Real Estate Referral Fees: How They Work & How to Benefit From Them in 2024

One way agents bring in more real estate leads and increase their prospects 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. That is the simplest form of a referral.

However, agents can also provide other agents with referrals. Simply put, they’ll hand over someone from their sphere or a lead that you can work. Typically, a real estate referral fee is a portion of the commission paid to another real estate agent or broker in exchange for a client referral.

In real estate, referral agents refer potential clients to specific real estate listings or buying agents for a pre-determined percent of their commission. In most cases, the standard referral fee is 25% of the gross commission made from a single side of the real estate transaction. However, there’s no set standard for a referral fee rate, and, like every other aspect of real estate, a referral fee is completely negotiable and fall anywhere between 10%-50% of the total commission. That’s a lot of money you could be making (that otherwise would be left on the table), which is why using referral networks is a great opportunity to consider when coming up with a real estate lead generation strategy.

In this article, we’ll review why referrals are necessary, and how real estate referral fee agreements work. We’ll also answer some of the most frequently asked questions about real estate referral fees.

What Is a Real Estate Referral?

Real estate referrals have become very common. They happen when one agent passes a client to another licensed real estate agent in order to better serve their client’s needs. As much as real estate professionals strive to be the go-to resource and all around expert, there are times when a client’s request is something they simply can’t deliver on themselves. It’s in those situations that referring your client to another agent is often the best way to serve them and their needs. Here are some of the most common reasons real estate referrals occur:

Out of Market Transaction

Let’s say you’re a real estate agent working in Pennsylvania, and you have a client who wants to purchase a lake house in New Jersey. Even though these states are right next to each other, New Jersey is a turf state, and as a Pennsylvania license holder, you’re unable to conduct business in New Jersey.

However, you can refer your lakefront client to a real estate agent who is licensed in New Jersey. In exchange for that referral, you (or more accurately, your broker) will receive a percentage of the commission on the New Jersey transaction.

Related Article: Real Estate License Reciprocity and Portability Guide – 2023 Updated – All 50 states!

Unqualified Transaction

As a licensed real estate agent, you have the ability to facilitate several different types of transactions, but if a client comes to you with a specific ask you’re not familiar with, a referral might be the best way to provide them with the service they require. While you are technically licensed to help them, if you’re not familiar, a referral will at least get you a percentage of the sale.

For instance, say you’ve got a client who has used you to help buy residential properties in the past, but now they want to start selling industrial buildings.

If you’ve never worked on a commercial transaction before, you may not be qualified to give your client advice on pricing, closing conditions, or commercial negotiations. So, a referral to an experienced commercial real estate agent would be the best alternative for your client. They get the expertise they deserve, and you get a chunk of the commission once the transaction is complete. It’s a win-win.

When Should You Negotiate a Real Estate Referral Fee?

Since real estate referral fees aren’t set in stone, if you want, you can always negotiate. That being said, when is it a good idea to go for it or just leave it alone? Here are a couple of scenarios when you should negotiate:

Say you have a buyer who wants to purchase income properties in a state where you’re not licensed. Since you’re referring a client who will be making not just one, but multiple purchases, you might want to consider bumping up that referral commission to 30% or even higher. Don’t push your luck too much, but if you provide a client who is well worth the other agent’s time then it can be profitable for all parties involved.

On the other end of the spectrum, picture yourself receiving a lead that is just starting their real estate journey and is still very high up in the funnel. For instance, they aren’t prequalified, and may need a lot of work and nurturing to get them under contract. As the agent receiving the referral, you may consider trying to negotiate the typical 25% down to around 20%. It’s something to consider if you’ll have to pour in a lot of time and resources to make the transaction happen.

Tip: Remember, even though negotiating is completely legal when it comes to referrals, the partnering agent is under no obligation to accept your proposal. If you push too hard during the negotiation period, you may risk losing the warm lead altogether, so proceed with caution.

How Do I Get Paid When I Make a Real Estate Referral?

When you make a referral, just like the agent you’ve given the referral to, you get paid when the transaction closes.

