesses that are built on trust and relationships are typically more successful than those that are not. This also applies to referrals.
How to Calculate Your Real Estate Referral Fee
It is important to calculate how much money you earn from each real estate transaction as part of your business plan so that you can be aware of your current income, income goal, and expenses. The realtor referral fee calculator will help you make sure your numbers are correct.
- Sales price: Input the sales price of the listing that is being purchased or sold.
- Total sales commission percentage: The Receiving Agent agrees with the buyer or seller to receive a percentage of commission once the real estate transaction is complete. This is typically between 1% and 3% of the sales price. Input that number.
- Referral rate fee: Input the percentage that was agreed upon between yourself, the referring agent, and the receiving agent on the referral fee agreement contract.
How Much Is a Real Estate Referral Fee?
There is no set amount for real estate referral fees, but they typically hover around 25%.
This fee is negotiable, like any other real estate commission. When it comes to real estate referral fees, there are no required referral fee amounts. However, your market likely has typical conventions, and your broker likely has suggested best practices.
When Should I Negotiate a Real Estate Referral Fee?
You can always negotiate real estate referral fees. In other words, when is it a good idea to do something? Here are a couple of scenarios when you should consider negotiating:
If your buyer wants to purchase income properties in a state where you’re not licensed or able to conduct business, you can still help them by finding a real estate agent in that state who can assist with the purchase. If you anticipate that the person you are referring will be making multiple purchases, you may want to consider increasing the referral commission to 30% or 35%.
At the opposite end of the spectrum, imagine receiving a lead that is very early on in the process, not yet pre-qualified, and who may need a lot of convincing to get them to sign a contract. Try negotiating the standard 25% down to 20% when you are the agent receiving the referral.
While you are allowed to negotiate when it comes to referrals, the partnering agent is not required to accept your proposals. If you try to push too hard during the negotiation, you might end up losing your advantage completely, so you should be careful.
How Do I Get Paid When I Make a Real Estate Referral?
The agent that you have made the referral to will pay you once the transaction is completed.
Referral percentage is something that is written into a contract when an offer has been accepted on behalf of a client. This percentage entitles you to an agreed-upon amount. The company will give your broker a check for your part of the commission when the transaction is completed.
Your broker will take their referral fee from the total amount and issue you a check for the balance.