We all know what a real estate agent does. However, many people are not interested in what a real estate referral agent does or why they might seek one. Nevertheless, a real estate referral agent job can successfully earn income in the real estate business.
Moreover, it is a good decision to become a real estate agent who has experience and links in the real estate world. For example, a real estate referral agent sells property like a real estate agent but is not directly involved with clients.
It is a perfect job for people who want to work in real estate without listing properties or dealing with sales. However, referral agents do require a license and good interpersonal and sales abilities.
What is a Real Estate Referral?
A real estate referral agent, also known as a referral agent, is an approved real estate professional who locates people looking for homes and refers them to other real estate agents to complete the home buying process.
The referral agent receives a fee if the person buys a home via that real estate agent. People work with referral agents as they are experts and can find the best real estate agents for their needs. Real estate agents work with referral agents and give them a percentage of their commission to get new clients. Referral fees can vary from 10 to 50%, but largely it’s somewhere around 20 to 35%.
Real Estate Referral Fee Agreement
A real estate referral agreement involves two (2) agents where an agent advises a property buyer or seller to use the services of another agent suitable for buyer/seller (client) requirements against an amount of fee.
This usually happens when a client is searching to buy, sell, or lease property outside the jurisdiction of an agent. Many real estate brokers enter into referral agreements because good referrals can be a beneficial and reliable source of revenue.
The referring agent must have a license to operate and be affiliated with a licensed brokerage. The receiving agent should be active and know all the real estate practices instead of listing or locating properties for the client. When the deal transaction is completed, the referring agent receives a percentage of the agent’s commission.
Real estate is not the only sector that uses referral strategy for business growth. As a result, referral business agreements are very common and are also referred to as business referral agreements.
Why is the Real Estate Referral Fee Agreement Important?
The Referral Fee Agreement describes which party pays the broker for the referral and under what conditions. Therefore, it is essential to define the relationship involving the parties while preparing a referral agreement. Moreover, this helps all the concerned parties to safeguard their interest and are aware of all the terms and conditions. Many businesses use referral agreements as part of their growth strategy to bring new clients or customers.
The Requirement of a Referral Fee Agreement
If a real estate broker operates in New York and his client moves from New York to Texas. In such a situation, the broker can help the client in selling his home in New York. However, to buy a house in Texas, the client has to find a broker in Texas who is his next transaction.
Since the broker operates only in New York and is not licensed in another state, he won’t be able to help. However, the broker can refer this client to a real estate agent who is licensed in Texas. In exchange for that referral, the broker will receive a percentage of the commission.
Having a connection with real estate licensees in other major states is beneficial to the business. For example, brokers can refer clients for their buying or selling needs to agents in other states, and likewise, other state agents will refer you when they have a client who has a transaction in your area.
There are situations where a broker-client can require services for which the broker does not have the expertise. The broker may have helped the client in a real state residential transaction for which he had all the knowledge and skills.
But the same client now wants to sell a commercial plaza. The broker has never dealt with a commercial transaction. So he is hesitant that he will not be able to properly advise the client on assessing negotiation and liabilities attached to the asset.
Since practices of real estate residential transactions are different from commercial transactions. So, the best option for the broker is to refer his client to a qualified commercial real estate agent. However, the real estate industry is interconnected. Therefore, if the broker is not sure he will be able to advise his client correctly, he can always refer them to other agents and still make a commission.
Following are the benefits of a real estate referral fee agreement:
The referring agent knows the area in which he works and the scope of the market. Therefore, he/she educates the client about the market. The agent readily answers all the client’s questions and gives all the relevant data regarding real estate transactions. So, a real estate referral fee agreement is a low-friction way to generate leads.
Before bringing the prospect, the referring agent knows the needs of the prospect. The client mindset, the range in which he wants to buy or sell. So, when the client reaches the broker, he becomes a quality client.
Size of the referring group agent
The size of the referring agent is of little importance. Even a small group of referring agents can bring a significant number of quality referrals. It all depends on their knowledge of the area, their relationship, and their efficiency.
Faster and more cost-efficient
Working with real estate referral partners is a faster way to reach the target market. Also, to build a more extensive network of customers, the broker only has to deal with the referring partner. The referring agent brings potential clients and closes the final sales agreement.
Further, the cost is less than other means of marketing or networking. The compensation paid to refer agent is pro-rated. The broker only pays every time the referrer makes a successful referral with another client. Moreover, the compensation expense is not a fixed expense.
