Real estate referrals are being passed from agent-to-agent every day in every US market.
Agents want a steady stream of referrals coming into their business because they’re a valuable lead source when appropriately targeted. In an ideal referral relationship, each agent gets a commission and builds their network, so each agent benefits in multiple ways.
What are the best practices for business savvy Realtors to go about referring each other?
We created the 2021 Guide to Real Estate Agent Referrals just for you! Here’s everything you need to know about how agent referrals work and what steps you should take when it comes time for your subsequent referral.
What is a Real Estate Referral?
Real estate referrals are a common practice in the real estate business.
A real estate referral a lead that you’ve spoken with and determined that you won’t be the best agent to help them get to their desired outcome. This situation arises when the real estate agent sending the referral client isn’t familiar with the buyer’s desired area or if it’s out of their licensed state.
The agent receiving a referral will expect to pay the referring agent a fee for referring the seller or buyer to their office. Referral fees can range depending on the local market conditions and the specific needs of the client.
What Are the Different Types of Real Estate Referrals?
Community and Local Business Real Estate Referrals
Community and local business real estate referrals are an excellent way for you to get your name out to more sellers and buyers.
You’ll sometimes see this called the Local Mayor Strategy, due to a requirement that you meet everyone in a small town and stay in touch.
Simply put, you build relationships with local business owners and organizations in your market and cultivate a relationship with the people that run them.
If they provide enough value and stay in touch, they’ll usually become that person’s Realtor due to their efforts. This type of local referral is an inexpensive business source but takes a long time to build.
Relocation Company Real Estate Referrals
Relocation service referrals are an excellent way for you to build your name in an area where there’s a high volume of relocating families.
Relocation companies are in the business of helping families move, and they’re always looking for real estate agents to help their clients when moving into a new area.
You can target companies that are expanding rapidly since their employees moving into the area will generate frequent real estate transactions.
You’ll be competing with in-house relocation divisions and large corporate relocators, but this is a profitable avenue if you can find your niche.
On the receiving end, it’s not uncommon for relocation companies to charge 30-40% referral fees, which are some of the highest in the real estate referral industry.
They capitalize on the urgency of the moment because an overwhelming majority of the clients transferring jobs have a short timeline to ensure a successful sales process.
In most cases, referral companies will partner only with an experienced agent within a small community to ensure they have a local expert working for their clients.
Past Client Referrals
Past Client referrals are a proven method for an active agent to build their already established business even further in any real estate market.
The past client referral business model is similar, relies on a long track record of success, though, and takes several years to build to a reliable source of transactions.
You’ll often hear of this model as a “Sphere of Influence” within the real estate industry. Strong relationships take time to build, so this type of referral model is a marathon rather than a sprint.
Of all the real estate referral sources, this one is both the longest and most popular over time.
Agent-to-agent referrals are the best of both worlds.
These leads have already spoken to an agent in another market. Once that agent has determined they’re ready and need an agent, they’ll go to work, finding the best fit for them in another marketplace outside of their own.
In some cases, they’ll have previous contacts or an in-house network at their brokerage, but in many, they’ll use a referral network or service to help them find the right agent to trust with their client.
How Do Agent Referrals Work?
When it comes to deciding who gets a referral, there’s no official “rule” or “system.” You’ll need to find an agent or brokerage that has a good reputation within the market.
Next, you’ll need to speak with the agent to make sure they’re a good fit for your client, that they’re familiar with the type of property your client needs, and that they have the kind of support staff and help needed to provide the same client experience that you would if you were working with the client personally.
Can I Collect Referral Fees from Unlicensed Agents?
You’ll need to confirm with your state’s regulatory board for sure. Still, the National Association of REALTORS states explicitly it is not possible, and we haven’t found a state that allows it.
A real estate license is required to collect referral commissions, and doing so without a license would be looked at as an illegal kickback.
Why Do Agents Love Working by Referral?
If you don’t have an agent-to-agent referral strategy, you’re missing out on a whole world of opportunities to work with motivated clients while skipping the typical chase required for online leads.
Real estate agents who work with referrals will often make their clients feel like they’re the only appointments in their schedule and that they care about them.
Clients recognize this because it’s true. The level of service offered by referral agents tends to be higher than usual.
