This article is part of a larger series on How to Become a Real Estate Agent.
When a real estate agent or broker refers a client to another agent, they can collect a realtor referral fee. Real estate referral fees motivate salespeople to connect clients with other real estate professionals and provide an opportunity for passive income. Fees can range from 20% to 35%, but the standard fee is 25% of the earned commission. Referrals happen when a client moves out of the original agent’s farm area, when agents are too busy to service all of their clients, or when the transaction is out of an agent’s wheelhouse.
Although it’s a simple concept, real estate referral fees can be misunderstood, so let’s discuss how referral fees work in real estate, including rates, contracts, pros and cons, and a calculator to figure out your fees.
1. Formalize Your Referral Agreement Contract
As with any formal contract, specificity is key. Everyone should be clear in their ability to confirm the identity, location, and licensure of the agents and companies on each side of the transaction as well as the client information. Most brokerages have forms that agents can use for real estate referral fee agreements, but you may want to customize your own. Here is a downloadable template that you can use for your referral contract:
Download Your Free Real Estate Referral Fee Contract Template
The first element of any real estate referral agreement is to include names, addresses, and contact information for all parties involved, including clients, referring broker/agent, and receiving broker/agent. Make sure to include license information for both the referring broker/agent and the receiving one as well.
Stating exactly how the fee (as a percentage) is to be determined is very important. For example, calculating 25% of a gross commission would be far different than basing the value off of a net commission. Be precise and clear on how the fee is calculated, who is paying the fee, when the fee is due (within 30 days after closing, for example), to whom the fee should be paid, and how it should be paid.
In addition, make sure to include how long the agreement lasts. Since transactions can typically take anywhere from a few weeks to several months, include an extension in your agreement. For instance, a client’s offer is accepted on April 15, inspections take place on April 18, and both parties are now waiting to get a “clear to close” from the bank by May 5. However, your contract ends on May 1. You want to include language in the referral agreement that states if you’re in the middle of a transaction, the agreement will automatically extend if negotiations have already begun.
Finally, make sure to have both the referring and receiving parties sign the agreement to make it official. By completing each of these elements in a formal contract, you can guarantee that you will be entitled to compensation.
Most real estate referrals are relatively straightforward, but you will still need a referral agreement contract for each transaction. Here are a few of the different referral types:
Referrals to an Agent in Another State or Location
Real estate referrals follow the same rule across neighborhoods and state lines. The standard realtor referral fee applies, with minor variations depending on your broker or situation.
Referrals Between Commercial & Residential Real Estate Agents
In order to work with commercial properties and clients, you need to be familiar with how commercial transactions work. If one of your residential clients comes to you seeking help with a commercial transaction, you can refer them to a commercial agent if you are unfamiliar with the process.
These companies offer an all-in-one service that helps people moving to a new area buy a new home. They can sell their old home and support them during the move. The referral fees for relocation companies can be much higher than the standard rate of 25%, but working with relocation companies can be a steady stream of income.
Referrals From Non-agents
It’s a great feeling when one of your previous clients refers you to someone they trust. However, client real estate referrals are different because you cannot share your commission with someone who is not a licensed salesperson. However, you can give them a gift. Check with your broker about the guidelines, because monetary gifts can be limited.
2. Get Client Approval
Even though referrals can be a great way to make money in real estate, remember that your client is the most essential part of the referral process. Not only must they actually work with the referred real estate agent for you to receive a fee, but you also should take care to provide them with a genuinely trustworthy agent.
In order to make your clients feel taken care of, you should meet with them before making the referral to gather information. Get all the details about where they are relocating, their timeline for selling their home and/or buying a new one, their financial status, and what they’ll be looking for. During your meeting, you can also address any of their questions and concerns.
With as much information as possible about your clients, you can help transition them to the referred agent. First, provide all of these details to their new agent privately to make sure that the agent you’re referring to will be able to meet their needs.