The referring agent searches for prospects
Searching for potential customers is one of the most complex parts of marketing. The real estate referring agent has more information about the area and links with buyers and sellers of properties. With referral marketing, the real estate broker only does the closing transaction.
The referrer market the company’s name
The referring agent not only reaches out to potential clients but also markets the company’s name in the process. In addition, they talk about the company’s reputation, trustworthiness, the success rate in the industry, and the number of clients handled by the company.
How does the Real Estate Referral Fee Agreement Works?
Referrals in the real estate industry are very common. As a result, real estate brokers will make private deals with one another in specific regions. For an agent, it’s a lucrative way to direct a prospect in the right direction and at the same time win a fee if a transaction occurs.
Communicate with client
The first thing the referrer does is to have a face-to-face meeting with the client. The purpose is to understand the mindset of the client, his expectations, and the aim. If the client’s requirement favors the position in the area where the referrer operates, and his broker qualifies to execute the transaction, then the referrer will proceed.
Contact the other agent
After the referring agent collects all the relevant information about the client’s needs, as there are many real estate brokers, the referring agent looks for a best-qualified broker to satisfy the prospect’s need. When the referred broker accepts to handle the prospect, all the concerned parties should have a face-to-face meeting. Then, they discuss, negotiate and confirm the referral fee.
Sign a real estate referral fee agreement
After the client meets with the referred broker, the referring agent aims to make a referral fee agreement and have it signed by all the parties involved. The referral fee agreement is a formal legal document comprising terms and conditions that confirm the referral fee, usually 25%. After the real estate referral fee agreement is approved, the client and the new broker agent sign the listing agreement.
A listing agreement is an agreement according to which a real estate property owner (as principal) consent to allow a real estate broker (as agent) to find a buyer for the property on the owner’s terms. In return for this service, the owner rewards a commission.
Collect the referral fee
A real estate referral fee is commonly paid soon after the closing transaction of the client’s property. The referral fee equals the percentage (%) of the real estate agency’s net commission from the client. The referring agent should send a formal request for his part of the commission via the real estate commission invoice.
Fee and negotiations
There’s no standard fixed amount that the referring agent has to charge in real estate commissions for a real estate referral fee. However, there are some standard accords that most brokers adhere to. In the residential real estate sector, the standard is 25%.
It all depends on how much work was done or is required of the referring agent. How active was the referring agent in the completion of the transaction? Above all, it also depends on the negotiating abilities of the referring agent.
On the other hand, if the referred client’s property has issues and the transaction involved is complicated. So, there is extra work to be done than usual the referred agent may lower down the referral fee during the negotiation process. Given the situation, the broker has the right to lower the fee. But the broker should also keep in mind that the referring agent is under no obligation and can always take the client to another broker.
If the buyer wants to buy an income property in another state where the broker does not have the license to operate or conduct business. The broker agent in such a situation can demand an added commission since multiple transactions are involved.
There is a situation where the lead is high up in the funnel, client credit score, and other financial information does not make it eligible, so it may require an extra effort to get them to make a contract. In such a deal, you may try to negotiate the standard 25% down to 20%.
The referring agent gets his commission only after the execution of the final transaction. Upon completion, the client draws a check in favor of the broker. Then, the broker, as per the agreement, pays the referring agent’s commission. The referral fee amount and after how many days the payment to the referring agent will be paid, all such details are written in the agreement at the start.
Real Estate Referral Fee Agreement Template
The real estate referral fee agreement template is a formal document that includes information regarding all the involved parties in the buying and selling transaction.
With the real estate referral fee agreement template, the transaction is done according to real estate practices, and parties in the agreement protect their rights. A real estate referral fee template lets agents earn and validate their commission when referring a client to another real estate broker or agent.
This template is a formal contract between an agent and a referrer to prepare the terms and conditions of how transactions are measured, paid, and coordinated. The referral template keeps everything legitimate, honest, and open and is a point of reference to hold all parties answerable to their initial agreement. The real estate referral fee agreement template brings order and fairness to the joint relationship while limiting disputes along the way.
Following are some free downloadable real estate referral fee agreement templates for you:
Components of a Real Estate Referral Fee Agreement
All referral contracts are legal and binding. It’s a formal document that a licensed broker must ratify. The real estate referral fee agreement should explicitly confirm the duration of the terms of the agreement, the types of transactions involved, and the fee concurred. It must be signed by all the parties.
