Real estate referral fees can create a significant revenue stream for real estate professionals. Up to 82% of real estate sales for agents with developed businesses come from previous clients, friends, and referrals. Whether you’ve received referrals from another agent, are looking to refer your own clients, or are interested in implementing referrals to your team’s operations, it’s wise to get up to speed on the ins and outs of referral fees for real estate agents.
In this quick guide, we walk through what real estate referrals are, the typical fee structure for a referral commission, how much a referral fee in real estate is, and how to craft effective referral agreements.
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What is a real estate referral?
When a licensed agent refers a prospective buyer or seller to another licensed agent to handle a transaction, it is called a real estate referral. The referred agent becomes the buyer or seller’s primary point of contact, and the referring agent receives a fee if the transaction closes.
Referrals can be beneficial for all parties. A lead often regards a referred agent as more trustworthy, and the referred agent gains a new, motivated client. The referring agent benefits by maintaining a positive relationship with the lead, taking work off their to-do list, and receiving a real estate referral fee with minimal time and effort invested.
The most common reasons for real estate referrals
Referrals happen frequently in the real estate industry. These are some of the most common reasons a licensed real estate agent will refer out business:
- They’re on vacation or otherwise busy.
- They don’t specialize in the lead’s geographic area or the type of real estate they’re seeking.
- They are retiring and passing clients to their network.
- The dollar value of the deal is lower than their preferred threshold.
- They focus predominantly on referrals, not real estate transactions.
How can I ask for a real estate referral fee?
Requesting a referral fee is straightforward, especially if you make it part of the initial referral conversation. When making a referral to another agent, make sure you discuss and finalize the fee amount before connecting them with the client. Send a real estate referral fee agreement for signature, then facilitate the connection through text, email, phone call, or in-person meeting. This approach minimizes misunderstandings and lets you secure the agreement while you are still in a strong position for negotiation.
How much is a referral fee in real estate?
Real estate referral fees are typically 25% of the referred agent’s gross commission. However, this fee is negotiable.
For example, retiring agents may request a higher percentage for dispersing their network, or two agents may negotiate to reach a lower-than-standard rate if there are multiple referrals being committed to.
Real estate lead companies like Zillow are a different matter entirely and may charge 30% or more.
Importantly, referral fees are contingent on deal closure; no close means no payment, as the fee is based on the commission.
It is worth noting that some states limit real estate referral fees to non-licensed individuals (see below).
What is the difference between a finder’s fee and a referral fee?
A referral fee compensates licensed real estate agents or brokers for directing clients to another professional. A finder’s fee compensates non-licensed individuals who successfully locate a property or a real estate opportunity.
Who pays the real estate referral fee?
In typical real estate transactions, a referring agent, or individual who brings a client to another agent, receives a referral fee from the agent who successfully closes the deal. The fee is deducted from their commission.
If a third party is involved, the title company processes an additional check to be disbursed to the referring agent’s broker and the referring agent. Payment is generally received within ten days of closing.
How much do real estate referring agents earn?
There is no fixed earning amount. Referring agents’ fees depend on the referred agent’s commissions, varying based on the number and success of leads and the value of the deals. The typical real estate referral fee is 25% of the gross comission.
Why should I pay a real estate referral fee?
There are several reasons why paying a referral fee makes smart business sense, including:
- Maintaining good professional relationships: Agreeing to pay a fair referral fee fosters future referrals, while not agreeing can sour your relationships with fellow agents and harm your professional reputation.
- Lowering the cost of acquiring business: Traditional marketing for real estate leads is costly with no transaction guarantee. Paying 25% on commission only if the deal goes through is a conservative and reasonable cost.
How do I structure a real estate referral agreement?
Creating a clear real estate referral agreement is crucial for mutual protection. It should be straightforward, outlining the referral, the referral fee, and the real estate transaction details. Many state real estate organizations offer template agreements that real estate agents and companies can use. Some prefer to work with an attorney for more custom language. The National Association of REALTORS also provides a standard referral contract form.
What should every real estate referral fee agreement include?
No matter which template you use, be sure to include these elements:
- Referring source (real estate broker/agent contact details, name, address, etc.)
- Receiving real estate broker/agent
- Breakdown of referral fee
- Terms of the agreement
- Signatures from agents (and real estate brokers)
- Contact details for the client referred
- Any other pertinent information regarding the referring agent’s existing relationship with this client
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