You should also talk to the clients about the person or program you are referring them to and why you trust them. If clients have had a good experience with you, they are far more likely to appreciate the referral to someone you believe they can count on.
3. Find & Enlist an Agent That You Trust
In order to get paid from a real estate referral, you need to find a trustworthy agent in your client’s new location or area of expertise. The best way to find other agents that you trust is through networking, where you can build genuine relationships. However, even the most social real estate agents don’t always have a go-to real estate agent in every location. That’s where real estate referral companies come in handy.
There are many different types of referral networks of all sizes, but a few of the top online networks are:
- ReferralExchange (the referral network recommended by the National Association of Realtors)
- Agents Referral Network
- Premier Agent Network
- Coldwell Banker Realty Referral Network
- Zillow Flex
As with any online service, when making real estate referrals to those you do not know, use caution and do your own due diligence. Most sites verify MLS (multiple listing services) transaction history to ensure that someone has recently closed on properties. They usually check on their license activity when they sign up for the referral service.
To minimize risk on your end, be sure to verify that the broker offering or accepting any leads has a current license for the state they are operating in and that the realtor referral fees and expectations are clearly communicated between parties. You can also schedule a call or video chat with the receiving agent to speak with them about your client before agreeing to a referral.
In addition, many online referral companies use the typical real estate referral fee of 25%, but also require a sign-up fee to be part of the network. The exception to this rule is the Zillow Flex program, which is completely free to join. It is not part of the Zillow Premier Agent program, but it connects home shoppers who have verified that they are ready to purchase a home with a top-performing agent in their area. The agent and the client are even introduced by Zillow over the phone. You only pay a referral fee when you successfully close their listing, which is another reason why this program is superior to many others.
4. Negotiate the Referral Fee
The majority of the time, the typical real estate referral fee of 25% is both expected and well-received. However, there are times when you can negotiate the fee and get a higher percentage of the final commission check. For instance, you may decide to increase your fee if you have a client who is already qualified for a mortgage, has already sold his previous residence, is making a larger purchase, and will likely be buying in the next month.
In other cases, you may want to ask your broker if your referral fee can be decreased to about 20%. This may be wiser if you have a client who is uncertain about their timeline or doesn’t seem particularly reliable. While real estate referral fees are based on giving another agent new business, not all clients require the same amount of resources. In some areas where home prices are relatively low, referral fees can take a significant portion of an already smaller commission check.
5. Make the Referral
By the time you contact the referral agent or network, you should have all the details and information to make the process go smoothly. You will have the timeline and approval from your client, a clear contract and expectations, and a plan to transition clients to their new agent. Whether you introduce your client and referral agent by phone or email, make sure you connect all three parties so that you can introduce them clearly and start their relationship off successfully.
Try this email template to make a smooth connection and build trust:
Dear [Receiving Agent] and [Client(s)],
I’m writing to introduce everyone formally so you can begin your [home search/home sale] in [location].
[Client(s)], this is [Receiving Agent] who will be assisting you with this transaction. I am confident that [Receiving Agent] will be a valuable asset to your [search/sale] because of their extensive knowledge and experience working with buyers and sellers in [location].
[Receiving Agent], this is [Client(s)] who is excited to be [purchasing/selling] a home in [location]. As discussed, here are the details of [Client(s)] [home search/home sale]:
[Add details in short paragraph or bullet form.]
Now that you’ve been introduced, I will let [Receiving Agent] take it from here! As always, please feel free to reach out with questions, and I will be happy to help out in any way I can. I look forward to hearing about your progress and will check in to see how things are going.
[Add your signature]
Once you’ve communicated all of the correct information to both the clients and the receiving agent, your job isn’t completely over. Make sure to follow up with both parties individually after about a month or so to check in about how the process is going. This will show them that you genuinely care about the individuals involved in the transaction. After all, the most successful real estate businesses are built on trust and relationships, which also applies to referrals.