The following points must be included:
Real estate referral contract
- Referring Source: The real estate referral fee agreement should include the agent’s mailing address, name including photo identity as it appears in his driver’s license. The email address for correspondence and cell number
- Receiving broker/agent: The real estate referral fee agreement should include the referred real estate agent’s business mailing address, full name, including photo identity as it appears in his driver’s license. The email address for correspondence and cell number.
- Breakdown of referral fee: The referring agent brings the client to the broker. All the concerned parties reach an agreement on the commission which the client gives for the rendered services.
- Referring agent’s commission: A part of this commission is given to the referring agent for referring the client. Normally he gets 25% of the net commission, but depending on the quality of the client and the work associated with the transaction, the commission can be negotiated.
- Term of the agreement: The terms are the precise, effective date of the agreement and the date on which the agreement will terminate.
- Signatures from both parties (and broker): For the validation of the real estate referral fee agreement, all concerned parties should sign the document
- Contact details of the client referred: Proper photo identification of the client must be provided in the agreement, together with contact address and email address for correspondence and cell number
- Any other pertinent info regarding the referring agent’s existing relationship with this client: For future reference, details of the client are also written. Residential or commercial client. Permanent location of the client etc.
Electronic signature platform
No more printing. No more signing by hand. No more mailing back forms. With the Electronic Signature Platform, businesses/individuals can easily fill out PDF forms, sign them, and send referral forms electronically right from their desktop, browser, or mobile app. We don’t have to fill it out online. Agents can export this form in PDF and save it for future use and edit it and have it on the desktop when needed.
- Click on forms. (self-explanatory, but few details should be worth keeping in mind.)
- The referring agent will put all his details here, brokerage name, the license number for the brokerage, the agent name that’s making the referral, the agent signature, address, telephone, and email. The referring agent Tax ID. The tax ID is essential because when the receiving broker gets paid, they will have to pay commission to the referring broker and issue 1099. So the receiving broker will need the address and the tax ID to issue 1099.
- Similarly, the recipient broker will put all his data here, brokerage name, the brokerage license number, and the agent’s name at that precise brokerage that will deal with this client, the agent signature address, telephone, and email. In addition, the referring broker will have his Tax ID.
- The important part, the client’s name. If an agent has multiple leads referring to an agent or wants to do a series of referrals on a single form, it can be done here. The address for the client telephone, email, and other information that may connect to other contact information. It could be written about the client that’s being referred. The more information, the more efficient the form becomes. The receiving broker must have all client contact information to interact and work with the client and close a transaction.
- In the consideration part, the receiving broker agrees to pay the referring broker. In the % space, the standard is 25%. But, it varies depending on circumstances. There’s an option for a flat dollar amount. If the referring agent is not doing a percentage but a flat fee, it can be entered as the commission earned by the receiving broker from the client-side of the transaction upon completion of the transfer real estate. The standard time frame of the contract is nine months. The parties can extend or reduce the time frame that this referral is active from the date of the agreement and the date agreement is executed.
- Finally, in the signature section, both the referring and the receiving brokerage put the brokerage’s name, the broker’s name, signature, and the date.
This covers all the basics in terms of a referral fee. It’s very simple to fill out. It’s only one page. It will protect everyone involved, and it has all the pertinent information to conduct a referral properly.
Do’s and Don’ts
In the real estate business, everyone thinks that one can get rich overnight. But if a broker goes into business without a plan, he is destined to fail. There are do(s) and don’t (s) involved in real estate referral fee agreement :
Following are some do’s of real estate business:
Network with like-minded realtors and brokers
A real estate agent develops a relationship through various interactions. In most cases, these contacts can improve your business in some way or another.
By employing their services or the openings, their services can be given to your clients.
The quality of your relationship often shows the quality of your business, but this is particularly true for real estate investors or agents.
Choose a knowledgeable, experienced referral partner
Referrals are very important for the growth of a real estate business. Referring agents bring clients and both the referring and the recipient broker benefits. However, not all referring agents have professional qualities. The referring partner should know about the location for business growth to analyze the client and have connections in the residential and commercial real estate business.
