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. A typical referral fee is 25% of the gross commission for a single side of a transaction. However, there’s no set standard for a referral fee rate, and, like every other aspect of real estate commissions, a referral fee is negotiable.
In this article, we’ll review why referrals are sometimes necessary, and how real estate referral fee agreements work. We’ll also answer some of the most frequently asked questions about real estate referral fees, and give you a chance to ask your own.
Free Real Estate Referral Form Template
The only paperwork required for a real estate referral is a real estate referral agreement. This is a basic contract between the two brokers who oversee the referring agents. It covers how the commission will be split, the length of the referral, and other terms of the agreement.
Even though this form is very important for real estate professionals, not every association or brokerage has one available for their members. That’s why we’ve created a free, customizable, easy-to-use template you can download and start using today. Click below to get started.
What Is a Real Estate Referral?
A real estate referral happens when one agent or broker passes a client to another licensed real estate agent or broker in order to better serve that client’s needs. As much as real estate professionals strive to be the go-to resource for all things real estate for all their clients, there are occasions when a client’s request is something we simply can’t deliver on. In such circumstances, referring your client to another agent is often the best way to serve them.
Most Common Reasons for Real Estate Referrals
Real estate referrals happen every day, for a variety of reasons. Most of these referrals happen because of one (or more) of the following circumstances:
Out of Market Transaction
Let’s say you’re a real estate agent working in Maryland, and you have a client who wants to purchase a beach house in Delaware. Even though these states are right next to each other, Delaware is a turf state, and as a Maryland license holder, you’re unable to conduct business in Delaware.
However, you can refer your beach house client to a real estate agent who is licensed in Delaware. In exchange for that referral, you (or more accurately, your broker) will receive a percentage of the commission on the Delaware transaction.
Real Estate License Reciprocity & Portability: A State-by-State Guide
Unqualified Transaction
As a licensed Realtor, you have the ability to facilitate lots of different transaction types, but if a client comes to you with a request for help on a transaction type you’re not familiar with, a referral might be the best way to provide them with the service they deserve, even though you’re technically licensed to help.
For instance, say you’ve got a client who you’ve helped with residential real estate transactions in the past, but now they want to sell an industrially zoned building they own.
If you’ve never worked on a commercial transaction, you may not be qualified to give your client advice on pricing, negotiation, or closing conditions. After all, the best practices of residential real estate may not apply to commercial or industrial real estate. So, a referral to an experienced commercial and industrial real estate agent would be the best alternative for your client.
Real Estate Referral Fees: Chris Answers Your Most Frequently Asked Questions
Now that you know the basics of what a real estate referral fee is and why they’re used, let’s dig a little deeper into some of your most frequently asked questions about referrals.
If you have a question about real estate referrals and referral fees that you don’t see an answer to, leave a note in the comments section below. I answer referral questions every week, and would love to answer yours!
Don’t feel like reading? Check out the video at the top of this article for our YouTube video version of our answers to your most frequently asked real estate referral questions.
Real Estate Referral Fees: Money Matters
How Much Is a Real Estate Referral Fee?
The typical real estate referral fee is 25%, but it’s important to note that there is no standard or prescribed amount.
Just like any other real estate commission, a real estate referral fee is completely negotiable. Your market likely has typical conventions, and your broker likely has suggested best practices when it comes to real estate referral fees, but there is no required referral fee amount.
When Should I Negotiate a Real Estate Referral Fee?
Since real estate referral fees aren’t set by anyone, if you want, you can always negotiate. That being said, when is it a good idea to? Here are a couple of scenarios when you should consider negotiating:
Say your buyer wants to purchase income properties in a state where you’re not licensed or able to conduct business. Since you’re referring a client who will be making multiple purchases, you might want to consider bumping up that referral commission to 30% or even 35%.
On the other end of the spectrum, picture yourself receiving a lead that is very high up in the funnel, not prequalified, and who may need a lot of work to get them under contract. As the agent receiving the referral, you may consider trying to negotiate the standard 25% down to 20%.
Remember, even though negotiating is completely allowed when it comes to referrals, the partnering agent is under no obligation to accept your proposals, should you decide to make them. Push too hard during the negotiation and you may risk losing the lead altogether, so negotiate with caution.
