A real estate referral fee is a portion of a real estate commission that is paid to a real estate broker in exchange for referring them a client. Though subject to negotiation, a typical referral fee is 25% of the gross commission for a single side of a transaction.
Real estate referrals happen all the time for a variety of reasons. Most commonly, they happen because a real estate agent is either unlicensed or unqualified to service their client in the purchase or sale of property in a particular geographic area, or for a particular type of real estate.
Let’s take a look at how real estate referrals work, what the typical fees are, and what the most frequently asked questions are about real estate referral fees.
What Is a Real Estate Referral?
A real estate referral is the act of getting a client into the hands of the person who is the most qualified to get them the real estate services they need.
As much as real estate agents would love to be the go-to resource for all things real estate for all our clients all the time, there are times when our clients are asking for things that we can’t deliver. These situations are perfect for a real estate referral.
When to Make a Real Estate Referral
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 you as a Maryland license holder are unable to conduct business in Delaware.
However, you can refer this client to a real estate agent who is licensed in Delaware, and in exchange for that referral, you (actually, your broker) receives a percentage of the commission.
Another good example of this is when your client is seeking services that you’re technically licensed to provide, but you don’t have the knowledge or expertise to be confident your client’s best interests will be looked after.
Consider the following scenario: 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 since 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 option for your client.
Everything You’ve Ever Wanted to Know About Real Estate Referral Fees
Now that you have a basic understanding of what a real estate referral is, let’s dig into the nuts and bolts of the referral fee. This is a pretty straightforward topic, but since there’s money involved, more knowledge is good knowledge, and we want you to be the smartest person in the room.
How Much Is a Real Estate Referral Fee?
The short answer here is: whatever you want it to be. Just like real estate commissions, there’s no predetermined amount that you have to charge or be charged for a real estate referral fee. However, there are some standard conventions that most brokers stick to. In the residential real estate world, the standard is 25%.
When to Negotiate a Real Estate Referral Fee
Given that standard fee, there may be reasons for negotiating this amount.
For instance, say your buyer wants to purchase income properties in a state you’re not licensed in and are unable to conduct business in. Since you’re sending a client to an agent who will be making multiple purchases, it isn’t uncommon to bump up that commission to 30% or even 35%.
On the other hand, if you are receiving a lead that is very high up in the funnel, is not prequalified, and is going to need a lot of work to get them under contract, you may consider trying to negotiate the standard 25% down to 20%.
Though you are well within your right to do so, remember that the real estate agent sending the referral is under no obligation to send it to you, so push too hard during negotiation and you may risk not getting the lead at all.
How Do I Get Paid When I Make a Real Estate Referral?
When you make a real estate referral, you are handing over the care and keeping of your client to another real estate agent for that particular transaction. Just like the agent you’re handing your client over to, you don’t get paid until their transaction closes.
When an accepted offer has been written on your client’s behalf, a clause is included in that contract that entitles you to the agreed upon referral percentage. When it comes time for the closing company to cut checks dividing up the proceeds of the sale, your broker is written a check just like the broker of the real estate agent to whom you referred the client.
Once your broker has your referral amount, it’s treated like a normal real estate transaction. They will pull their percentage for your split and issue you the rest.
Real Estate Referral Form
The only paperwork required for a real estate referral is a real estate referral agreement. This is a basic contract between the two brokers of the referring agents that covers things like how the commission will be split and the length of the referral.
It’s typically the responsibility of the agent who is doing the referring to supply the referral contract with the initially stated terms. If the receiving broker wants to negotiate these terms, they may do so.
If you need a referral contract, try our free, customizable, and easy-to-use template.
Download Your Free Real Estate Referral Fee Contract Template
The National Association of Realtors also has an easy-to-use referral form you can get here.
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. Enterprising real estate agents who are trying to come up with new referral generation methods from their sphere will knock around the idea of offering to pay a cash referral fee to former clients who send new business their way.
However, the recruitment of clientele for the purpose of real estate purchase or sale is considered to be the work of licensed professionals only, so you can get in some 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” is someone who is seeking out and then bringing 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 that seek a “finder’s fee” are just a couple of clicks away from asking for referrals, so this is a practice we’d advise against.
Are There Real Estate Referral Companies?
Yes. There are companies that specialize in real estate referrals. Since the only way to legally send and receive a referral is to do so via a brokerage, there are brokerages that focus entirely on this practice and conduct almost no business otherwise.
For instance, Agent Pronto is a real estate brokerage based out of Florida, but you would never know it to look at their website. Their entire business plan is based around the idea of attracting home buyers and sellers from anywhere in the United States with the promise of matching them with the perfect agent.
Once a buyer or seller reaches out to them and requests to be matched with an agent, Agent Pronto then contacts agents in the local area that have agreed to receive referrals and offers them the referral for a fee of between 25% and 35%, depending on the budget of the buyer or estimated home price of the seller.
A few additional real estate referral companies include:
How Common Are Real Estate Referrals?
In 2018, ReferralExchange alone made over 245,000 connections across the United States, up more than 14% over 2017. In a survey conducted of over 1,200 real estate agents, most of whom belonged to a referral network of some sort, ReferralExchange found that nearly 25% of agents are receiving up to 10 referrals every year, further bolstering the trend seen in the last two years that the agent-to-agent real estate referral economy is growing steadily year after year.
Sounds Great, But What’s the Catch?
While this appears to be a lead generation strategy without an upfront cost, remember you’re paying pretty dearly for these leads. A referral that purchases a $250,000 home with a 3% commission will cost you $1,875. That is a hefty cost per lead, especially when you consider that properly placed ads from somewhere like BoldLeads can yield you the same exclusive lead for significantly less cost. Check out BoldLeads to see if your ZIP code is available.
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 spot where people are wanting to move to or buy a vacation property, you’ve got to know about real estate referral fees. Not only can this be a great source of income, but this 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!
GREAT article Chris!
Thanks Al! Glad you found it interesting.
Chris
Hello Chris,
I’m a licensed real estate agent but not currently working with a brokerage. Could I still receive a finders fee if not currently employed under a broker?
Hi Abby –
Thanks for your comment, great question! My instinct on this tells me no. Here’s why:
To legally operate as a real estate agent, you need to be under the “supervision” of a broker, or be a broker yourself. Despite the fact that you’re not representing buyers or sellers in a transaction, you are still providing real estate counsel by making the referral. Also, when a referral fee is made, it is sent from broker to broker, then the referring agent is paid. Without having that intermediary broker step, I am not sure the first broker would send you a check.
All that being said, every state’s laws are a little different, so I would check with your state’s board of licensing and regulatory affairs to see. One solution you may have available is that you could hang your license with a very low fee virtual brokerage like Real or eXp, which wouldn’t require you to have a physical office or anything like that.
Best of luck, let me know how things turn out!
Chris
I was going to ask this… i used to have a license and my old broker says that I can still get referral fees if I refer clients, etc. I wasn’t too sure about this.
Hi Carolyn –
Thanks for the question. I’ve heard of this before, and as far as I understand it, the rules are different state to state. I would definitely check out your state’s specific rules on that, and would also run it by someone in the leadership of your local board as well.
Good luck!
Chris
Great article! Do the brokerage agencies have to be the same company. For example, Re/Max in Michigan to a Re/Max in New Jersey or could it be a Long & Foster in Michigan to a Re/Max in New Jersey.
Thanks so much!
Question. If you refer someone to an agent and they become a client of that agent is it one and done. Do you continue to get a fee if the person you referred refers friends to the same agent. I am new to this
Thanks
Hi Marie –
Thanks for the question. Generally speaking, a referral is one-and-done, but it all depends on the language you use in your referral contract.
Chris
I currently work with referral services…but only on ones that the fee is paid at closing. I receive numerous offers of referrals but they want their fees before and sale is complete. Don’t understand why realtors pay for blind “leads”. I will consider any firm that has leads paid at closing.
Hi Eddie –
Yeah, there are definitely providers out there that are looking for payment before a lead is received. Though I don’t know the ins and outs of every company that operates that way, I can tell you from personal experience that the way to go is to work with companies that take a cut of the commission post-closing. In my experience, those providers are most confident that the leads their providing are actually going to turn into clients.
Are you currently working with an active referral company?
Chris
How would a licensed agent find a referral company to work for, rather than selling RE?
Hi CK –
Referral companies actually have very few (if any) sales agents on staff, since all they really need is a broker in order to receive and pay our referrals. Those jobs are pretty few and far between unfortunately!
Chris
Chris,
I just got my license last week. I want to do referrals because I have a full time job. I live in Florida. Do you know of any reputable companies in Florida. I am totally new, and I am looking for some guidance.
Robb
Hi Robb –
Thanks for the question. Just about any brokerage works for a referral-based business. I don’t have a ton of experience in the Florida market, but I would suggest checking out our Best Real Estate Companies to Work For article.
Good Luck!
Chris
Chris,
I want to sell my own home, and want to hire a listing agent. Can I receive a referral fee? I am a referral agent.
Hi Carol –
Great question. Let me make sure I understand…you would like to sell your own home, and you would like to hire a listing agent to do so. If you are a licensed real estate agent, yes, you could get a referral fee for this. However, if you aren’t a licensed agent, you would not be eligible to receive a referral.
Hope this helps!
Chris
Really helpful article!
How do you maintain your license when you act as a referral agent?Every 2 year taking exam and continuing education? (I live in PA) Can I put my license in escrow and pay the fee whenever I need to take out and use?
As a referral agent, do I need to join NAR and buy a E&O insurance?
Thank you in advance for your help!
Hi MC –
OK, a lot to unpack here, so let’s take this a question at a time.
1) How do you maintain your license when you act as a referral agent?
To be clear, acting as a referral agent doesn’t change your status as a standard practice real estate agent. You still need to belong to a brokerage, to a local organization, and you still need to maintain your continuing education requirements. Acting as a referral agent doesn’t change any of these things, so the maintenance of your license doesn’t change either.
2) Can I put my license in escrow and pay the fee whenever I need to take (it) out and use (it)?
I suppose that is an option, but the details of that would largely depend on the local regulations for your specific organization, as well as the Pennsylvania state rules. Honestly, that seems like more hassle than is necessary to me. If you’re going to work as an agent, referral or otherwise, make a plan to at least break even on your costs and keep your license active.
3) As a referral agent, do I need to join NAR and buy E&O insurance?
First off, there is no requirement that you be a part of NAR. The National Association of Realtors is not a mandatory organization for real estate agents, though, to be fair, many local organizations will include (require) a membership there in order to be a member locally. So, technically no, but your local MLS may say otherwise.
As far as E&O, since you will still need to house your license with a brokerage, the answer to this question is almost certainly yes. E&O protects you, but it also protects your brokerage, and I can’t imagine a scenario when they would open themselves to liability like that.
Hope this is helpful!
Chris
I am licensed in PA. I would highly suggest NOT putting your license in escrow here. Not only will you need to pay to pull it out, but you will also need to take/re-take your CE credits.
Right now I have my license sitting in a referral brokerage that was set up by my employer exclusively for those of us who are not acting as agents (I’m in marketing right now)
Hi Shona –
Great tip, glad to hear you’ve got a system that is working for you!
Chris
I made a referral and both brokers signed the referral agreement form. The transaction closed 2 weeks ago. No news from the other agent about when they will send the referral fee or any other communication. I have sent them a follow up email asking for an update. What is traditionally acceptable time frame to pay the agreed upon fee upon close of transaction? I’m sure there are other factors that may affect this. But thought I’d ask if anyone else things 2 weeks is ample time to make at least a connection with the broker saying, we will send the referral fee or something. thanks!