NOTE: Check broker licensure before transmitting a referral fee (this is a big one for out-of-state brokers sending referrals via lead gen sites)
All real estate broker has a license to operate in a specific state. The broker has to pay part of his commission to the referring agent as a fee. Brokerage companies should carefully examine laws that govern who can receive a fee and under what circumstances. If the referring agent has no license, it can create legal issues for the broker. Some state and federal laws prohibit unlicensed referrals.
Give referral partners access to your CRM so you can share notes and updates in real-time
CRM keeps customer contact information up to date, follows every customer interaction, and manages customer accounts. As a result, it helps businesses improve customer relationships and also Customer Lifetime Value. Both the referring agent and the recipient broker must constantly share information about the customer.
Following are some don’ts of real estate business:
Rely purely on third-party sites; human connection is still king.
The advent of the internet has brought many referring websites. Customers visit these sites, but people prefer human relationships. Therefore, the brokers must establish a face-to-face relationship and avoid third-party referral websites.
Recommend someone you don’t know (it’s just bad business)
The real estate business is based on a network where everyone knows and trusts each other. Recommending someone outside the network or someone unfamiliar may create a problem. An outsider may not know the practices of the real estate business. He might steal the client and refer it to someone else. The best is to stay within your network and work with people you know.
Pay a referral fee without checking the broker’s licensure first
All referring brokers must have a license to operate. This is because the referred broker has to pay the commission fee, and if the referring broker is un-licensed, it will create a legal problem as state and federal laws prohibit such transactions.
Forget to follow up with your referral leads!
A real estate lead has the name and contact information of someone who can potentially become a future client. Sometimes in the real estate business, leads are only a full name, a phone number, and someone who expressed interest in the broker’s services. All leads are prospects that must be followed.
Few Questions that a Referring Agent Might be Asked
The real estate referrals business is passed from agent to agent, and it is part of every US market. Buyers and sellers of real estate property hire referral agents for the transfer of property. Agents want a constant stream of referrals flowing into their business because they’re a valued lead source when adequately targeted. In an ideal referral relationship, each agent gets a fee and builds their network, so each agent benefits in multiple ways. However, both the referring and the receiving have many questions to answer.
How well do they know the client?
Before referring the client, the agent does a complete analysis of the client’s needs and expectations. He has a prior friendly relationship with the client.
How was the lead generated and qualified?
The referring agent does a proper check on the property meant for buy/sell. Any debt attached would make the transaction difficult. Are there liabilities attached to the asset? The ownership document is checked. After all the checking, the lead qualifies to become a client
How many efforts have the referring agent already put into the lead?
Telephone calls, email correspondence, and personal meetings are all the referring agent’s efforts to convince the lead to become a client.
Is the client pre-approved by the lender?
Most properties have a mortgage attached. The client has to prove his creditworthiness before the lender can approve his mortgage application. The agent must check the client’s creditworthiness to complete the transaction.
Will the agent receiving need shadowing, mentoring to close the deal?
The recipient broker should be competent in his area of business. The referring agent should know the experience and the capability of the broker. If the broker is a novice in his field, this will affect the client-agent relationship.
Strictly how much involvement will be required from each party?
The referrer should play his part in establishing a relationship with the client. The receiving agent should know all the legal practices of the real estate business, and the client should have trust and willingness to close the transaction.
Frequently Asked Questions
Can a real estate agent pay referral fees to non-agents?
No. The real estate agent must have a license to operate. Federal and state laws prohibit non-licensed brokers
What is a reciprocal agreement?
The real estate business has a network in which like-minded brokers operate. If one broker sends a client to another, he can form a reciprocal agreement. In such an agreement, both the agents refer clients to one another depending on the circumstances.
For example, two agents, one provide services in residential and the other in the commercial transaction. Real estate practices in residential and commercial areas are different. They can make a reciprocal arrangement to refer to one another if they find a client in each other’s market.
How to create a high-producing referral work?
The referring agent has a license to operate and can affiliate himself to a real estate brokerage. Referral groups of agents can also affiliate themselves to the brokerage. All can work in different locations and find prospects. Real estate brokerage is a better way to increase income instead of marketing and searching for a client. Both the referring agents and the recipient benefit from such a deal.
Difference between referral and finder’s fee?
Finder’s fee is in money or gifts. In contrast, referral fees are always monetary. Brokers pay finders directly. The lead broker receives the commission for referral fees first, then out of his commission, he pays the referrer after completing the transaction.