When a real is agent is not qualified or unable to serve his client in a particular area or neighborhood, he usually refers the client to someone who can help, a licensed broker or agent in that area. And when the latter party or agent earns his commission after closing the deal for the client, he has to pay a predetermined fee to the previous agent who referred the client. This fee is aptly named Referral fee, and this is more common than your might think.
How much is the real estate referral fee?
Real estate referral fee, like real estate commission, is not a universal or a fixed fee. Both real estate agents must agree on a rate or percentage when the client is referred and it varies from agent to agent. But the general rule of thumb is 25% of the commission. Again, it depends entirely upon the agents. If both parties agree on a 30% fee, they can. They can even fix a fee that is less than 25%.
Referral form or contract
When both parties agree to split the commission, 25-75, 30-70 or in rare occasions, 35-65, they need to get a contract ready. This is not a big hassle since the only paperwork required is a referral form.
Usually, this paperwork or the contract, provided by the agent, refers the client to the other broker.
When will the referring agent receive the commission?
Like the agent who will take care of and manage the client, the referring agent also gets paid when the deal closes and transactions are handled.
When should a real estate agent refer his client?
As mentioned before, when an agent gets a request from a client to represent him in a city or state where he is not registered or licensed to operate, he usually refers the client to another fellow broker who is licensed in that area.
It’s not just the neighborhood.
When an agent think he is not experienced to take over a major deal or doesn’t have any experience with a particular type of property, ideally, he would refer the client to someone who actually can care for the needs of said client.
When should you increase your commission or referral fee?
Even though 25% is the referral fee most people agree on, in specific situations, you are allowed to ask for a much bigger piece of the pie.
For example, let’s say you are licensed in state A and someone approaches you, determined to buy in state B. But unfortunately, you are not licensed in state B.
In this case, if you know someone from state B who is willing to take on your client, you can refer your client to them.
Now since the client is buying in his area, chances are, the client will buy again. This means repeat business for that second agent. You can use this to hike up your commission. Maybe even ask for a 35% commission for the referral. However, it will only work if the client you are giving him is a potential repeat buyer.
If you are the one getting a client, do your due diligence
If you are on the other side, the agent getting a client from another fellow broker, you need to do your due diligence before accommodating the extra 5% or 10% fee in the contractual agreement. Not every client referred to you will be a repeat client.