Hi Jade –
OK, so I’ve got some good news and bad news.
The bad news is, referral fees are typically paid from the title company, not from the broker. Meaning, when the title company is cutting commission checks, they cut a THIRD check for your broker in addition to the buyer and seller brokers. If that didn’t happen, more than likely what happened is that the title company didn’t know that there was a referral on your transaction.
The good news is, with a signed referral agreement, you’re going to get paid. If you haven’t heard back from the other agent, it is time to reach out directly to the other broker, or even better, have your broker do so on your behalf.
Yes, it sucks to have hunt down checks, even more so when you have a less than communicative other party, but you’ve got a solid legal claim to that fee, so it will get to you eventually.
Be vocal, get your broker involved, and be persistent. Good luck!
Chris
I’m in real estate school. Well i just passed the class actually but have to pass the state test.
If i refer a family to a realtor right now (without license) but they close after i get my license can i get a referral fee? Or is it only after i have my license i should start referring people?
Hi Jereme –
Great question. Unfortunately, you can’t get a referral fee until you’ve got your license. Technically speaking, when you make a referral, it is your BROKER that actually gets the check (then turns around and pays you less their cut) when the transaction closes. So, without a broker, the referral can’t happen.
But, the moment your license gets onto a broker’s book, you’re good to go!
Chris
I live and work in real estate here in Australia. I have a couple of clients that will be moving to USA and purchasing property in the next few months. Is there any possible and legal way for me to get a referral?
Thanks Ed
Hi Ed –
Thanks for your questions, greetings from the US!
The rules on international referrals are a little vague and will vary depending on the country. As far as Australia goes, as long as you’re able to legally facilitate the sale or purchase of real estate in Australia, you qualify for a referral fee from a US based transaction.
However, each state in the US has its own rules and regulations on top of the federal rules, so unfortunately, there’s more investigation that needs doing.
The National Association of Realtors here in the US has a set of global alliances to tackle questions like this. For Australia, it is Real Estate Institute of Australia (REIA), I would start by reaching out to someone there.
Hope this helps!
Chris
I am a loan officer and am about to reinstate my real estate license again. Can I get paid a referral fee and be the loan officer for that client at the same time? The only issue I have seen is that FHA does not allow you to be a loan officer and the buyers realtor in the same transaction.
Hi Kel –
Great question. As far as real estate goes, there is no federal regulation that prevents this practice, nor is there any sort of statute in the National Association of Realtors’ Code of Ethics. That being said, mortgages and the mortgage process are regulated much more tightly since 2008, so it would be a good idea to cross check this with your lending management system too!
Chris
Great article.
Let’s say I am a licensed agent in MA belonging to a brokerage. Can I refer leads/clients to agents in any other state, and still receive referrals, even not being licensed in those states?
Thanks.
Hi Mariense –
Yes! You don’t need a license in a state to receive a referral. However, since referral fees are actually paid to your brokerage and not you, I always suggest making sure you touch base with your broker before making an out of state referral to verify that they don’t have any special interstate procedures.
What do referral agents typically pay the Broker they belong to in Missouri
Hi Nancy –
Usually, referral fees work just like your commission would. If you’ve got a pre-arranged split with your broker, you’d have that same split arrangement when a referral fee comes in. Every broker is different, so if you’ve got a different arrangement with your’s, we’d love to hear about it!
Thanks!
Chris
Yes, good to know what the ballpark policy is.
Margaret Sheridan
Yes, good to know what the ballpark policy is.
Margaret
Excellent information. Please keep it up the great work.
Hi Syed!
So glad to be of assistance!
Chris
What would a referring agent get on a $544,000.
Sold property.
Hi Kathleen –
Thanks for the question!
So, this is a little tricky. Typically, referral agreements between brokers are made BEFORE a home sells. It might be tough to negotiate for for a referral amount after the fact. But, just speaking hypothetically, you could use the following as a blueprint:
– Where most of my experience is, 6% is a typical commission for non-luxury properties. As property values climb, commission percentages tend to decrease a little to closer to 5%. Let’s split the different and say 5.5%.
– That would make the seller side commission 2.75%.
– A typical referral fee is 25% of the seller side commission.
– On a sale price of $544,000, with a commission rate of 2.75%, the gross commission would be $14,960.
– A 25% referral on that gross commission would be $3,740.
Hope this is helpful!
Chris
Depends on the percentage you agree on.
I have a broker license referred the client to a real
estate firm the house sold for one million seven hundred fifty thousand dollar they only gave me
twenty two hundred dollars. there commission rate
is 6 percent this happened in cape cod ma.
Hi Leo –
Sounds like a good sale. Did you have a referral agreement between you and the broker?
Chris
Please email me at yougahouse1111@gmail.com and let me know if there is a limit to the amount charged in a referral fee. I cannot find this anywhere.
I was a relo agent and the company I used to work for – over the years I only really had two good referrals from the relo department. On the most part, the other referrals were deadends and appeared to be people sent in as referrals by agents trying to make their quota on sending in referrals to the head office. At first I was fine with this because as a young agent it gave me practice.
However, that was a lot of work for no return.
The first ‘big’ referral from the relo department was NOT a relo. She grew up in the town and drove past the sign as my brokerage had the house up for sale. When she got home she googled the phone number for the brokerage and got our head office. They took the call and as instructed, sent her to the relo department who farmed her to me. Even though she was not a relocation and she just accidentally called the wrong office. In the end, I paid 45% of my commission to my brokerage because of the referral. Even though this felt unethical, it was not illegal so I just accepted it.
However, the next referral from them was another family that ALSO lived locally. I accepted that I would be paying relo 45% of my commission for this referral. However, AFTER I found them a house and we were under contract, the relo department told me OOPS, they forgot, there was an ADDITIONAL 50% referral on this. So this family was referred to our relo department for a 50% commission referral fee. So my brokerage took out 45% and 50%. You do the math.
I went to my broker about this. She thought this was very wrong but she is a company gal and would not say anything. I left this brokerage. I recently got my brokers license and there was something in my studies about a maximum 50% referral fee that could be charged. Can someone please advise me on if there is a cap on referral fees?
Hi Lara –
Man, this sounds like a tough situation, sorry you had to go through it. Here are a couple of things to keep in mind:
– Many brokerages have departments that focus on referrals, or “relos” (relocations). Often times, these departments operate a little bit differently than the rest of the company, and certainly a little more aggressively than the average agent.
– Most relo departments charge their agents a pretty high fee because, in their eyes, they’re handing you a lead that is almost certainly going to close.
– If you accept a lead from the relo department (or, really any referral from ANY agent), you do so agreeing to the referral fee terms. For most agent-to-agent referrals, that’s usually 25%, but a relo department can (just like another agent) charge as much or as little as they want.
My guess is, when you became an agent at that brokerage, there was some sort of document along the way that stated what the relocation department fee was for leads. My guess is you probably signed it without realizing exactly what it was. At the end of the day, you can certainly refuse to accept those leads, but then you don’t get the client, so, rock and a hard place.
There is no cap on referral fees, nor is there a floor. As long as they are agreed to by both parties, they can be whatever you want.
Chris
Can you be a referral agent in two different states. I have my florida real estate license as a referral agent and just obtained my Virginia license thank you
Hi Trish –
Nice work getting licensed in both states, that will open a lot of doors for you. Yes, you can be a referral agent in both states. In fact, having two brokerages actually gives you some options when it comes to referrals. Most brokers have a specific split for referral situations, so whichever broker offers you a better split on the commission can be the place you send the referral income.
Chris
Can the buyer who is referred be asked to pay a portion of the referral fee called an aquisition fee. Is it not true the agent who recieved the referral is solely responsible to pay referral fee from his commission contingent on closing. Why would the buyer pay for this. Could the builder try to build this cost into listing price if the builder received the referral.
This is possible, but very uncommon in my experience.
Chris
As a individual I need help to know how I can get the best price for the sale of my 20+ acres. any recommendation on where to look?
Hi Matt –
Happy to help, first a clarifying question. Are you a licensed real estate agent? Are you selling this property yourself or on behalf of someone else?
Chris
Is a broker in Missouri required to the referral fee to an agent who left the office before the property closed
Hi Jean –
Great question. Technically, no. Real estate contracts that obligate the payment of commissions are technically made between brokerages and parties to the transaction, not real estate agents. In other words, when a commission is paid, the money comes from the seller (out of their proceeds of the sale) and goes to the brokerage. An agent, as an independent contractor, has a deal with a brokerage to be paid their agreed upon percentage of that commission. So, if an agent is no longer affiliated with a brokerage, unless they have a contract specifically stating that they will be paid regardless of their agent status, the brokerage is not obligated to pay.
Keep in mind though, I started this answer with “Technically”. While this is the letter of the law, if you apply the common-sense-what’s-the-right-thing-to-do test, most brokerages are going to pay that agent. An agent has done the work, made the referral, but gets shorted by the brokerage on the commission is going to talk about it with other agents. That sort of reputation is going to spread through the agent community, something that brokerages do not want.
If an agent has a reasonable claim for payment on a commission, in my opinion, the brokerage should just pay it. They stand to lose a lot more in the long run than they gain in a single referral commission.
Hope that’s helpful!
Chris
Hello I have an interesting circumstance I i’m licensed in New York and referred a buyer to a broker in Florida. They could not find a house right away so they rented a house of which I was paid a small referral fee. 11 months later the broker sold them a home. Am I entitled to a referral fee on that or am I just entitled to the initial referral fee? Being that I put the parties together I was hopeful that the referral agreement carries through. Ty!
Hi Jon –
Great question, thanks for asking! In short, the language of your referral agreement is going to be the deciding factor here. Unless your referral contract stated that you get a piece of each of the referred client’s transactions moving forward, my gut tells me you’re not going to see anything on that second transaction.
As much as that is a bummer, it does make sense. I mean, if they bought a house instead of rented, then decided to buy another house 18 months later, you wouldn’t expect a cut of that second house, so unless it is dictated in the agreement itself, expecting a portion of the second transaction, regardless of what the first one actually was, is probably not realistic.
That being said, if you have a good relationship with the broker that picked up the referral from you, it never hurts to ask! If it were me, I would skip the formality and go right to the phone with a congratulatory call, then ask politely and professionally if a referral fee is possible, considering the fact that you sent the client in the first place. If they say no, wish them well and best of luck, but if they say yes, great!
Let us know how it all works out!
Thanks!
Chris
What happens if the buyer I referred closes with a different agent than I had the referral agreement with?
Hi Steph –
Great question.
Unfortunately, referral agreements are between specific agents under the umbrella brokers, so a buyer that winds up closing with an agent other than the one you made the referral to is going to leave you out in the cold.
The only possible exception to this would be if the buyer you referred wound up closing with another agent in the same brokerage as the agent who you originally made the referral to. However, you’d have to have some pretty specific language in the referral contract to speak to this contingency, and chances are, that’s not in there.
I hate to say it, but in a situation like the one you described, you’re most likely out of luck 🙁
Chris
I asked an agent for a referral to a local agent to buy a home. I was referred to an agent but never signed anything nor visited any homes with agent. Two weeks have passed and my son wishes to use an agent very damjar with area ww are looking in. Am I legally bound to the agent I was referred to? Thank you in advance!
