Real estate referral fees are fees paid when one agent or broker refers a client to another agent or broker based on the eventual commission when the sale closes. While real estate referral fees range from 20% to 35%, the standard fee is about 25% of the earned commission. You must be a licensed real estate agent or broker to be paid a commission fee.
Why might an agent refer their client elsewhere? The reasons for realtor referral can be as simple as a client moving out of state or to a neighborhood the agent doesn’t know too well. In other cases, an existing client may want to explore commercial purchases or properties that the existing residential agent has no familiarity with.
In this article, we will discuss typical real estate referral fee rates, how they work, and provide you with a free contract template that you can use.
The 4 Basic Steps to Referring your Real Estate Client
If you are fortunate to have the ability to refer an existing client to an agent that you trust, and have never done so before, the general procedure is straightforward.
Step 1: Standardize Your Referral Contract
While most brokerages have forms that agents use in their real estate referral fee agreements, we wanted to provide a form that can be customized for your use. Every referral contract should at least include the agent and broker licensure on both sides of the transaction, the duration of contract, and specifics of the agreed upon referral fee as a percentage of earned commission.
The first element of any real estate referral agreement is to include names, addresses, and license information for both the referring agent/brokerage and the receiving one. Everyone should be clear in their ability to confirm the identity, location, and licensure of both the agents and companies on each side of the transaction.
Specificity is key. The agreement should be very specific how long the agreement lasts, who exactly is making the referral (the company or the individual agent), who the person(s) being referred is, and who the receiving party is intended to be.
When parties are clear, everyone knows exactly what to expect in the arrangement. Even stating exactly how the fee (as a percentage) is to be determined, is very important. Calculating 25% of a gross commission would be far different than 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), and who the fee should be paid to. Leave nothing to chance.
Step 2: Get Client Approval
Meeting with your client is an important part of gathering referral information, and addressing any client concerns or questions. Your client is the most essential element of the referral process. Not only must they be using the referred realtor for you to receive your fee, but you want to be sure you do them a genuine good to preserve your reputation in the industry. Be sure that you have all the details of where and when they are relocating, how soon they anticipate purchase, their financial status in the process (are they already qualified for a mortgage?), what they will be looking for, and how serious they are about purchase.
An important element of the meeting is not simply the details of the relocation, but also talking about the transition to another agent. Have your previous clients already signed with an agent in the area or have someone in mind? It’s important to talk with them about the person you know and trust, and what they stand to gain by using 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.
Step 3: Make the Referral
At the time you contact your referral agent, you should have all the details to make the process go smoothly and quickly. You will have the mentorship of your broker to know what to expect, the timeline and information from your client to give the agent a solid heads-up, and a form that will likely contain all of the information of both parties along with your standard real estate referral fee that is ready for signature. If you don’t already have another agent to refer your client to, there are services that will help you find one which we discuss in more detail below.
Step 4: Negotiate the Fee
With most real estate referral fees, the standard 25% is both expected and well-received, but sometimes there may be room for you to negotiate this upward if your broker allows it. For example, you might increase your referral fee ask to 30% 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.
There also may be times to ask your broker if it is acceptable to lower the real estate referral fee to something like 20%. For example, if you have a buyer who is uncertain about their timeline for purchase, and may take more of the agent’s time or resources. While real estate referral fees are based in giving the agent new business, be mindful of the type of business you are referring and how much of the agent’s resources this new client will take. In some areas where home prices are relatively low, referral fees can take a significant portion of an already small commission check.
Once you and the agent you are referring to are both in agreement, be sure to have the agent’s signature on your real estate referral form, and always be sure to check that their licensure is current.
For New Agents: Touch Base with Your Broker
If you have never done a client referral before, brokers usually provide both mentorship and standardized forms which contain your brokerage brand and information. Don’t be too proud to ask for assistance for the first time you make an agent referral, to speak with your broker about the standard real estate referral fees they request, and to ask if there is room for negotiation in these.
Navigating the Landscape of Real Estate Referral Fees
While most agent-to-agent referral fees are relatively straightforward, there are some circumstances that may introduce some additional considerations. Some of these can include:
- Referring to an agent who is in another state
- Referring commercial real estate
- Relocation companies and what they charge
- Finding an agent to refer your client to in a market that you’re unfamiliar with
- Referrals from non-agents
We discuss each of these points in further detail below.
Real Estate Referral Fees with Out of State Agents
Real estate referral fees follow the same rules whether within or out of state. As with most agent protocol, it’s ultimately the broker who sets the real estate referral fee and is the party authorizing payments. The standard real estate referral fee of 25% still applies for out of state real estate referrals, with minor variations depending on your particular broker or situation, and all parties must be currently licensed in the state which they are practicing. As with all referrals, be sure to have the agreement in writing and to check in with your brokerage in case they have specific protocol or forms they prefer you to use for out of state referrals.