To receive quality referrals from other agents, a good referral agent must:
- Have a wealth of knowledge about neighborhoods and schools and area transit.
- Help guide the search based on what’s essential to their client, ensuring they won’t be wasting time visiting properties that are just marginally similar or “good enough.”
- Have their finger on the pulse of what’s available, how much it’s worth, and what’s changing from moment to moment. They’ll use that information to guide clients toward the best opportunity based on their needs.
Excellent referral agents also demonstrate that they know the local real estate market as no one else does, using tacit knowledge that other agents can’t just find via google search.
They remember a neighbor from three houses down and the issues he had in selling his home and use that knowledge to help their clients avoid those issues.
For any service business, real estate agents included, the natural outcome of providing an incredible customer experience will lead to positive reviews or social proof, which helps convert future clients easier and results in more referrals over time.
Searching for the Right Agent-to-Agent Referral Partner
While some large franchises have their referral system in-house, many do not.
Small and independent agencies will often resort to searching online in the same way a homebuyer does when starting without any information.
This can leave you with a lot of work in the vetting process if you have the time to search and verify all the information.
Alternatively, an agent to agent referral network can give you the tools you need and ensure you’re only sending clients to trustworthy agents who are excited to work by referral.
How to Join a Referral Agent Network
A referral network is a group of real estate agents who have established a system to join together as trusted referrals for each other. Our referral agent toolkit gives you all the tools you need to:
- Connect with agents across the country for more inbound referrals and build an ongoing relationship
- Generate more income with direct agent-to-agent referrals (no middle man or expensive fees for our toolkit or technology)
- Find the referral agent to provide excellent service for your client (search by specializations, languages, and other advanced parameters).
How Does an Agent Get Paid When Sending a Real Estate Referral?
As with all things regarding commission in real estate, there is no set mandate. However, we often see a standard referral fee, and it’s 25% of the commission on the referring side (buyer or seller, or both).
However, this isn’t a hard and fast rule. Because real estate is a competitive market, agents have the option to negotiate their fees. Negotiations typically depend on the local market conditions and the complexity of the real estate transaction at hand.
Negotiating Real Estate Referral Fees
If you’re sending a referral client that needs to sell a high-end, fully upgraded home, who will also buy a new condo at closing, you might request a slightly higher amount for your referral fee.
In that situation, the agent receiving the referral may agree since they’ll be earning commission on more than one sale, and there may not be many issues with home inspections or repairs.
Pre- qualified buyers, cash buyers, and first-time buyers with immediacy in their timeline may also help you keep a higher percentage of the commission.
On the other hand, if you were to refer a property to be sold as-is, occupied by tenants, and at a lower price point, the agent receiving the referral might ask you to compensate them more due to the selling process’s nature required.
Distressed properties, investors with unconventional financing, or clients with legal trouble may require you to give a higher percentage referral fee to the agent receiving the referral client due to the amount of additional work involved.
Using the Correct Real Estate Referral Forms
Referral agreements are usually short, straightforward, and easy to read. However, since these are legal documents, you must keep in mind that many rules and regulations can apply to the real estate referral process in your state that do not apply elsewhere.
You may want to consult with your real estate broker or office manager to see if they have a standard approved referral form for your office.
If your office doesn’t have an updated referral fee contract, you can find the National Association of REALTORS version here.
What are the Best Ways for Agents to Refer Each Other?
There is no right or wrong way for an agent to refer another agent, but some are better than others.
Some have a higher likelihood of success than others, and others charge exorbitant fees in addition to the referral fee you’ll be paying the other agent.
We recommend direct agent-to-agent referral program first.
When agents are the primary parties involved, the customer experience is better.
Agents who prefer to work by referral say the primary factors they look for in an agent-to-agent referral partner are responsiveness and reputation. If that aligns with your ideals, too, this is probably your best route.
Both you and the other agent will be earning a commission from this client, looking for a positive review after the transaction, and probably staying in contact to get future referral business.
When everyone’s interests are aligned, it makes a transaction flow smoothly.
As a bonus, there’s no 3rd party taking a piece of the commission check, so you and the agent both keep more money in your pocket with agent-to-agent referrals.