Hi Lori –
Thank you so much for the question, it’s a good one!
The short answer here is no. As a potential buyer of real estate, the only time that you are obligated to work with a particular agent is if you’ve signed a buyer / broker agreement, and even then, those agreements are easily dissolvable if both parties agree. The courteous thing to do would be to let the agent you were originally referred to know that you’ve decided to work with someone else and thank them for their time. You’ve got no legal obligation to do so, but it is just something that anyone grinding in the real estate game will appreciate 🙂
Please let me know if you have further questions.
Chris
Thank you, Chris. Yes, I did let the agent know in a timely, considerate manner. My son’s agent has no obligation to do this but is willing to pay this agent a 20% referral fee upon my purchase of a home. This is not satisfactory to the referred agent who wants more than twice that. In addition, the referring agent is threatening me legally because he is not getting what he says he was promised (contract between the referring and referred agents). Thank you so much.
Thank you, Chris. Yes, I did let the agent know in a timely, considerate manner. My son’s agent has no obligation to do this but is willing to pay this agent a 20% referral fee upon my purchase of a home. This is not satisfactory to the referred agent who wants more than twice that. In addition, the referring agent is threatening me legally because he is not getting what he says he was promised (contract between the referring and referred agents). Do you think there is anything here that I am legally responsible for? Thank you so much.
Re: Kickbacks, referrals, finder fees
For loans I think I understand the process
For the following question i have contacted HUD/NAR/RESPA>FHA and got no where.
My question is for the sale side of the property only, that will need a loan
#1. Can the real estate agent give their client (buyer/seller) a thank you gift directly and if so are there any restrictions
#2. Can the real estate agent give directly to a non-license person a thank you gift for introducing the client and has no further involvement in the sale transaction and if yes are there any restrictions
Hi Kent –
1) Yes, a real estate agent can give a thank you gift directly to their clients, as long as there are no strings attached. In other words, feel free to give your clients something so they know how much you appreciate them, but it can’t be in exchange for a review, referral, or anything else; no strings attached.
2) No, a real estate agent cannot legally compensate a non-licensed person for introduction or delivery of real estate leads. This is a slippery slope, it’s easy to rationalize around this point, but at the end of the day, you know why a payment is being made, and so will the feds if they find out, so don’t do it.
With my current broker a referral contract is in place with an out of Broker to assist in the selling of
My sister-in-law’s home. I personally selected the the referring company and the specific agent that I wanted to represent her. As it was with an “out of network” company, I was required to verbally negotiate the deal with the other agent and provide the information to our referral dept. and they followed up.
The listing agreement has not yet been signed, and I am looking to move my license to a new office.
If I change companies before the listing agreement is signed, will the contract remain with my previous company or does that agent go with me?
If the referred agent gets both sides of the deal, is the referral fee applied to both sides?
Please note that my current Broker collects 20% off the top of the referral fee. This fee is payable to the “referral network” that they use to process referral leads. Coincidently, it is owned by my Broker. This 20% fee is for administrative activities such as emailing the referral contract, following up on the status of the transaction, and collecting the check.
Additionally, from that net amount the Broker then collects its usual percentage of the split that is applied to all of my standard commission transactions.
Depending on your broker’s
Referral Policies, I think your readers should know that at the end of the day, the amount of referral compensation to an agent in a full service brokerage company can be substantially less than they anticipate.
Hi Cynthia –
A lot to unpack here. Let me start with your specific questions:
If I change companies before the listing agreement is signed, will the contract remain with my previous company or does that agent go with me? This is going to depend entirely on the language of your contract, but generally speaking, yes, the contract will remain even if you switch brokerages. Typically, these referral contracts are between the brokerages, not the agents, so unless there is a clause that outlines your situation, I wouldn’t count on it coming with you.
If the referred agent gets both sides of the deal, is the referral fee applied to both sides? Again, this is going to depend on the contract language, but in my experience, this isn’t the case. You make a referral for the execution of purchase or sale, that is usually where you get paid.
As to your other comments about the actual net vs gross of your referrals, yes, that is definitely going to be subject to your broker’s policies and contracts. Always a good idea to make sure you’ve got a crystal clear picture on what that means for you as an agent before you start the referral process!
Thanks!
Chris
I’m not a licensed real estate agent but I refer buyers to those licensed agent, can I have referral feel? If there is, when I get my part? After the buyer give their reservation fee or after completed the 30% downpayment
Hi Rosalee –
No, you can’t receive a referral fee if you aren’t a licensed agent. Referrals are paid by brokers to other brokers, and without a license, you wouldn’t have that option. I suppose it could be that an agent may pay a non-licensed person under the table for referrals, but this is a big time no-no for agents and could result in a loss of license. Plus, this would be considered illegal income for you, which could put you in some hot water during tax time. The moral of the story is, don’t do it!
Chris
Awesome article Chris! And kudos for answering all of the questions in the comments section so thoroughly. For a newbie agent like myself, it really helps to read those and get more clarification on everything I’m learning. Keep up the great work!! 🙂
Hey Monica, Chris is actually in Amsterdam visiting family, but we’re glad you liked the article and will be sure to tell him when he gets back.
Hi, I have a referral agent that gave me her listing to sell her land. I ended up selling the land but I found the buyer. My broker paid her 25% of the 3% for the listing side. Is she entitled to 25% of the 3% of the selling side as well because I had both sides?
That makes sense to me, but to avoid situations like this in the future you should include this scenario in your referral agreement.
DO you have a draft email that I can use as a template to request referrals from agents in other offices in my company since I am in a second home area. Thank You!
Not yet, but if you come up with something good we’d love to add it to the article and credit you! You can email us here: info@theclose.com
So if I was a property manager prior to becoming a licensed realtor, and one such property wanted to sell, which I linked with a realtor friend. Now I’m licensed with keller Williams, and the property sold and friend wants to give me a referral fee, but no contract was ever written. How do I proceed?
I think that might depend on what kind of contract you had with the property management firm you worked for when you made the referral, if i am understanding your situation correctly. That said, since you are now a licensed agent, you could always fill out a referral form now and go through the proper channels assuming your help on the referral continued after you were licensed… I’m far from a lawyer though, so you might want to give NAR a call and see what they say.
If I am a Real Estate agent in Mass., and refer my business partner to a Real Estate agent in Maine, and he found a house and is almost ready to close, and he wants to put me on the title, as a “Tenant in Common”, will this effect my referral commission?
Hi Kendall –
Great question. In theory, no, it shouldn’t affect it. That being said, if it were me doing the business, I would wait until the transaction is closed, then make that amendment. You can actually have the title company that is closing the deal for you draft an addendum to the title work and submit it with the original package, so it’s super easy and cheap, but if I were doing it, I would separate the two, at least as far as the paperwork is concerned.
Chris
How soon should the referring realtor/ broker secure the signature of the receiving realtor/ broker? Before or after they are introduced to the buyer?
Hi Shirley –
Thanks for the questions. I would suggest securing that referral agreement as soon as possible, and here’s why.
Even if the referring agent or broker doesn’t have a signed buyer / broker agreement with a buyer, the mere act of conducting real estate specific business can constitute an inferred professional relationship in some states. In the event that the state the client is coming from has a portability agreement with your state, the referring agent / broker could STILL be considered the agent of record, even if you take them out and show them homes, since their original broker relationship had already been established.
You can nip all of this in the bud by getting that referral agreement signed first. That way there is a clear paper trail of the transfer of that broker agreement from one agent to another and no chance that two different brokerages could lay claim to the entirety of a commission.
Hope this is helpful!
Chris
Chris, Great info in article and subsequent comments! I’m not an agent. I’m a POA selling my Mom’s 94yo estate. I’d interviewed agents/brokers for months in anticipation but no one understood the property w/o viable comps to compare. I was going to sell myself. A neighbor/friend of Mom’s is an agent. I never wanted her to be our agent or asked for a referral. In chatting with an owner/contractor renovating another 1926 home several doors down, she talked to him first saying we were going to sell soon. (I was meeting everyone new in the neighborhood hoping someone might know a buyer but hadn’t reached out to this neighbor yet. When I followed up with them, he mentioned belonging to investor networks And would be happy to look at the house. After looking at the house he mentioned he probably knew a couple people that might be interested and brought them by a few days later. She mouthed to me that she expected $3000 from me if this
led to An off market direct to investor sale. After I asked for his business card for setting up a time, she asked for one too. That’s when we both found out that he was also an agent. I signed a 3% buyers agent agreement with him only for the two investors he brought by. Neither purchased. Over the weeks, After letting me borrow his blower, a ladder and helping me with other maintenance issues, I realized he was the perfect agent for us. Only 2 days On the market, and an Open house on memorial day and I had four great offers and a contract signed the next morning. I just received an email From the neighbor that she is owed a referral fee from my current agent even though she never knew he was an agent, and none of us knew that I would eventually ask him if he would be my agent. Does he ethically owe her this 25% referral fee? I had already agreed with her that since his investor referrals didn’t pan out, neither would a commission. It feels like a sticky wicket because she had helped my older mom at times as a friend and in return she was given wine, food, and choices of her possessions over the years. Appreciate your guidance since they are neighbors now.
Hi Michèle –
Great question, thanks for your comment. This is a pretty nuanced situation, but I can tell you, legally, there is no referral owed unless a contract for one was signed. That being said, there are a lot of handshake agreements that happen in the real estate industry; a sort of code between Realtors. I agreement this feels like a sticky wicket, but ultimately, I would put this in the hands of your agent. He’s got to balance whether or not the 25% in commission is worth the headache that may follow having to deal with the neighbor down the road. From a legal perspective, he doesn’t owe her anything, but this could be the sort of situation that brokers need to get involved in to help sort it all out.
Hope this helps, and hope it all goes smoothly!
Chris
My wife and I were in the market to buy a house. Our dear friend referred an agent, who is a friend of the agent, to us. We bought a house with this agent. I thought it would be fair for the agent to compensate my friend. The agent did not. Nothing. This made me very upset.
Hi Ralph –
Thanks so much for your thoughts. Sounds like your friend deserved a piece of that commission for making the connection between you and the agent, sorry that didn’t come to be. Things in the real estate industry live and die by the contract language, so without an official agreement, agents will be hard up on getting that referral. But, as a client, you have a lot of power with your agent. Next time, insist on a referral before even starting the buying or selling process, I bet your agent will work with you to make sure your referring agent is taken care of.
All the best in 2020!
Chris
Question… what is the PA law on referrals between and broker and a builders agent. Builders agent referred customer to broker to sell 3 houses for customer. Would it be illegal for builders agent to receive a referral fee?
Michael –
Thanks for the question. I don’t know the exact statute in Pennsylvania, but generally speaking, builders cannot receive a “referral” fee since a referral is paid between licensed brokers. Often times this fee gets reclassified as a “finder’s fee”, but the nitty-gritty of that is challenging and often legal authorities apply the “if it walks like a duck…” standard, meaning that even those its technically called something else, a fee that acts as a referral fee is a no-no. Now, if the builder’s AGENT is making the referral, and the agent is working for a brokerage, that seems like it should be ok, but I would definitely suggest checking with your local board to see what their legal team says.
Thanks!
Chris
Hi Chris,
I manage an apartment complex in NJ where the manager and all leasing must have licenses -which we do, we are trying to establish a co-marketing arrangement with a minor incentive, such as the dog food store across the street sending dog owners who mention they are looking for a pet friendly apartment our way. (We send our pet owners to them for dog food.) We are looking to reward such with a small incentive such as a $50 or $100 gift card – is there a minimum amount allowed for such a thing?