Agents certainly should feel free to refer their clients to agents out of state that they trust and expect a part of the eventual commission for doing so. Especially when clients have grown to trust the agent they’ve worked with, a referral to another reputable agent is greatly appreciated. By referring existing clients to another agent or brokerage, you are not only referring an agent, but the network that agent can offer.
Especially in relocating, when they do not yet have an established group of individuals they trust, clients frequently contact realtors to access their network of services from contractors to others specializing in home repair or remodeling. Many clients will have ongoing relationships with their agents, so be sure you are referring one that you would want even your family member to use. You are not simply referring an agent, but the network of that particular agent to provide services they will need both now and in the future.
Commercial vs. Residential Real Estate Referral Fees
Commercial transactions might not be your area of expertise, but rest assured that the expected realtor referral fee structure and standard amount is the same.
Most realtors report a standard referral fee of 25% with the usual fluctuations and flexibility of between 20%-35%. Some realtors might skew their referral fee upward in certain circumstances — for example, if they have a very well qualified referral, such as a cash buyer, who is ready to commit immediately. Realtors might skew their referral fee downward if they are referring a novice investor who is simply exploring opportunities with a more remote possibility of immediate purchase.
Relocation Companies & Real Estate Referral Fees
Relocation companies can provide a wonderful service to the corporations they work with, but the real estate referral fees they charge to those most essential to ensuring a smooth process are often well above what realtor to realtor referrals typically command.
While a standard realtor referral fee is 25%, it’s not uncommon for relocation companies to demand a real estate referral fee of up to 40% or more of commissions. While executives relocating for jobs may be selling and/or purchasing a home worth a significant amount of money, it’s always wise to calculate it up to see if the numbers work in your case for the effort expended.
Where to Find Agents to Refer to
Online referral companies may carry a real estate referral fee, but they also have the potential to generate significant leads to increase your business. Joining this network of brokers and agents allows you to both refer clients to others (to collect a referral fee upon closing) and to receive referrals from others (and pay the referral fee upon closing yourself).
For some online referral companies that consider themselves matchmakers, such as Homelight, the standard real estate referral fee of 25% usually applies. For others, you may see the real estate referral fee rise a bit with transaction amount, or charge additional fees. To examine a list of online referral and matchmaking companies in greater detail, we’ve provided an easy comparative rundown of real estate referral sites and their real estate referral fees.
There are certainly pros and cons of using these services. The real estate referral fees you can acquire from an online company greatly outweigh the potential you have to generate on your own. There is a network of people who are often pre-screened by the companies, allowing you to operate with a bit more confidence.
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 transaction history to be sure this is someone who has recently closed on properties, and they usually check on their license at the time they sign up for the referral service. To minimize risk on your end, be sure to verify that the broker offering or accepting any lead is still current in their brokers license for the state they are operating, and that the real estate referral fees are clear between parties.
Non-Agent Real Estate Referral Fees: Not Allowed
It’s wonderful when you have a client who has so appreciated your services that they refer you to friends and family. Everyone loves clients who refer new business to them! Unfortunately, you are not allowed to share your commission with any person who is not a licensed agent or pay them for this service.
One thing that you can offer clients who refer friends and family is your ongoing communication and appreciation. While a referral from an unlicensed person is not allowed to receive a real estate referral fee or other forms of larger compensation framed in different ways (such as a “bonus”), they are allowed to receive a small gift of appreciation.
The small gifts you can offer a unlicensed person who has given you a real estate referral are not subjective and usually have very specific guidelines. It’s common in most areas that gifts are limited to the monetary amount of $50 or under. Be sure to check your state specific guidelines.
A good example of appropriate communication and appreciation for a real estate referral from a unlicensed person might be sending a card of appreciation after the home closing of the referred party, and perhaps enclosing a $10 Starbucks gift card with a note thanking them for thinking of you. Gifts given to unlicensed persons after a real estate referral should be minimal and quite limited. These are meant to be small gestures of goodwill, not construed as payment for services.
The Bottom Line
Real estate referral fees can be a wonderful way to generate additional income, while providing a solid service to clients who have learned to trust you for the work that you do and the services you provide through your network.
In our estimation, real estate referral fees can be a win-win for everyone. While you may be in the situation to refer clients to others and collect around 25% of the commission on the eventual transaction, you may also see the great benefit to receiving new clients and happily pay the real estate referral fee to a previous agent while further expanding your professional network.
While we encourage you to use the systems in place to help bolster your network and income, remember that the best referrals are always to those you trust. Placing your clients in the hands of someone you know provides quality services to that person and increases your reputation.