How Do I Get Paid When I Make a Real Estate Referral?
When you make a real estate referral, just like the agent you’ve made the referral to, you get paid when the transaction closes.
When an accepted offer has been written on your client’s behalf, the ensuing contract will include a clause that entitles you to the agreed-upon referral percentage. 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, they’ll treat it like any typical real estate transaction, pulling their percentage of your split and issue a check to you for the balance.
[Related article: What Is GCI & Why It Matters to Every Real Estate Agent]
NOTE: Though unconventional, it is also acceptable that a referring broker would receive payment directly from the broker to whom the referral was made. This is not advisable. The risk of unpaid referral commissions rises substantially when this type of agreement is made.
Can a Broker Pay a Referral Fee to a Non-licensed Person?
No, a broker cannot legally pay a referral fee to a non-licensed person.
Paying any non-licensed individual a percentage of a commission generated from the purchase or sale of real estate is illegal. You can get in serious trouble with your local board, the National Association of Realtors, and even your state government by engaging in this practice.
There are some fine lines to walk here, particularly when it comes to real estate bird-dogging.
A “bird dog” seeks out and then brings real estate investment opportunities to well-capitalized real estate investors. Technically speaking, this isn’t illegal since a bird dog isn’t actually bringing a buyer and seller together, just bringing the possibility of a deal to a buyer.
However, bird dogs and others operating in a similar space who seek a “finder’s fee” are just a couple of clicks away from asking for referrals, so we’d advise against this practice.
Real Estate Referrals: Essential Tools
If real estate referrals are a part of your business plan, you’ll want to have a few important tools in your tool chest. Here are some of the questions we get about them:
Where Can I Get a Real Estate Referral Contract?
In order to make and receive referrals, you’ll need a real estate referral contract. We suggest using the same one every time so you’re familiar with the terms and know exactly what to expect from the other party. If you need a referral contract, we’ve got one for you. Check out our free, downloadable template at the top of this article.
Should I Use an Electronic Signature Platform for My Referrals?
Yes. Electronic signature platforms make the act of soliciting and keeping track of your referral contract quick and easy. Our favorite platform for this is DocuSign. Their online platform is highly accessible, super easy to use, and affordable (plans start at just $10 a month).
Even though they’re not a real estate-specific product, they have plans and features designed with real estate agents in mind, so they’ll definitely fit into your tech stack.
What Other Tech Tool Is Helpful for Real Estate Referrals?
A real estate customer relationship manager (CRM) with transaction management options. Sometimes the hardest part about the real estate referral process is tracking the progress of your referrals after you’ve given them. A real estate CRM that has transaction management tools, like Propertybase or WiseAgent, will be a great option.
However, just about every provider listed in our guide to the best real estate CRMs of 2022 will have features to fit your needs.
[Related article: The Best Real Estate CRM for 2022: In-depth Reviews & Pricing]
How Common Are Real Estate Referrals?
ReferralExchange regularly reports hundreds of thousands of connections made on their platform every year. It’s safe to say that this is an incredibly common practice that happens every single day.
Are There Real Estate Referral Companies?
Yes, there are companies that specialize in real estate referrals. These generally fall into two categories:
- Companies that generate their own leads and offer those leads free in exchange for a percentage of the commission when the deal closes
- Companies that connect agents across the country with one another in order to facilitate their referrals
Some examples of companies offering their own leads as referrals are Agent Pronto, OpCity, and Zillow Flex. While these are good options for some, their typically steep referral fees (up to 40%) are usually more than most agents want to pay.
NuOp is our new favorite company offering a marketplace for agents to exchange referrals with one another. They have a nationwide network of agents, are growing quickly, and best of all, they offer a free-forever plan for Realtors who are still trying to decide if referral-generation works for them. Check out NuOp to learn more about what they do and how they can help you and your business grow.
Bringing It All Together
Knowing how real estate referral fees work is a must for any real estate agent. Whether you’ve got clients who are movers and shakers, or you live in a desirable spot where people are moving to or purchasing vacation property, you need to know about real estate referral fees. They can be a great source of income for you, and the practice is vital to providing your clients with the best service possible.
Have any real estate referral fee questions we didn’t get to? Ask away in the comments!
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