HI Kathryn –
Great question! So, the short answer to this is no, there is no dollar figure that is a minimum amount. You’ve got to be careful here though; an established quid-pro-quo relationship, even dealing in relatively small dollar values like you’re talking about, could be construed as an illegal referral agreement in New Jersey. It is a really fine line, but you might want to double-check with your legal team to be sure.
Chris
Hi, I am a realtor in AZ and showed houses to a commercial real estate agent who asked if I do referrals. I advised him to send me the referral agreement and yes we do. The transaction closed and the buyer sent the referral 3 days after closing. What do I do? My broker said we have nothing in writing so I am not obligated. Nothing was agreed. They did not speak up at closing and told my broker they always pay referrals after a deal has closed.
Hi Kathy –
This is a tricky one. On the one hand, you were very clear about the process, and without an agreement in place, there is no legal obligation to pay a referral. On the other hand, if you feel like NOT paying the referral is going to result in potential future lost income because you’ll lose the opportunity to convert people into repeat clients, that doesn’t seem wise either.
Are you legally obligated? No. Is it the smart thing to do? Maybe.
Keep us in the loop, we’d love to hear how it works out.
Thanks!
Chris
I am a newly licensed Realtor. I own, and rent, property in another state where I am NOT licensed. My current tenant wants to buy the property. I want to sell.
What is the cleanest way to do this between us, involving minimal agent or referral fees?
Also, taking into consideration I would be performing a 1031.
Should I pay a flat fee to a RE Attorney, or to a Listing Agent?
Hi Sharon –
Thanks for the question. A real estate attorney is going to be the best way to go. Depending on the state that the subject property is located in, if you want to utilize a licensed broker, you’ll be paying out at least one side of a commission to them, something that isn’t necessary for you since you’re not going to actually put this property on the market. The way to think about this is treating it like a FSBO transaction. You’ve already got a buyer, no need to actually put the property on the market, you just need to grease the wheels of deed transfer. Before even getting the real estate attorney involved, you might actually want to reach out to a local title company to see what they have to say; they might have some even cheaper alternatives for you.
Good luck, let us know how it goes!
Chris
IF I’M A BUYER AND I AM INTERESTED IN A LISTING BY AN AGENT AT A COMPANY AT WHICH MY FRIEND THAT IS HELPING ME IS ALSO AN AGENT – MIGHT I ASK MY FRIEND TO MAKE THE CONNECTION OR SHOULD I GO STRAIGHT TO THE LISTING AGENT? I AM NOT SURE WHAT IS APPROPRIATE. I DON’T WANT TO LOSE MONEY WHEN I CAN CONTACT THE LISTING AGENT, BUT THEN KNOW MY FRIEND IS LOYAL, AND ALSO MAYBE THERE IS AN UPSIDE TO A DIRECT CONNECTION TO FIRM? SHOULD MY FRIEND THEN SELL THE HOUSE, OR SHE JUST HANDS IT OVER TO THE LISTING AGENT? THANKS!
Hi Steve –
If you are looking to purchase the home, you should absolutely have your friend (a licensed agent) represent you. There is no cost to you for this (buyer’s agent commissions are paid by the seller) and then you have someone advocating for you in the transaction. The listing agent has no obligation to fight for your best interests, only those of their clients. While I would imagine that the listing agent would act professionally and ethically, they don’t have any reason to work to get the best deal for you, they want to get the best deal for their clients.
Good luck!
Chris
Have some friends that I have known for 20 years. I am going to list their home. At the second meeting, they told me that the owners sister is a realtor in another state and she would like to be paid a referral fee. Since it is a courtesy referral fee, I suggested 20% vs 25% and she disagreed. Wondering what is customary?
Thanks
Hi KS –
Thanks for the question. I gotta be honest, this sort of thing is pretty frustrating to me. The entire idea of a “courtesy referral” seems silly; that person isn’t providing any value or insight into the transaction, they aren’t doing ANYTHING, so why a piece of the commission?
It sounds like these clients are good friends of yours, so this is the sort of thing you stew on privately and then put behind you, but I applaud your restraint. In a situation like this, there isn’t a “customary” amount that I’m aware of. Bite the bullet, move on. Good luck, I bet the house is going to sell fast 🙂
Chris
Hi Chris,
I have a referral that I am paying 25% fee to other brokerage. Do they also receive 25% of my bonus for that transaction?
Thanks
Hi Carol –
Great question. The referral fee you pay should only cover the commission. If you’ve got a bonus, that shouldn’t be touched unless it is stated in the referral agreement.
Chris
I am a Broker in Florida. I have listed a property which is now under contract. I have been working on this transaction for over 2 years due to it being in probate (seller’s mother passed and he inherited the home). The seller’s father is an RE agent in another state. My initial contact was with the father but not regarding the sale of this home. We never discussed a referral agreement, nor was there a referral agreement in place. He has now sent me a referral request for 25%. I am not inclined to honor that as he did not refer me to his son although I did meet his son through him, and he hasn’t provided any assistance through this transaction. Can you provide any insight as far as whether I am within my rights to deny his referral fee? Florida law does not address this.
Hi Jackie –
Thanks for your comment. I’ll be honest, this is a tough situation, I don’t envy you here.
You are absolutely within your rights to refuse to pay a referral. There was no referral made, there has been no demonstrative value of the father’s real estate contributions.
The tough thing is, the father may have enough influence in the family affairs to ultimately put a halt to the transaction and pull the listing from you. Is that cool? Definitely not. Is it legal? It depends on the specific language of your contract, but most boilerplate contracts I’ve dealt with before have a couple of escape clauses that can be exploited to get out of a transaction without penalty.
All this to say, based on what I know, you have no obligation to pay a referral, but not doing so might cause you a headache severe enough that it could actually interfere with the closing of the property. It might be worth offering a small amount (maybe 10%?) to placate this person so you know things will actually close. But, that is up to you.
Keep us in the loop, I’d love to hear how things sort out!
Chris
Recently, we had a real estate agent that we felt didnt have time for us, wasnt really on the ball showing us houses or even texting us back in a timely manner at most a week but usually a couple days later we would get a response. We were trying to get her to release us from contract so we could go get a different agent. We had a few in mind already through friends. She was originally okay with releasing the contract, fessing up that she didnt have much time for us because of a really full client book. The next day she calls and says to connect us with the new agent we wanna work with who we found on our own and that shell release us to them. But we pushed and said no release us and be done with it, she said she wanted to connect with our agent so she could get a 35% referral fee. Is this right or as she said “standard practice”?
Hi Melonie –
Thanks for the comment. In short, no, this is not standard practice. Agents that don’t provide top quality service don’t get to pass a client along and still get paid. If this agent isn’t playing nice, talk to the broker. This isn’t ok!
Chris
Hello,
I am a licensed agent in VA. I referred an agent to my parents who live in another part of the state. Now that they are using the referred agent to sell, they want me to share my referral fee from that agent with them.
Is it legal to give them a cut of my referral fee?
Thank you
Hi Jess –
Thanks for the question. The short answer is, yes, it is legal for you to give them a cut. But, a word of advice here. The best way to go about this is to talk to your broker and let them know the scenario, and see if they will allow you to credit your parents on the CLOSING STATEMENT rather than after the fact. By doing the credit in the transaction, you don’t have to pay taxes on that income!
Chris
Chris – I am a licensed agent in Florida with no sales in the past year. I plan to leave my current brokerage and retire. Since I would like to refer customers to local agents that I know, my understanding is that I have to join a virtual brokerage where I “park” my license so that I am “under a broker.” Most of these firms charge $69-$99 per year, and the referring agent receives 90% of the referral paid. Do you know of anyone who has experience doing this, and are these companies reputable?
Hi Mike –
Great question, and congrats on reaching the retirement stage! Your understanding is correct, though to be clear, you don’t HAVE to use a virtual brokerage. Any brokerage that would allow you to hang your license is acceptable, though most will want some sort of volume out of you, so a virtual brokerage is a good choice. I like both eXp or Real in terms of virtual brokerages, but I know there are lots of others out there that work. if all you need is a place to park while making referrals, price is the number one factor for you, so find the cheapest one and go for it.
Chris
Could I ask the selling broker to pay part of a referral fee for my buying client making the offer?
Hi Dylan –
Thanks for the question. Yes, you can, but if I’m in that selling broker’s shoes, I am unlikely to agree to that. You’re welcome to ask though!
Chris
Hi Chris!
Great article…extremely informative and eye opening. I apologize if I missed something earlier in the comments, but I am wondering if you could elaborate on how Referral Exchange and OpCity operate legally within the confines of the broker-to-broker Referral Contract. Are they both nationally recognized brokerages? Does OpCity operate underneath Realtor.com’s licensure? While Referral Exchange may in a lot of cases be putting licensed buying and selling agents in contact with one another, it appears that they still collect a 15% referral fee in addition to their $995 initial cost and $3/lead certification. OpCity on the other hand charges a heftier commission percentage and as I understand it, are able to utilize agents associated with Realtor.com ecosystem. I ask mainly because neither site makes any mention of the ‘Finders Fee’ you outline in the article.
Thanks so much!
Will
Hi Will –
Thanks for the comment, glad to help. Yes, both OpCity and Referral Exchange are technically licensed brokerages with operations in all 50 states, which allows them to be a part of the commission structure.
Thanks!
Chris
If I am a licensed loan originator and real estate agent, could I receive a referral fee for referring out an agent to one of my loan clients?
Hi Crystal –
Thanks for the message. From a real estate perspective, yes, you could receive that referral. Since referrals are technically paid broker to broker, as long as your broker and the agent you are making the referral to’s broker can get an agreement in place, you should be golden.
To be clear though, I am not up to speed on whether there are financial or banking regulations that would prevent this from happening legally, so you’ll need to check that angle for yourself!
Thanks!
Chris
Hey Chris,
I am a licensed agent doing strictly residential and have a friend who owns a commercial property. He wants to lease the building, not sell it. I want to put him in touch with a commercial broker who can find him a tenant. Is it standard to ask for a referral fee from the brokerage if they secure him a tenant for the property?
Thanks,
Brett
Hi Brett –
Yes, definitely. Any time you are referring a real estate client to another agent, asking for a referral makes sense. Commercial referral rates vary by market, so I would do a little bit of research to find out exactly what an appropriate amount ask for would me (or just ask your broker, they may know off the top of their head), and remember that referrals are paid broker to broker, so make sure your broker is involved in the conversation from step one.
Thanks!
Chris
Ok, I had a customer I referred to an agent. With the split on a 135k listing at 70% for the listing agent and 30 % for me the referral Agent. The house sold and the buyer agent received 2.5 commission check.
My question is which side of the transaction I am receiving My referral commission from? The side of Listing Agent in who I referred the listing out to or the Buying Agent side who I didn’t make an agreement with? And how can I as the Agent who referred out the listing find what was commission split on the listing side on the transaction?
Hi Dwight –
Thanks for the question. The referral commission you get is for the side of the transaction for which you made the referral. In other words, if you referred the seller to an agent, you would receive your referral commission from the seller side of the transaction. Unless you had a part in referring the buyer as well, you wouldn’t get a chunk of that commission.
As far as understanding what the commission split was, most MLS systems display the commission rates for each listing, that is probably going to be your best bet.