How to Calculate Your Real Estate Referral Fee
As part of your real estate business plan, you should always calculate how much money you are earning from each transaction so you can be aware of your current income, income goal, and expenses. Calculating how much your realtor referral fee is pretty simple, but we’ve created this calculator as a reference so you can guarantee your numbers are correct.
- Sales price: Input the sales price of the listing that is being purchased or sold.
- Total sales commission percentage: The Receiving Agent agrees with the buyer or seller to receive a percentage of commission once the real estate transaction is complete. This is typically between 1% and 3% of the sales price. Input that number.
- Referral rate fee: Input the percentage that was agreed upon between yourself, the referring agent, and the receiving agent on the referral fee agreement contract.
Use our calculator to compute the referral fee amount:
Example 1: The home is being purchased for $300,000. The receiving agent is collecting a 3% commission from the transaction. You and the receiving agent agreed upon a 25% referral fee. You will receive $2,250 as a referral fee.
Example 2: The home of the referred client is being sold for $1,200,000. The receiving agent is collecting 1.5% from the transaction. You and the receiving agent agreed upon a 30% referral fee. You will receive $5,400 as a referral fee.
Pros & Cons of Real Estate Referrals
|Referrals get higher conversion rates||Losing part of your commission checks|
|Referrals leads are usually highly motivated||Referring leads to another agent doesn’t guarantee a successful transaction|
|Easier to build trust with clients||Process can be time-consuming|
The main benefit of referring a client to another agent is the ability to make money from a real estate transaction without actually working with the clients, also known as passive income. In fact, real estate referrals often result in a four-figure check or more. On the other hand, receiving referrals is a great way to generate more real estate leads, which are more likely to convert quickly. Most of the time, referrals are ready to start a transaction and trust someone who’s recommended by someone they personally know.
However, nothing is guaranteed in real estate. You may put in a fair amount of hours upfront by meeting with your clients, setting up the contract, and communicating with the agent—and the clients may not choose to work with your referral agent or decide to postpone their search or sale. In addition, when you refer a real estate client to someone else, you still only receive a fraction of the final commission, so it can also be risky when you refer clients to an agent or broker with whom you don’t have a personal relationship.
In general, agents who are successful with real estate referrals develop a tried-and-true system with the steps listed here to maximize their own and their client’s chances of success.
Real Estate Referral Fee Statistics
The main question that realtors ask about referrals is, “How much is a referral fee in real estate?” However, there is also a lot of uncertainty about how referrals to and from other agents actually impact your business. While risk is a necessary part of sending or receiving a referral, statistics show that real estate referrals help boost agents’ incomes.
Here are a few statistics that detail the power of referrals:
- According to MyOutDesk, 82% of all real estate transactions come from repeat and referral clients.
- 21% of real estate agents get more than half of their business from client referrals.
- In 2021, Realtors earned an average of 34% of their income from repeat clients and referrals.
- 68% of homesellers found their real estate agent through a referral.
If you’re a real estate agent or broker who isn’t focusing on generating real estate referrals, the numbers clearly show that you are putting yourself at a disadvantage. Whether you want to focus on receiving referrals or sending them to others, there is a significant opportunity to increase your income. On the other hand, if you’re considering becoming a real estate agent, don’t forget about leveraging real estate referrals to grow your business.
Make sure that you’re using the right tools to support your referral generation strategy instead of leaving it up to change. For example, using the right real estate email marketing tool and customer relationship manager (CRM) can make the process of following up on past clients and asking for referrals automatic and stress-free. In fact, Pipedrive uses a visual pipeline, so you can always see where your leads are in the sales process and keep your past and current clients up to date. You can even try Pipedrive for free.
The concept of referral fees for realtors is a great way to generate additional income while providing a valuable service to your clients. Although there are pros and cons to realtor referrals, when you approach them with the right expectations and utilize the steps above, they can become a win-win for everyone involved.