When an accepted offer has been written on your client’s behalf, the signed contract will include a clause that entitles you to the agreed-upon referral percentage (again, typically 25%). When the transaction closes, the closing company will cut an additional check to your broker for your portion of the commission.

Once your broker has your referral fee, it will be like any other transaction in the office. They’ll treat it like any typical real estate sale, pulling their percentage of your split and issuing the check for your portion.

Are There Real Estate Referral Companies?

Yes, there are companies that specialize in real estate referrals. These generally fall into two major categories:

• Networks that generate their own leads and offer those leads free in exchange for a percentage of the commission when the deal closes (most common)
• Companies that connect agents across the country with one another in order to facilitate their referrals (often not accepting new customers)

Some examples of companies offering their own leads as referrals are Sold.com, The OJO Network, OpCity, ZillowFlex, and Referral Exchange. While these are good options for some, their typically steep referral fees (up to 40%) are usually more than most agents are willing to pay.

How Common Are Real Estate Referrals?

Referral Exchange reports hundreds of thousands of connections made on their platform every year. It’s safe to say that this is an incredibly common practice that happens every single day. It’s a win for all parties involved.

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.

How Necessary Are Real Estate Referral Agents?

Many agents who have been in the industry for a long time rely solely on referrals. They are perfectly legal, acceptable, and can even become a necessary practice when you consider how easy they are to work. In fact, they are often unavoidable. If you’re a practicing real estate agent in New York then it’s understandable that you won’t know about properties in Washington or Texas. That being said, there is a good chance that you know of a real estate agent in Texas or Washington that is licensed, experienced, and has a good track record who is worth recommending.

However, if you’re going to refer your clients to someone in another state, make sure do a bit of research to find the agent who is willing to offer the highest commission percentage. Many agents just type a few keywords into google and pick the first real estate agent who pops up without doing diligence. If you’re passing a client along, make sure they are reputable and will represent your client well. The better they are, they more likely you are to get your cut.

The Real Estate Agent and The Referral Agent

The only paperwork needed to make this happen 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, the length of the referral, and other necessary details of the agreement.

Real Estate Referrals: Essential Tools You Need

If real estate referrals are a part of your business plan, you’ll want to have a few important tools in your toolbelt. Here are some of the ones we recommend:

Where Can I Get a Real Estate Referral Contract?

In order to make and receive referrals, you’ll need a real estate referral contract. We suggest using the same format every time so you’re familiar with the terms and know exactly what to expect from the other party. You can switch out the conditions of the agreement if they change, but you’ll still have the format you’re familiar with.

Should I Use an Electronic Signature Tool to make My Referrals simple?

The short answer is – yes. Electronic signature platforms make the act of soliciting and keeping track of your referral contract quick and easy. You can store the documents in one place fore reference, and it ensures that you get a timely signature back from the other party because they quickly sign it anywhere at any time. We recommend using SignNow. Their online platform is highly accessible, super easy to use, and affordable.

Even though they were not made specifically for real estate, they have plans and features designed with real estate agents in mind, so they’ll definitely fit into your tech stack for referrals and other transactions.

What Other Tech Tools are useful for Real Estate Referrals?

A real estate CRM with transaction management options is a game changer when it comes to referrals. Sometimes the hardest part about the real estate referral process is tracking the progress of your referrals after you’ve given them. A real estate CRM that has transaction management tool included will be a great solution.

However, just about every provider listed in our guide of the best real estate CRMs for 2022 will have features that will fit your needs.

Related Article: The Best Real Estate CRM for 2023: Agent Reviews & Pricing

Conclusion

If you’re dealing with a referral agent that you haven’t previously done business with, it’s important that you do your research and be as comfortable with them as possible before moving forward. Make sure you have all of your ducks in a row before actually moving forward with the client so there isn’t any confusion about who gets the money in the end. Double check that the conditions agreed upon are correct before signing any contract, and get their signature before proceeding with property searches.

If referral networks aren’t for you, then consider checking out our list of the best real estate lead generation companies instead.