Chris
Hi,
Great read! As a real estate referral only agent, can you give a referral to somewhere like an apartment complex or a house for someone that is wanting to rent instead of buy? How does that process work and the common splits if this is even a thing.
Hi Rob –
Great question. Yes, you can get referrals on rental commissions, but not every market is set up to do rental commissions, and sometimes those referral fees are pretty small. Remember, your referrals have to flow through your broker; under the table referrals are a no-no for most states.
I’d suggest starting with your broker to see what the typical referral commission is for rentals in your area. If there is none, check out what other markets are doing (it is usually ~ one month’s rent), and see if owners of rental property are willing to pay that.
Chris
Excellent read,
I’m currently shopping for houses on my behalf, (non realtor person) can I collect “commission ” or “referral fee” or anything of the sort after escrow closes. I understand it wont cost anything to have buyer representation. however, I feel w the purchases I have made in the past I can confidently get through the sales process on my own. Would this be a state by state question? Thank you for any advice.
Hi Marcus –
Great question. Unfortunately, you don’t have any option to collect a commission. In order to do so, you’ve got to be licensed and have a broker. I totally understand being confident enough to work through the process on your own, that makes sense. If I were you, I would consider getting a buyer’s agent (as you said, it doesn’t cost you anything), if only so you can avail yourself of the services should you need them. Also, if you are working with an agent, you get the coverage of their Errors and Omissions insurance (something that would cover you should you make a clerical error on contract paperwork that would end up costing you otherwise), as well as any services made available by your local real estate association (like mediation).
Chris
Hola Chris,
Awesome article man! Couple questions for you bud. Excuse the complexity of the them… and if better to take offline please feel free to respond directly to my email.
—–
Background:
We are a bi-national (US/Mexican) development family that owns land and are developing properties on it in Mexico.
1. General Question: What, if any, marketing regulations would we need to be cognizant of in selling directly to friends and family (mostly in California and Mexico) as owner/developers?
2. Referrals in the FSBO context: Is there any difference in the legality of making referrals if the seller (asin our case) is owner of the property itself? ie. If the friends and family cohort (some of which are licensed agents or brokers others of which aren’t) we’d like to market to has other prospects in their network they would like to introduce to us, is it legally possible to offer them a finder’s reward (monetary or not).
3. Lead gen for Owners: Other developers in our network own real estate in MX and have requested that we assist in making marketing messages for them– think Google ads, microsites, and peer to peer referral programs etc. What is you view on the legality and best practice if we were to offer/bill for the following for lots that we do not directly own? and have partial (minority or majority) share in? (keep in mind we are unlicensed in the US)
– Marketing creative development and strategy/consulting fees
– Lead gen/cost per lead?
– finders fees on closing
Thank you in advance kindly for your time and insight.
Best,
Cp
And btw… so cool you fly fish and are in theater as well! We fish deep sea, and I write theater/screen play on the side as well!
Take care,Cp
CP –
Thanks so much for your comments, glad to have some more international readership and interaction on The Close!
So, on the US side of things, it is not legal to pay a referral to a non-licensed individual. Since referrals have to flow through brokers, and non-licensed individuals don’t have brokers, that isn’t something that can happen. However, since you’re not licensed in the US (I think I read that right?), a payment to someone on the US side of things would technically just be a private transaction between two individuals. You’ll want to be careful here, private transactions like that tread awfully close to non-licensed real estate activity, which is a big time no-no in the States.
I will admit, I don’t have any experience with rules and regulations on the Mexican side of this conversation, so I am not going to be any help there. The sort of marketing assistance you’re talking about sounds above board to me, but again, I don’t know if there are rules in Mexico prohibiting or allowing that, so you might want to reach out to a local or regional authority on that topic.
I can tell you this: finder’s fees, marketing, administrative, or consulting fees are commonplace when it comes to international business and are a typical catch-all for difficult-to-quantify services that don’t fit nicely into one professional category. What you’re describing sounds good to me, but I am more of a spectator when it comes to conducting business between two international cohorts. Keep me in the loop though, I’d love to hear more about how this is going.
And, great to hear about your fishing and theatrical pursuits! I’ve been big water fishing in Mexico before, AMAZING!
Chris
Chris,
Thanks for the thoughtful, thorough, and timely response. Your candor and insights are really appreciated!
Will keep you posted as we progress.
All the best amigo,
Cp
Great article!
2 questions. I’m am licensed in NY.
1. When giving out a referral to another agent, are there rules in proposing multiple agents to a client (IE giving them a choice)
2. If I wanted to send business to my referred client (photographer/entertainer where the transaction is complete), what are the risks of this being seen as a quid pro quo situation? How would remove the perceived conflict of interest I do believe their professional work is excellent?
Hi DJ –
Excellent questions. When it comes to proposing multiple agents, there’s no rule against it or problem with it because, ultimately, any agent that you suggest to your client that they don’t end of selecting isn’t actually doing any work for your client, and doesn’t technically even need to know they were in the running for a referral in the first place. So, no worries there. As far as sending business to your referred client, I completely understand your concern over the appearance of a quid pro quo, but if there is legitimate value in the services they’re providing, you have nothing to worry about. This is the natural path of development between professionals; you’re good at something, your contacts send you clients. Unless there was some sort of stated document somewhere that said explicitly “You will get XXX in exchange for YYY”, you’re in the clear!
Chris
Thanks for the quick response!
Good afternoon! I received a written referral agreement from an agent in another part of the state whose son wanted to purchase in my area. I worked with him diligently, and all of a sudden he informed me he purchased a home and no longer needed my services. I later found out the referring agent (his father) represented him in that purchase. I didn’t have an exclusive buyer agency agreement, but is there a legal or ethical rule about taking back a client you’ve referred to another agent?
Hi Stacey –
Thanks for the comment, sorry it is under these circumstances!
There is no legal or ethical rule about taking back a client referral. If you had some sort of exclusive buyer / broker agreement in place, that would be a different story, but unfortunately, without one of those, you’re out of luck here. One thing that I’ve learned over the years is to stay in touch with the referring agent as to the progress of my work with clients they’ve referred. This keeps everyone in the loop and works to head off any surprises like this.
Again, sorry about the situation here, but happy to hear from you. Thanks!
Chris
I’m a refferal agent with a real estate license. I reffered a buyer to an agent and mentioned I’d like a refferal fee, but haven’t got a response. Escrow is about to close. Is it too late for me to fill out a refferal form and get paid a refferal fee?
Hi Athena –
Unfortunately, it is probably too late. The agent you made the referral to is under no obligation to provide you a referral unless you have a signed referral agreement. Always best to get one of those in place before actually making the referral!
Chris
I am licensed agent, my license is hung with a referral company. I am also a blogger. Can I write about real estate related subjects in my blog?
And what are some of the ways for me to get real estate sales leads so I can hand over them to my referral company and make some money?
Hi Oscar –
Great question. Yes! You definitely can write about real estate subjects on your blog. As far as how to get leads, the best approach here is going to be a solid content marketing strategy:
1) Do some research to understand what sort of topics your potential leads are searching for / reading about online
2) Create content to cater to those searches
3) Add lead capture to the content
Can’t wait to hear how it all works for you!
Chris
I know someone who made a legitimate referral to an agent, however that person was only told about the agent by the person who was seeking a real estate agent. But this person still gets the referral fee of 1/4 of the agent’s commission. It seems unfair.
Hi Evone –
Thanks for the comment. Actually, the referral happens if there’s a signed referral agreement. Without that agreement, there is no obligation to pay a referral.
Chris
Hi Chris,
What is the tenure of a real estate referral? Ie. If a client moves out of state A referral is made to another broker in new state. Transaction is completed for purchase of property in new state.
Is the referring broker entitled to subsequent referral fees if referred party and new broker complete subsequent deals? If so, is referral agent obligated to notify client they are seeking another referral fee for new deal?
Thank you
Sue
Hi Sue –
Thanks for your question. This all depends on your referral contract and the specific language you choose, but typically, referral agreements are applicable for a single, usually referenced transaction. I have never used (or really heard of) referral contracts that extend beyond the life of a single sale or purchase.
Chris
Thank you so much Chris this is very helpful information.
Sue
How much do agents usually get as a referral fee if the referral is an agent themselves looking to purchase an investment property in your state?
Hi Tocha –
Not sure I understand exactly what you mean, but a referral fee in my state is typically 25%.
Chris
Hi Chris,
I am wondering about the time frame of a signed referral agreement. I have someone who may move out of state in 3-5 years, or purchase now if the right house is shown to them, since they are looking around with the referred Broker. We are currently writing up the referral agreement, just so that it is taken care of and filed away for now. Since purchase time is up in the air, what written time frame in the agreement would you suggest?
Thank you.
Angie
Hi Angie –
Great question. I don’t suggest a timeframe on a referral agreement for longer than a year, though in special circumstances, it could be longer. The real question you need to ask yourself is, “How long will it be reasonable for both parties to enforce this agreement?” If you have attention and means to keep current on a referral purchase progress over the span of years, that timeframe works. But if you don’t want to dedicate that chunk of your life to that, I would keep it to a year max. If you get to the end of a contract and want to rewrite another, great, but at least this way you aren’t locked in for super long.
CHris
I am a licensed agent with a large brokerage in NY. My husband & I are considering buying property in PA with an eye towards retiring there in a few years. This is going to sound a bit strange but can I (& my broker) request a referral fee for referring my husband & me to an agent in PA?
Hi Phyllis –
Congrats on your near retirement! And, your question isn’t strange, thanks for asking.
Yes, you can request a referral, this is pretty commonplace actually. Unfortunately, Pennsylvania is considered a “turf state”, meaning that you don’t have any license portability options (if they did have some portability options, you could represent yourself in the sale!).
My only suggestion is that you consider using Pennsylvania’s real estate license reciprocity laws and getting licensed in PA as well. The reason behind this is if you work for a fairly large NY brokerage and they have offices in PA, you could easily keep your license in the same family of companies, depending on the value of the property you purchase, the commission could be worth the time and effort of going through taking the Pennsylvania tests (you don’t have to do any of the pre-license class work, just take the test!), and then you can have your license with a brokerage so you can still make money from referrals after you retire (you might not be working any longer, but you SOI is still going to be looking for real estate advice!)
Either way, enjoy the next steps, please let me know if I can be of assistance.
Thanks!
Chris
Dear Chris, I’m Real Estate Agent in FL and referred thru Florida Realtors form, referral agreement, my Client to a different State Real Estate Agent. Note that referral agreement says: “for any transaction” and says also “for any money received”. I knew my Client was doing multiple transactions, reason why was set for 50% referral. However the referral agreement didn’t have any specific expiration date or location of transaction, so for my understanding is an open agreement. The first transaction was conducted and I got paid. Later my Client called me and claim the referred Agent is not taking care of them and they want to sell and buy another house, reason why they left certain time with someone else, a different Firm, for their needs. After finished his representation to buy and sell with the other firm, with no results, I retook the relationship between my Client and the agent I originally referred, asking agent to take them seriously, considering we still have that referral agreement. It was me who put them both in contact again and did the due diligence to make sure my Client wasn’t still under other firm representation, also I took time to find out their needs, and passed whole info to referred Agent before they both (Client and Agent) established connection again, it was me who coordinated everything to retake that business, using the words in my written communications “we have the opportunity to retake this clients” & “let’s work this out together again”. House was sold, another one was bought and referred agent never contacted me until I found out later directly from my Client, about the transactions. Referred Brokerage never paid mine any portion of sales comission. What are my options here? Please note also, referral was signed by referred Agent & Agent’s Broker. A lot of communications, emails and text messages can be shown as evidence of my involvement gaining the Client back to them and the strategy to follow. Can you give me your opinion about it?
