Your Quick Guide to Real Estate Referral Fees (2024)

Most real estate agents entering this industry come with the mindset of getting their paychecks rolling. But you may realize that the reality is going to be so different where you'll have to struggle the most in getting leads and converting them into your clients. Even after several solid marketing strategies, some real estate agents fail to get a steady stream of clients that can help them run their business smoothly.

If you are someone who has tried their best to get clients but, even after multiple efforts, you fail to get clients, you can try real estate referrals to earn real estate referral fees.

While no real estate agent wants to drive away their client, there are some circumstances where you may not be able to serve them. In such scenarios, it's always better to refer your clients to another deserving agent instead of dismissing them and losing them forever.

Passing a client to another licensed broker or real estate agent is called a real estate referral. And when you refer the client to another agent, you can take a real estate agent referral fee.

A referral fee in real estate is the commission you earn for referring your client, whom you cannot serve for some reason, to another capable and licensed real estate agent.

Now, there are several reasons why one real estate agent cannot serve a client. It may be because the client is looking for a home to buy or sell in the industry the agent doesn't serve, or maybe they have a tight lineup of existing customers. We'll get to the "why" part later in the article. Let's first focus on how referral fees work.

Let's assume you're Agent A with a client who wants to buy a home not in the industry you cover. So, instead of chasing them away and creating a bad image for yourself, you refer them to another real estate agent you know – Agent B. If Agent B can get them a property successfully, they'll receive the real estate agent commission of a certain percentage of the price. And instead of keeping the entire amount to themselves, Agent B shares some part of it with you – your real estate referral fee.

And that's how real estate referral fees work!

There's no typical real estate referral fee since it's negotiable. Ideally, the standard fee is 25% of the commission the real estate agent gets for the property, but it can range anywhere from 10 to 50% of the commission, depending on the market served. This is also a great way to earn something extra and not completely lose your client.

There are several reasons to conduct real estate referrals. Some of them include:

Sometimes you may get a prospect searching for a home in a location you don't serve. For example, if you are a real estate agent in California and a client asks you to help them find home in Alaska, you may not find any logic in doing business in that state if you are not licensed to do business over there. In this situation, referring the client to another agent you know serving in their desired state and earning an agent referral fee is a wiser choice.

You can conduct business in different types of transactions. But if an existing or a new client asks you to do business with an unfamiliar type of transaction, it’s better to refer them to someone you know who deals in that type of transaction.

For example, a client you've helped sell residential properties is now expanding their horizon with commercial buildings and approaching you to help them with it. And if you haven't worked in the commercial sector and don't hold the expertise, you might not do the job for that customer. In this situation, referring them to another proessional who handles the industrial estate zone is beneficial. This way, your client will receive the expertise, and you'll earn some real estate referral fee.

Having too many clients is a genuine blessing and a problem every real estate agent would love. But sometimes, it can be stressful, especially if you have other things on your plate. You can refer the client to another real estate agent you trust.

Some agents only work as referral agents, actively recommending other real estate agents from their social circle and earning an agent referral fee.

Ideally, the broker of the receiving agent pays the referral fees for real estate within ten days of signing the final deal, and the client doesn't bear the fee. So, the amount the buyer or the seller pays to a real estate agent does not include any additional referral fee to it.

There are two situations where you need to negotiate the referral fees:

• As the referral-receiving agent: Imagine receiving a lead unknown to you and at the top of the funnel where you'll need a lot of persuasions and hard work to get them in your contract. In this scenario, you can negotiate from the standard 25% to 20% as an agent who received the referral.
  ‍
• As the referral-giving agent: If you get a client who wants to purchase income properties in a state where you aren't conducting business or don't have the legal license to do so, you can consider increasing the referral fee to 30% or even 35% since the client will be making multiple purchases.

The digital age has enabled real estate agents to generate different leads through digital methods. But the authenticity of these leads and the sources' qualifications are not accurate enough. In this scenario, a high-qualified lead from another real estate agent carries high value.

You can scale your business immensely with one good quality referral. For example, after a successful deal, the client referred to you will spread the word about your business to their family or friends, exposing your business to more audiences.

So, yes, paying the real estate referral fee to the agent who referred you is worth it in expanding your business and ensuring you have a steady flow of active clients.

You may still question the success rate of being referred by other real estate agents, but here's a quick statistic to drive away your doubts. In 2018, according to a report by Referral Exchange, real estate referrals ran strong, where the number of agents who earned between $20,000 to $50,000 increased from 17% to 20%.

Start building and strengthening your relationship with other real estate agents because scaling your business needs more than talent and good marketing today. It's also about networking and building good connections for the future of your business!

1. How to request for a referral agent fee after referring a client to a real estate agent?

If a client approaches you and you cannot deal with them, refer them to another licensed real estate agent who knows the industry and can best serve them. Once you refer them, make sure to contact them with an expectation of a referral fee. The percentage set for the referral fee is negotiable.

Also, remember that if you set a referral fee, have a referral agreement before working. This is to ensure that you receive your fees without any difficulties.

2. What's the earning of a referral agent?

The steps to understand your referral fee structure are:

• Figure out the gross commissions of the receiving agent's firm to represent client you referred
• Multiply your gross commission with the referral fee that's negotiated
• Lastly, multiply the result with the referral brokerage by your split

3. Referral fee vs commission: Are they the same?

A referral fee in real estate is a type of commission. It is a payment made for connecting one client to a real estate agent. A commission is what a person will earn in exchange for the services they have offered.

They both are technically NOT the same because while the commission is something a buyer or seller has to pay to their real estate agent, the real estate agent referral fee is paid by a broker without adding any extra payment in the client's invoice.