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Here’s our complete guide to sending and receiving real estate referrals and earning more money this year. We’ll break down everything you need to know about real estate referral fees, including how they work, typical referral fee rates, how to draft and manage referral agreements, and how to develop a successful referral network.
Agent-to-agent referrals aren’t as commonly mentioned in most real estate lead generation training courses as cold calling or door knocking. Yet referrals are one of the best ways new agents can close more deals and earn more money. Real estate referral fees are also a fantastic way for experienced and busy agents to get a nice paycheck without doing much work.
According to NAR, five percent of sellers and four percent of buyers found their agent through another agent’s referral. That may sound like a small percentage, but out of the 4 million homes sold last year, that’s 160,000 to 200,000 transactions!
Summary
What is a real estate referral?
A referral estate referral occurs when a licensed agent or broker passes along a prospective buyer or seller to another licensed agent to handle a transaction. The receiving agent becomes the buyer or seller’s primary point of contact and representative, and the referring agent receives a referral fee if a transaction closes.
Sometimes, a real estate agent may choose not to work with a specific buyer or seller. Perhaps the client wishes to make a purchase that isn’t in the agent’s geographical area or their wheelhouse of expertise. Instead of giving up the business, the referring agent introduces the potential client to another real estate agent who is better positioned to help them.
Typically, once the referring agent introduces the client to the receiving agent, they will no longer participate in the transaction. Their work is done, and it’s up to the receiving agent to serve the client and close the deal.
What are the benefits of referrals?
Real estate referrals and referral fees encourage cooperation amongst an interactive network of agents and brokers. Developing a trusted referral network can generate new business for you (and your network). On the client side, referrals ensure that each client is appropriately matched with an agent or broker with the right expertise (and licensure).
What is a real estate referral fee?
A real estate referral fee is a payment made or received as compensation when one real estate agent or broker refers a client to another agent or broker. Real estate referral fees create an incentive for agents to pass along leads, ensuring that every client receives top-notch service, even if the referring agent is unable to assist them directly.
In other words, in return for being handed a piece of business, the agent accepting the referral agrees to pay a percentage of their commission to the referring agent (well, to their brokerage, to be specific). It’s a win-win!
How much are real estate referral fees?
Real estate referral fees depend largely on frequency, the market, client readiness and the value of the deal. I’ve seen anywhere from 25% to 40% of the gross commission income (GCI) being offered to the referring agent. By far, 25% is the most common rate. If you’re the referring agent, you ought to initiate the referral fee conversation and propose the referral fee rate. On the flip side, offering less than 25% may be seen as being cheap, but of course, there could be an exception here or there.
Keep in mind that referral fees (like commissions) are 100% negotiable between the two agents. It’s important to agree on the referral fee at the very beginning of the process, even before the potential client is introduced. This will ensure that you’re both on the same page and will prevent disputes down the road. Here are some factors to consider when determining real estate referral fees.
- Price point — You may see higher referral fees offered on properties at higher price points.
- How hot the lead is — A buyer or seller lead who’s ready to make an offer or sign a listing agreement ASAP would justify asking for a higher referral fee.
- Repeat business — Has this agent referred business to you before? Have you referred business to the same agent more than once? There could be a discounted referral fee for multiple referrals, but there’s no standard practice for this.
- Attracting more referrals — In major cities or areas that are highly saturated with great real estate agents, I’ve seen some agents set themselves apart by proactively offering a higher referral fee. For example, you could hand out postcards at a national conference advertising your offer to pay a 30% or 35% referral fee to any agent who sends you business.
Who pays the real estate referral fees and how are they paid?
In most real estate transactions, a referring agent (the person who turns over a client to another agent) receives a referral fee from the receiving agent’s brokerage when they successfully close a deal. The fee is deducted from the receiving agent’s commission at the brokerage level and paid to the referring agent’s brokerage.
Here’s an example of how it usually plays out:
- I’m selling Paul’s home in Boston, and he’s moving to Florida (no more Boston winters for him!).
- I ask Paul if he has a real estate agent in Florida yet, and he says no.
- I say: “No problem! As part of being a full-service real estate agent, I’d be happy to tap into my network of professionals and connect you with a great agent who can help you find a new home in Florida.” He says: “Awesome, thanks!”
- I get to work finding agents who work in the area he wants to buy in. (Keep reading for tips on how to find and interview agents in other states.)
- I find Kathy, the agent I want to send the referral to, and we agree on a 25% referral fee. I make sure to send Kathy a referral form to document our agreement.
- I group text Paul and Kathy to introduce them.
- Kathy finds Paul a fabulous waterfront house. They close, and Kathy’s brokerage receives a check.