Hi Mariano –
Wow, a challenging scenario for sure.
There’s a lot going on here, and not sure how much I can help with specifics because it sounds like there is a lot of nuanced communication happening back and forth between the individual parties that will affect outcomes, but here are a few tips that might aid in the situation.
First, if your boilerplate referral agreement doesn’t have an expiration date, it needs one. Agreements that are “open” are bad for everyone; they create confusion over payment and responsibility to clients. Moving forward, I would suggest adding a date to those agreements, and any agreements you have active and out there right now, consider adding a sunset to them with an addendum.
Second, though the advocacy for your client is admirable and clearly the right thing to do, remember, they are technically someone else’s client now, so you need to be careful that you aren’t stepping on any sort of agency toes.
Third, I would suggest getting brokers involved when it comes to the non-payment of referred commissions. Especially when there is interstate money being exchanged, you want higher ups on those paper trails.
Finally, if your client is still actively buying and selling, I would get a clarifying document together that spells out in black and white exactly whose got the fiduciary responsibility for the client, who is getting paid what via referral, and for how long. Don’t make this a boilerplate contract, write something original in easy-to-digest language so everyone knows what’s going on. Get signatures on it from you, the referred agents, brokers, and the client. Sounds like there is so much back and forth going on, it could be easy for one party to have an understanding of the situation that another does not; might be a good idea to get everyone on the same page.
Good luck!
Chris
Hello, I need advice quickly, but maybe you’ll see this and reply: I am a Broker and took a “limited service” listing for 4% total – 1% for me plus 3% for Buyer’s Broker/Agent. The Listing Agreement also provides that if I sell the property myself, without a Buyer’s Agent, the total commission drops to 3% but is all payable to me. The property turned out to be hotter than expected and we have several offers, which may result in a multiple counteroffer scenario. I am familiar with that, but I also got an inquiry from an unrepresented Buyer who wants to see the house and possibly make an offer. I am reluctant to do this, but would it be acceptable in this situation to do limited dual agency? Or would it be better to refer the “unrepresented buyer” to an agent to write their offer, and can I get a referral fee for doing so? In that case, I’d get my 1% plus the 25% referral fee of their 3%. In all cases, there would be full disclosure, written consent, and I’d present all offers to the Sellers.
Or…..the Unrepresented Buyer has indicated that they don’t want an agent. If they confirm this is the case, and I have them do so in writing…can’t I write their offer with the terms they want, and represent only the Seller?
Hi Pete –
A lot going on here, let me see what I can help with.
First off all, congrats on a hot property, that is a good feeling. There are definitely some complications that come along with that, but these are good problems to have.
OK, so my first thought is, unless you are under contract or your seller tells you explicitly that they don’t want any more showings, I would be very hesitant to deny a showing. You have a fiduciary responsibility to your seller to get them the best price possible, and to deny a showing to someone who could possibly offer that best price seems like a risky move.
As far as offering a “limited dual agency” agreement, I suppose that is possible, but I don’t think necessary. You’ve already laid out with your seller what would happen if you sell the home yourself without a buyer’s agent; you get 3%. How would this new scenario be any different? As long as you are not advising your seller to choose the offer for the unrepresented buyer on the basis of anything other than it being the best deal for them, you should be fine.
You certainly could make a referral to another agent for a 25% fee, and I respect your notion that this would all be kept above board and with consent, but honestly, that wouldn’t really be a matter for your seller anyway. Your referral agreement would be between your broker and the referral agent’s broker; whose agent would be operating independently from you.
No matter how you slice it, there are a lot of moving parts here, which I think is the most challenging part about it. My advice: line up the items you’ve questions about in priority order and work to solve one problem at a time, in priority order. Don’t get overwhelmed by the enormity of the entire situation, make decisions one at a time and pretty soon you’ll be at a solution.
Good luck!
Chris
Hello Chris
Thank you for the informative article. I apologize if this has already addressed elsewhere in all of the material. Your example with Delaware and Maryland seems to address this but I still want to be sure.
I’m a licensed sales agent in FL. I’m going to be taking a listing to sell a business opportunity in TX (TX doesn’t require a license for business opportunities from my research) but the seller also wants to sell the real estate. I am not licensed in TX. Is my broker able to make an arrangement with a broker in TX for the referral of the commercial real estate and receive a referral fee for doing so? Please advise. Thank you.
Hi Chris –
Great question. Yes, that should be pretty straightforward. Just make sure that the referral agreement explicitly states that the referral is for the real estate sale only; not the business opportunity. Also, if possible, I would spend some time hashing this through with a broker in Texas to make sure you’ve got all your ducks in a row from the Texas side since it sounds like you’ve got the Florida side pretty well stitched up.
Chris
I have a question. Can I get 2 referral fees if I give a real estate agent a person who wants to sell their house and then turn around and purchase another house? It will be 2 transactions. In other words, would I get a referral fee for the sale of the house and then get a referral fee for the purchase of another house that same client buys?
Hi Jan –
Yes, that is definitely a reasonable thing, but if I were you, I would write it up in two separate contracts, even if the terms and conditions remain the same. Reason here is that you don’t want to the performance of one transaction to in any way color the other in terms of your referral fee, it keeps things cleaner later on, and you’ve got all your ducks in a row financially this way too.
Chris
Excellent answers but a couple of questions. Was going to “retire” and let license expire in Sept, but moving forward the “retirement” to now and considering renewing license if establish the referral option rather than simply walk away. A bit surprised by your E&O Insurance answer earlier as limited professional interaction on referral, and will have to look but didn’t see as a “must maintain” requirement beyond State licensed and paying their annual fee in the broker application. Currently transitioning from a well known national brokerage and only considered their same branded referral broker. My question – are these terms “normal” or would I be better served shopping around? $65 annual franchise fee and 75/25 split? Should I explore fully independent brokers or some of the nationwide 100% commission firms that with the regular realtors take a small ($150 or so) cut at closing? Have some time as current broker can have State take inactive and the new broker can retrieve it back active rather than transfer. Reason for date move up – $550 Realtor Assn dues June 31 and the annual $500 E&O hits in July – neither of which have pro-rated refund if let license expire in Sept or transitioned to something that didn’t require it.
Hi Larry –
Great questions. I think the move to a referral-only based business makes a lot of sense when transitioning to retirement. If I were you, I would definitely shop that option around to different brokerages; I’ve read about brokerages offered graduated caps to referral agents so that they can actually reduce their annual cap over time if they are producing. I would also suggest checking out the idea of joining a team who would take you on as a referral agent – that might be a way to even further reduce your costs.
Chris
Good morning,
Once you accept a referral fee is it possible to renegotiate that fee once the transaction has began? What would be the best practice for doing so?
Zsazsa –
Thanks for the question. Great question. Typically, the answer here is no. Once you’ve got a signed contract, it will be difficult to negotiate out of that. The only thing that might change that is if the circumstances of the transaction of changed such that the work you’re doing goes above and beyond the expected scope of the original agreement. Outside of that, you’re most likely going to need to stay within the bounds of the contract.
Chris
Great Article!
I have a question. Can an on-site new construction agent receive a referral fee for leads that don’t qualify for new builds and are now looking in the resale market?
Josh –
Glad to help! Any licensed real estate professional can receive a referral as long as they are properly housed in a brokerage. If you are a part of brokerage, you can get that referral. A lot of agents operate a referral-only business, making their return on each closed transaction lower, but their workload lower too!
Chris
Great Article, thanks for all the information. Am I able to just reach out to other realtors around the US introducing my self and asking to send referrals moving to my state to me? Also is the max I can give as a referral 35%? Thank you for taking the time to read this.
Hi Gretel –
Thanks for the questions. Yes, you are absolutely able to do any sort of outreach you want. Remember, just like client lead generation, referral generation starts with providing value and building a relationship, so try warming up that cold outreach a little bit. As far as the max referral fee, just like a real estate commission, there is no floor or ceiling. Depending on the circumstances, I’ve seen some referrals as high as 50% or even 75%, and some as low as 10%. It really depends on your situation and the services you’ll be providing.
Chris
Hello.
Say you get a listing meeting via your own broker’s internal lead generation, perform the listing presentation, execute the listing agreement and then get contacted by an out of state agent (relative of your now new client) asking for a referral fee. This relative did not make the referral and had no contact with me until AFTER the listing. I explained that she did not procure the lead to me and she accepted that fact only to complain to my client (her Uncle). Now the client is asking about the referral fee.
Your advise on this please.
Thank you- KM
Hi KM –
Tough situation for sure. I’ll say two things about this.
First, you are, in no way, shape, or form, obligated to pay this referral to the conveniently timed out of state relative. You’ve got a legal contract to list the home for sale, it was signed prior to any contact or request for referral; this is your listing. Even if the seller decides they want to pull their home from the market, you have an exclusive listing agreement for the length of your contract, so unless you decide to release the seller from that contract, they can’t list with anyone else.
The second thing I will say is, you’ve got balance what is legally your right and what is going to make a good relationship with your client. If your relationship with your client is going to be damaged because of this, is that worth not paying the referral?
A tightrope act for sure. If I were in your shoes, I would start by speaking directly to my client, explaining to them the way the referral process works, and why I don’t feel comfortable issuing a referral like that. If it becomes a make-or-break issue, I wouldn’t be willing to lose the listing over it, but I would go to the mat before giving up. Best of luck!
Chris
My husband & brother-in-law are co-owners on a house that was gifted to them from their Aunt. My brother-in-law is a real estate agent in another state. We are looking into selling the house and my husband knows an agent that he would like to use locally and my brother-in-law is saying that he gets a referral fee even though my husband wanted this agent. And now they are disagreeing on it because my brother-in-law wants the fee. He’s saying no on this agent and he’ll find another one. If the house is supposed to be divided evenly would the referral fee be divided & included in the half? Can an agent receive a referral fee on their own house? Thanks!
Hi Kelly –
Thanks for the question. As the eldest of three brothers myself, I can uniquely identify with the interpersonal dynamics of brotherly relationships, so reading this seemed oddly familiar 🙂
OK, to your questions. First, yes, real estate agents can definitely receive referral fees on their own property. This is actually relatively commonplace, though, they typically structure that referral fee a little differently on their own homes, and here’s why:
I don’t know the market value of the property in question, but just for the sake of example, let’s say it’s $100,000. If an agent takes a commission (or referral fee) on the sale of their own property, they have to pay taxes on that commission. So, let’s say the commission is a standard 3% ($3,000), the referral fee is a standard 25% ($750); that would mean that your brother-in-law would have to pay taxes on $750 worth of income. It is better for your brother-in-law to just ask for the sale price of the home to be $750 higher and take no commission / referral fee, that way they are still getting the benefit of the bump, but without paying Uncle Sam 30%. Yes, you’re going to have to pay a smidge more in terms of transfer taxes and maybe capital gains taxes depending on the situation, but those rates are in the single digits compared to the income tax agents pay.
If you do decide to go the route of keeping the referral fee standard (not raising the sale price), your husband can’t actually get a bite of that. Referral fees are paid by brokerages, and you have to have an active real estate license to legally get it. If your brother-in-law wants to split it after the fact, that would be up to him, but would be a personal exchange, not a professional one.
