Real Estate Referral Fees: Best Practices for 2022

Chris Heller HeadshotChris Heller, Licensed AgentNovember 16, 2022

Who,Do,You,Know,Text,On,Wooden,Cubes,,Business,Concept.

One way people increase their real estate leads and customer base is by asking for referrals. You can ask a past or current client to refer you if they know anyone who needs to buy or sell a home.

Say you had custom furniture made for your interior space, your neighbor visits and falls in love with your furniture. They ask and you share your designer’s contact so they can have something similar made ASAP. Or, say you got a commission on every business you direct to that designer? That’s how paid referrals work. In Real Estate, referral agents refer potential clients to Real Estate listings or buying agents for a predetermined commission. In most cases, it’s around 25%, although, the commission could be anywhere between 10 to 50% of the total commission. That’s a lot of money you could be making, which is why using referral networks is a great opportunity to consider when coming up with a real estate lead generation strategy.

Is there a Need for Real Estate Referral Agents?

Referrals,Concept,Handwritten,On,BlackboardIt does sound a bit weird that there are real estate referral agents. Why don’t they just do the business day in and day out instead of waiting for someone to refer them? Well, often in Real Estate, clients may be looking to get property in another state which their chosen real estate agent isn’t too familiar with or in which their real estate license isn’t valid. In this case, the agent may choose to refer the client to another good real estate agent in the state or city of the client’s interest. It’s a win for all parties involved.

Usually, referrals happen because an active real estate agent isn’t familiar enough or can’t practice in a particular state. However, sometimes, a retired real estate agent or a retiring agent who is taking in less work may inadvertently become a referral agent who refers his previous client to the next best Real Estate agent he knows for a commission. This way, he does less work and still has an income inflow.

Let’s do a bit of revisiting how Real Estate works:

On one extreme end is the seller who owns the property. There’s the listing agent who deals directly with the seller and lists the property.

Then, there’s the agent who deals with the referral agent. The referral agent is usually the buyer’s first contact. Say the listing agent gets $10,000 at the end of the sale. The listing agent pays $5,500 to the estate agent that brings the client and the real estate agent pays the referral agent a total of 25% which is $1,375. That’s pretty much a summary of the real estate chain.

Is there a Controversy Over Real Estate Referral Agents?

Business,Man,Touch,Referral,Button,Interface,Web,Communication,Sign,OnThe Real Estate industry and process is filled with middlemen and inevitably so. Also, most referral agents have their active real estate trade and even brokerages. It is perfectly legal, acceptable and a necessary practice when you consider the usefulness of it. In practice, what would be the chances that a practicing Real Estate agent in New York would know properties fitting a client’s specifications in a particular area of Washington or Texas and that he is licensed to operate in that area. It is perhaps not very likely. However, there is more likelihood that a Real Estate agent in New York would know another Real Estate agent in Texas or Washington that is licensed, experienced with a good track record and is worth recommending.

Still, there is the However, a lot of referral agents, once they have a client looking to purchase a piece of property in another city, may simply look into an address book or type into google and pick the first Real estate agent whose name they like without doing due diligence. It may also be easier to do a bit of research and refer a client to the agent who’s offering the highest commission percentage.

A lot of people may also feel that referral agents get paid too much for the little amount of work they have done, referring. When you think of it this way, maybe it’s a controversial trade but the necessity of it is undeniable. Starting a referral business is a great way to boost your sales if you are sick of buying real estate leads from big companies.

The Real Estate Agent and The Referral Agent

Real,Estate,Agent,And,Sales,Manager,Team,Analysis,Pricing,OfThe only paperwork need for a real estate referral agent is the real estate referral agreement contract that’s drawn up by the referral agent and accepted by the real estate agent. The referral form states the terms of the agreement such as the commission percentage and other necessary details.

A situation where the referral agent seeks out the highest paying real estate agent may be rather unfortunate for the referral agent’s client. The best real estate agents do not have to rely on referrals to get their clients. The real estate agent offering the most commission percentage is very likely to be one who is desperate to get client and may be new to the business and inexperienced or does not have a great reputation for being a good real estate agent. In any case, this may suit the client well.

Conclusion

As a client, the number of middlemen you have to deal with in Real Estate may be daunting. However, it’s often necessary evil. If you’re dealing with a referral agent that you haven’t previously done business with either as referral agent or a real estate agent, understand that you simply be business to them. It’s advisable to do some research and be as comfortable with them as possible before moving forward with your business with them.

Chris Heller Headshot

About the Author

Chris Heller brings 27 years of experience in real estate. Chris serves on the AgentAdvice Editorial Board and is the Chief Real Estate Officer at OJO Labs. Chris brings deep expertise having held influential industry positions including CEO of mellohome and former CEO of Keller Williams Realty International.

Last Updated: 11/16/2022

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