- Twenty-five percent of that check (the GCI) is sent to my brokerage, and a portion of that (depending on my split) is directly deposited into my bank account.
- Everybody’s happy!
Drafting a referral agreement that works for all parties
Chances are, your brokerage or your local board has a standard referral form you can and should use. Be sure to fill it out with as much detail as possible and ensure everyone who’s required to sign it does so — usually both real estate agents and their brokers of record.
If your brokerage doesn’t provide a standard form, many state real estate associations provide template agreements for use by real estate agents, brokers and brokerages. For example, here is a real estate referral form provided by the California Association of Realtors. Additionally, the National Association of REALTORS offers a standard referral contract form.
Some agents choose to work with an attorney to create custom language. If you’re drafting your own agreement, be sure to include the following:
- Referring agent and brokerage’s contact information
- Receiving agent and brokerage’s contact information
- The potential client’s name and contact information
- Any information that would be useful, such as the lead’s timeline, ideal neighborhood, budget, etc.
- The mutually agreed upon referral fee rate (usually a percentage)
- The expiration date of the agreement
- Conditions for payment; how and when the real estate referral fee shall be paid (usually, at the close of a transaction)
- Agent and broker signatures
When you’re the agent receiving the referral, and your brokerage is paying out a referral fee, do your admin team a favor and let them know to who to send the check to, how much it should be made out for, and for which transaction it’s being paid. They will thank you!
How to find a great real estate agent in another area
Every agent has their own process for finding agents to refer business to. I start with the people I already know personally — my agent peer network. We stay connected on social media and see each other at conferences, and part of our lead generation is staying top-of-mind with each other to pass referrals along to one another.
If I don’t already know someone in the area I’m looking to refer to, I’ll ask my colleagues in my office if they know anyone in that area. If they do, I’ll call that agent and do a brief phone interview. I ask questions like how long they’ve been in the business, whether they’re full-time or part-time, and what their favorite thing about working with buyers or sellers is.
I’m affiliated with Keller Williams, so I start by calling the local KW office if no one in my office knows anyone in that area. I’ll ask to speak to the team leader or productivity coach, tell them about the potential client and their situation, and ask who they’d recommend to serve my client referral.
When to accept a referral (and when not to)?
Nine times out of ten, accepting a referral from another agent is a good idea. You’d still go through your normal vetting process with the buyer or seller lead and qualify them as a true lead who’s ready, willing and able to move. Most of the time, leads sent to you by another real estate agent will be more qualified than other types of leads. So go for it!
When not to accept a referral: if you don’t actually service the area, don’t accept the referral. I see this happen all the time in the Boston area, where I live. An agent from another part of the country will have a buyer lead for “Boston” but the area the buyer wants to be in is an hour’s drive from the city. So the best agent for that buyer is not one who works exclusively downtown. Act with integrity and only accept referrals you know you can serve at a high level.
Other real estate referral sources
There are other types of referrals besides geographical ones, although that’s the most common type. Here are some other opportunities to keep in mind as you look for referral sources:
1. Retiring agents
Real estate agents at the end of their careers are amazing referral sources. Check out the book Golden Handoff for a step-by-step guide to taking over a retiring agent’s business by referral.
2. Specialization
I’ve seen agents refer clients to colleagues who specialize in specific types of real estate that come with their own nuances, such as commercial properties, luxury condos, vacation homes, distressed properties, foreclosures, land, horse farms, and trailer homes.
3. Difficult clients
I’ve referred difficult clients or situations to other agents before, and it saved me SO much time and energy! If you have a demanding client who may be better suited to another agent, go ahead and refer them to another agent or broker. And if you’re looking to build your business, be known as the go-to agent who will take any difficult client off your colleagues’ hands.
4. Language
We have a lead right now who we are matching with a real estate agent who speaks their native language. Sometimes, it’s in the client’s best interest to transact in their first language, if at all possible.
The full picture: Real estate referral fees
Sending and receiving real estate referrals is a fantastic way to increase your business and your income in 2024. Keep in touch with your fellow agents, provide exceptional customer service to every referral that comes your way and you’ll build a database of people sending you clients for years to come!
About Ashley Harwood
Ashley Harwood began her real estate career in 2013 and built a six-figure business as a solo agent before launching Move Over Extroverts in 2018. She developed training materials, classes, and coaching programs for her fellow introverts. Beginning in 2020, Ashley served as Director of Agent Growth for three Keller Williams offices in the Boston metro area. She’s now the Lead Listing agent for the Fleet Homes team in Massachusetts and a regular contributor to Vetted by HousingWire. She created The Quiet Success curriculum and has taught thousands of real estate agents nationwide. She has also been a guest speaker at top industry events and has been named a leading real estate coach by prominent industry publications.