Finally, in terms of your brother-in-law saying no to the agent that your brother found, it’s important to remember that as far as he’s concerned, as long as the agent agrees to the referral fee, who the agent is doesn’t really matter except for personal reasons. If the agent your husband wants to work with has agreed to a referral fee, your brother-in-law’s benefit in the situation will be identical. Are the reasons for finding another agent personal? Or is this just the sort of things that brothers do to needle each other? I don’t know enough to say yes or no, but I can tell you from personal experience, I’ve been needled (and done my fair share of needling) by and to my brothers before 🙂
Hope this was helpful! Honestly, the best thing everyone can do in a situation like this is sit down and talk about the end goals first. What do you want to happen at the very end of this; then work backward and make a plan to get there. Don’t get too caught up in the little steps between now and then; start with the big picture.
Good luck, feel free to keep me in the loop, I’d love to hear how things work out.
Chris
Thank you Chris and you have been very helpful! I will let you know how it works out. Thanks again!! Have a great weekend!
Great article. A specific transaction I am dealing with is a Pa Real Estate Agent/Attorney referring to. a SC real estate agent a client and then gets paid a referral fee upon the sale of the property. This referral agreement you are referencing in your article was signed by the attorney who made the referral. The attorney is an in house counsel whom has an employment agreement and had a POA For this transaction yet never informed the seller (his client/employer) he was going to receive a referral. Is there any statute or regulation that prohibits that ?
Hi Paul –
As far as I know, there’s nothing that regulates this specific situation, but even if there was, it would be done on the state level, most like South Carolina, though, there are definitely possible Pennsylvania implications too. I am not well-versed enough in the regulations regarding the necessary attorney disclosures in a situation like this to be able to comment one way or another, but from the sounds of it, you think there might be some impropriety happening? If I were you, I would start with inquiries to the local Realtors board in SC, or the statewide Realtors Association. I’d also consider the Bar Association in PA.
Good Luck!
Chris
I’m planning to refer more than one lead to each agent. Is it necessary to create a referral agreement for each referral or can I just do one agreement for each agent and have it cover all referrals to that agent?
Hi John –
Great question. In short, you could probably get away with a blanket agreement, but I wouldn’t if I were you. The act of getting a signature every time you do a referral is relatively small potatoes to the legal coverage you receive from a contract that you know is going to hold up in court should something go wrong. Make the referral contract a part of the paperwork you send with the referral, it’s the right move!
Chris
Hi Chris,
Great article. I have a question please – I am a licensed Broker in California. My client owns a commercial building in Tx and wanted to sell it. I referred her to a Tx Broker, who was an acquaintance. He reluctantly agreed to a 20% commission but said he would deduct all of his expenses like marketing, legal fees, etc first and then pay my referral fee on the net amount. In California this is not standard practice and of the Tx brokers I have spoken with, this isn’t standard here either. This is a multi-million dollar transaction. Can you comment on generally what is the standard way of calculating? Thank you.
Hi Vikki –
Great questions, thanks for sharing. Here are some thoughts.
There are come competing issues at play here. The first is the assumption that there is a “standard way of calculating”. Thanks to the way the real estate industry is set up as a pool of independent contractors (and the subsequent application of anti-trust laws), there is no “standard” at play. Don’t get me wrong, there are plenty of conventions that just about everyone follows, but they follow them more out of habit, ritual, or just good manners – not out of obligation. To this end, agents and brokers have the latitude to offer or accept any commission they want, structuring it any way they want.
The second thing worth noting is that the path to commercial sales (and their accompanying referral agreements) is often different from residential. Full disclosure, my expertise is in residential sales, so this could be a more accepted standard of practice in commercial real estate and I wouldn’t know it.
The bottom line for me is, just like when you’re trying to come to a final sale price on a home, referral agreements are negotiable. A buyer doesn’t have to make an offer, a seller doesn’t have to accept that offer. It is only when both parties can come to an agreement that you get a deal done. If this broker isn’t willing to accept the terms you’re offering, it’s time to move on to someone who will.
I’d love to stay in the loop on this, update this thread when you take the next step!
Thanks!
Chris
Thanks so much Chris…but he already has the listing. We agreed verbally before the listing to a referral fee, but stupid me – I didn’t negotiate the particulars in writing in advance. I trusted him and his integrity to do the right thing. Instead of gratitude for a multi million dollar gift (he currently has NO listings except for my referral), he is trying to pay me the very least that he can with a resentful attitude. Needless to say, I have learned a big lesson and won’t make this mistake again – I’ve never had this situation in my 27 yrs of real estate.
Hey Chris. I enjoy your wisdom. I have an acquaintance in the estate sale business. He approached me regarding the number of real estate related inquiries he receives when these homes are being cleared by him. Is there a “best practice” approach (like create a corporation where funds are “pooled” & “paychecks” are written) in order to provide him the benefit he deserves for qualified referrals? He is not a realtor.
Hi Keith –
Thanks for the question. I am not totally sure I understand what’s going on here, but there are a couple of things to note. First, it is illegal to pay a referral fee to a non-licensed person. If a licensed agent were to decide to pay a non-licensed person, it would be after they get paid by a broker, it couldn’t be an expense they could claim on taxes, and it would potentially get them in a lot of hot water with the regional and state boards they’re a part of. There are a couple of semantic ways this wiggles by (bird-dogging, for instance), but generally speaking, this is a bad idea.
Second of all, creating an infrastructure like you’re describing is makes sense if you’ve got an operation with defacto employees, but I’m totally sure I see the benefit for someone who is paying for referrals. I think an LLC is a great way for agents to protect their personal assets from business exposure, but I don’t think that’s exactly what’s being described here.
Good luck!
Chris
Thank you for taking the time to share those answers. Grateful. It sounds like there can’t be a relationship where compensation can go in the direction of the “bird dog” / non-realtor estate sale business owner. Peace.
Hi Chris,
Somewhere I remember reading that a referring agent cannot be involved in the transaction which was executed by their referral. For example the referral is a really good friend of the referring agent and the friend wants the friend (referring agent) to look over the real estate contract or the referring agent keeps sending properties to the agent they referred to show the customer. Are theses actions violations of any referral rules?
Hi Denise –
Thanks for the question. This is definitely a sticky situation. I will say off the bat, I don’t think there is any NAR rule that would prohibit this. There certainly could be state-level regulation that calls this a no-no, but no major legislation that I’m aware of.
Generally speaking, what you’re describing to me sounds like a lot of what I call elbow-to-elbow referral work; meaning there aren’t clear, contractual lines drawn as to who’s getting what, who’s responsible for what work, etc. To me, that is a risky way of doing business, since it’s easy to confuse expectations, which can lead to hurt feelings and lost income.
So, while there isn’t a rule, if it were me making or receiving the referrals, I would want it as clean as possible!
Chris
I am late to the party on this article, but hope for a response. If not, I vented and feel better. My father recently passed away and my brother and I are now getting ready to sell his house. We have several realtor friends in the state my dad lives in, so we have people we trust to choose from. My brother’s wife is a realtor in a different state and she decided to contact a realtor in my dad’s state to offer them the sale if she gets a 25% referral fee. I had already talked to a friend of my brother and I about selling the house, but now we have this stranger thinking they have the sale. My brother thinks his wife is trying to help, I think she is trying to make an easy buck. Is what she did ethical? She is married to one of the sellers and making $15K on the sale, for doing nothing. She put us in a very uncomfortable situation. Just wondering if that was wrong of her to do, since we were not her clients and did not ask for help.
Hi Marie –
Thanks for the comment. First of all, I’m sorry to hear about your father. I’m sending you good vibes, hoping that you’re doing alright.
To your question, there’s a couple of things to keep in mind here.
First of all, as a matter of opinion, I think the moves your sister-in-law made were pretty insensitive. Obviously, this is an emotional time for you and your family, it seems to me that she should have been taking your lead through this process, or at least waiting until someone asks her to take some initiative before she jumps in.
As to the legality and ethics of her move? Since she never had a listing contract with you and your brother, she actually doesn’t have a referral to make. In order to refer a client to another Realtor, you must first have a contractual agreement with them. The only thing that would muddy that water is if your father’s home was in a trust that your sister-in-law was explicitly listed as a trustee or owner of, which technically would make her one of the owners (at least legally) of the home, which would make a referral legal in this instance.
Now, I’m not an expert in interpersonal family dynamics, but I would bet there wasn’t ill will here; just a situation of a Realtor who is trained to do one thing well, saw an opportunity to help / do that one thing, and leapt before she looked. That being said, this is a ball of string easily unwound. Your sister-in-law didn’t have a contract to sell the home. The referred agent doesn’t have a contract to sell the home. A simply email to the out-of-state Realtor with these facts in it, couched in the information that this is a family thing that was moving fast and your sister-in-law got a little ahead of the game by reaching out takes this back to the starting line where you can make the choice of who you want.
It’s worth mentioning here that you can choose who you want to list the home AND still get a referral to your sister-in-law, if you choose.
Again, I know this isn’t an easy situation, I hope this was helpful. Please let me know if there’s anything else I can help with, and I wish you and your family the very best.
Chris
Thank you Chris. Good vibes are always needed.
Thank you also for the quick response. What you said helps me a lot. If we go with one our friends, do we ask them to give my sister-in-law a referral fee, even though she does not have a contract with us? If we could do that, there will be peace in this family. Win, win.
Marie
Hi Marie –
That’s what I would do. Technically, you don’t need a contract with your SIL for her to get a referral from the agent you choose. I would let her know that you value her help and desire to be a part of the process, that you’ve got someone you know that you’d like to work with, but you’d still like to pay her a referral fee since you plan on leaning on her for some advice when the time comes.
Also, this is getting a little bit into the weeds here, but if I can make one other suggestion? If this is the route you’re going to go, I’d suggest arranging things so that the referral fee your SIL would be getting paid is actually paid to her in the form of a credit when the proceeds of your dad’s house are divided (assuming that’s what’s happening).
The why here is that the income tax rates are higher (in most states) than the capital gains or inheritance tax rates, so she’ll actually be giving more of that money to Uncle Sam if she gets it in the form of a check from her Broker than if she (and your brother) got it in the form of a little extra from the sale of the house. Of course, I don’t know what state you’re in, so you’re going to want to check on all that to make sure the math works out, but if I were in her shoes, that’s what I would do.
Best of Luck!
Chris
Thanks again! Great advice!
I’m getting a Referrel from another Agent. They are investors and will be buying homes in the future. Do I pay them the Referral fee for their 1st home only – or for every home they buy in the future?
Thanks,
Anthony
Hi Anthony –
Great question, and the answer is up to you. Traditionally, the referral fee is going to be paid on a single transaction; it’s a whole new level of things to set up a contract with a revolving obligation (you’re going to want to get an attorney involved if that’s the plan). Obviously, it’s in your best interest to have the referral apply to a single transaction; if you’re confident in the investor’s purchase of multiple properties, you might consider proposing a more advantageous split of the fee with the referring agent on the first transaction (say, 75% of the fee to go to the referring agent), that way they feel like they’re getting value for the referral being made, and after the first transaction, you don’t have to worry about splitting your commission with someone down the road?
Just an idea!
Chris
Hello Chris-
I got a buyer referral from an agent for my active listing. She has sent a form asking for 25% of the total commission. Is this correct/customary? Or should the 25% be restricted to the buyers side of the commission?
Thanks!
Jane
Hi Jane –
While there is no “correct” way, it is definitely not customary to ask for a percentage of a side you have nothing to do with. I would definitely re-write (or prompt the referring agent to re-write) the referral agreement to include just one side.
Chris
Hello Chris – very informative article, thank you!!
I am in process of starting a real estate fintech with business model based on referral fee (similar to the agent pronto example that you have in article, with a different philosphy to generate qualified leads). My question is that I don’t have any real estate agent experience. What’s the best way for me (my company) to get the real estate brokerage license in order to refer leads to the realtor/broker partners. Do you need license in all states where you intend to refer leads? What’s the easiest and best way to get licensed with the business model based on referral fee? Really appreciate your guidance.
Hi Amresh –
Thanks for your comment. You’ve got a lot of questions in here, more than I can answer in a comment thread. Feel free to follow up with me directly via email (chris@theclose.com), let’s chat.
Chris
If a referral fee is offered to a co-listed seller agent upon that co-listed seller agent leaving the brokerage and that listing expired. Listing agent relists with the seller due to the attention and care that the listing agent gave to the seller, is the referral fee still in force and effect?
Hi Donna –
Thanks for the question. A couple of things to remember here. First, referral fees, just like commissions, are actually payments promised to brokers, not agents. In the same way that a listing agent doesn’t actually have dominion over their listings if they move brokerages, they don’t have dominion over their referrals. The exception to this would be if there was specific language in the referral contract that spelled out this situation.
Secondly, generally speaking, a referral is usually given for a property, not so much a contract. If you give me a seller client, I promise you a 25% referral fee, that fee is in exchange for selling that house (at least, that is the spirit of the agreement). That being said, legally speaking, the referral agreement extends only as far as the language inside it, so read your referral contract carefully.
Hope this helps, good luck!
Chris
Great article! I am a lone broker in my brokerage firm and was out of town when a client wanted to look at homes. I referred him to another broker about 7 months ago for that weekend – a referral form was completed, no dates indicated. Since then, the client has been working with the other broker looking. Recently I sent him a home I knew was coming on the market and he will be working with me on that. Do I have any obligation to the person I originally asked to help me that weekend away?
Hi Katy –
Thanks for the question. Unfortunately there is no clear cut answer to your question, but here’s my take on it. Generally, I would say no, you don’t have an obligation to the other broker, as long as the spirit and intent of the referral was for that single weekend. However, if the referral contract doesn’t explicitly indicate this intent, any first year law student halfway through contract law is going to tell you there is an obligation. That referral contract essentially transfers the right of exclusive representation, whether it’s for a weekend or a lifetime. If you don’t indicate what that timeframe is, you open the contract up to interpretation, which is never a good sign for you.
If I were you, I would have a clear conversation with the other broker, establish your intent, get on the same page. If a new contract is needed, write one, and get specific with it.
Good Luck!
Chris
Hi, this was a helpful article, but I have some questions. Can you only refer buyers, or can you also refer sellers? And also, if you refer someone while your license is active, and the house gets bought/sold after your license becomes inactive, can you still get the referral fee? Lastly, if you can refer sellers, how close to selling/how warm of a lead do they need to be?
Thanks so much if anyone answers!
Hi Brynn –
Thanks for the comment, let me see if I can take these questions one at a time:
1) Can you only refer buyers, or can you also refer sellers? Anyone who could be a real estate client can be referred. This includes buyers, sellers, renters, etc.
2) Can you get paid on a referral after your license goes inactive? Since each state has their own rules on this, I can’t say for sure without knowing where you are, but generally speaking, no. Remember, a referral fee isn’t paid directly to you, it’s paid to your broker, who takes their cut and turns around the rest to you. If you aren’t active with a broker, that referral fee will have no where to go.
3) How warm of a lead do seller referrals need to be? There is absolutely no requirement for any “warmth” here. As long as the referral contract states who the referring agent is (you), who the referred agent is (who you’re sending the lead to), the name of the client (and usually their property address), and the length of time the contract is valid for, you’re good to go.
Good Luck!
Chris
Hi Chris! Thanks for this post! VERY valuable to me!
I just have one question, if I referred a client to other real estate agent and sign the agreement, if the property is sold how could I find out that it happened? The only way for me to find out is if the agent informs me? There is no other legal way? Because even if I have the agreement signed, if the agents never tells me the property was sold I will never collect the fees assuming that the transaction didn’t happen.
Hi Luke –
Great question. There are a couple of different avenues of pursuit here. First, remember, if you’ve got a signed referral contract between you and another agent, they have a legal obligation to pay you that referral fee. Not fulfilling that contract, or worse, shielding you from information about the execution of that contract would get them in some pretty hot water, so most agents won’t do that. Second, if this is a seller client, you can always set up a property alert for their particular home so that your MLS will alert you when the home is sold, that way you know for sure.
If it were me, I would take the route of maintaining a proactive relationship with the Realtor you’re making the referral to so that you’re in the loop on the progress of the referred client’s transaction along the way.
Good luck!
Chris
Great information, thank you so much! My question is I got a referral from another agent on a transaction and closed the deal and gladly paid the 25% once closed. That same client is doing another transaction with me a year later. Do I still owe a referral fee to the original referring agent? Is there a timeframe or guide to how long the referral fee should be paid??
Thanks!
Hi Kim –
Thanks for the question. The answer to your question depends on your referral contract language. Generally speaking, referrals are written for a single client with a single transaction. “Bob Smith is going to buy a house in the next 12 months”. Beyond the language of your referral contract, you have no legal obligation, though I can’t speak for the unspoken expectations that agents have with each other. My suggestion is always always ALWAYS use a referral contract with crystal clear language in it is there’s no misunderstandings down the road.
Good luck!
Chris
Hi Chris,
So I am a newly licensed agent. I have a full time job, so my license is currently ‘parked’ with a brokerage and I am currently only able to make referrals. I am planning to purchase a new home and to sell my current home. I have a friend that is a managing broker in my state and has his own brokerage. I know I can ‘refer’ myself to him as the client and collect a split of the commisssion. But given that taxes would be owed on the commission received, I would think that instead of the referral fee, negotiating say 1/2% off the commission rate with the agent would result in the same savings on the two transactions, without the tax implications. I haven’t brought this up with the agent yet, I just wasn’t sure whether to be asking for the referral or to have a conversation about the commission rate. Just wanted to get your take, Am I correct in my thinking here? Or is there any legal / ethical considerations I’m missing? Thanks!
Hi Mike –
First of all, welcome to the real estate biz, glad to have you!
Second of all, excellent question. You are smart to be thinking through these things right now! In short, you are correct in your thinking. It is definitely advantageous for you (or anyone with a real estate license who will be executing a sale or purchase of real estate) to integrate the funds that would be reserved for a commission (or in your case, a referral) into the purchase or sale price. The reasons being are just as you stated; if you receive this money as income, you’ll have to pay taxes on it. If you get this credit via a reduction is sale price (purchase) or an increase in proceeds (sale), you are going to save money for sure.
At this point in your journey, there is some good, bad, and complicated news. The good news is you’re not the first person to have thought of this, so most seasoned brokers have dealt with this scenario before and likely know how to arrange the paperwork to make it work. The bad news is, occasionally you’ll run into a seller (or a buyer) who doesn’t exactly understand what you’re doing and why you’re doing it. To them, a person not in the real estate industry, they don’t understand why they need to sign extra paperwork or why the numbers are changing on the net sheet, so they could provide some resistance to this. A good agent will talk them through this, but it can still be frustrating. The complicated news is that each state has their own rules about this, so you’re going to want to check with the real estate commission in your state to make sure that you know how to properly report this. More of a pain in paperwork than anything else.
Good luck, let us know how it all turns out!
Chris
Quick question:
I am buying a home in TX. I am a licensed broker in AZ. I am having a friend of mine assist me since I am not licensed in TX. He does not want a commission on the deal as we help each other back and forth regularly on projects and since I am the buyer and not just referring a client to him. We agreed that 100% of the buyer agent commission would be referred to me and my brokerage in AZ.
Now his brokerage is saying they want their 33%. Shouldn’t the agent be able to refer whatever amount he wants and the brokerage get 33% of what the agent earns, in this case 33% of zero? In my experience the brokerage gets a cut of what is earned, not a cut of what “potentially could be earned.”
If that is the case then they could demand an agent pay out of pocket if he assisted on a FSBO deal that wouldn’t pay a standard commission. It seems this brokerage is violating their own policies.
Your thoughts?
Hi Mark –
Thanks for the question. This is a sticky situation for sure; here’s my two cents.
Without knowing the brokerage’s policies, I can’t comment on whether or not they’re violating their own rules. But, I think it’s important to point out here, they are the brokerage’s rules, and thus, by definition, they would have the latitude to bend, break, or change them altogether if they chose. Would that be a crummy move from a broker/agent relations standpoint? Yes, but, as long as they are not violating any contractual agreements they have, they are within their rights to make this move.
Also, I hate to say it, but from the way you’re describing the situation, I think the brokerage is within the bounds of their role to make this request. Here’s why: There is a commission being earned on the buy-side of this transaction. Whether your friend is collecting any of it isn’t actually the point; the seller of the property is offering a certain percentage of the sale price as a commission to the buyer’s agent (in this case, your friend), a sum of money your friend has vowed to pass your way. However, commissions aren’t paid directly to agents; they’re paid to brokers who then disperse the funds to their agents less their cut thanks to split and fees. The commission is being earned, and therefore, the broker is asking for their portion of it.
This is why, in my opinion, this situation is different than the FSBO one you described. Since the FSBO transaction isn’t offering a commission to the buyer’s agent, there is none being paid, thus, the buy side commission is zero, and the brokerage’s cut would also be zero. However, if that FSBO seller was offering, say, a flat fee of $500 to a buyer’s agent, that would be considered commission income, and thus, would be subject to any split / fee agreements an agent has with their broker.
I know this isn’t fun news to hear, but the good news is, I also think I have a solution that could solve your problem; an addendum to the purchase agreement that zeros out the buy-side commission in exchange for a lowering of the purchase price of the home in the amount that would have been paid via commission. The net dollars coming back to you as the buyer are the same, there is no commission income being paid to your friend (and thus, none to your broker), and the sell side remains unaffected. Before executing a strategy like this, be aware that your friend’s broker will be none-to-happy about it (honestly, I am unsure whether or not they’d have the latitude to tell your friend they couldn’t do this, but I don’t know the regulations in in Texas).
My suggestion? Your friend should sit down with their managing broker, explain the situation and what you’re ultimately trying to achieve, and work together to get the paperwork in order so that those goals are met. If your broker is demanding a cut of a commission, a compromise so that everyone is happy seems like the right middle ground. I don’t think 1/3 of a single commission is worth blowing up a broker/agent relationship, and the end result is probably going to be a net negative when you consider the hurt feelings and future interactions.
I hope this works out just the way you want, and I hope this was helpful. Good luck!
Chris
Hi Chris, I am an estate agent in Portugal. How can I get real estate referrals from real estate agents in the United States?
Hi Giovanni –
Thanks for the question. Unfortunately, I don’t know how the system would work in Portugal, so I’m not going to have a good answer for you here. Typically, an international referral is a business-to-business contractual agreement, and as long as the contracts doesn’t violate any of the local regulations in either country, you should be ok, but I don’t have any direct experience with that here, so do some further investigating for yourself on that.
Chris