What Are Real Estate Referral Fees and How Do They Work?

If you’re new to the real estate business, you’re probably looking forward to getting your first commission check. But don’t forget about other streams of income you may have available. Referral fees can become a welcome addition to any agent’s bottom line.

As well as increasing income during those first shaky years of your career, offering and accepting a real estate referral fee is also an excellent way to increase your network.

What Are Realtor Referral Fees?

Referrals in real estate allow agents to support relationships with other professionals in different states or specialties.

A real estate referral fee allows agents to earn a commission when they refer a client to another real estate broker or agent.

Understanding How Realtors Are Paid

Part of understanding how a referral fee works in real estate is understanding how real estate professionals are paid. By law, commissions from sales are paid only to the brokerage at the close of a transaction. The brokerage then pays the agent a percentage of the commission from that amount.

With referral fees, the closing brokerage will pay the brokerage of the referring agent, which will then pay that referring agent.

The National Association of Realtors (NAR) states that up to 24 percent of people will choose to work with an agent they’ve worked within the past.

However, you may not be the best agent to help your client. Perhaps your client is moving to a state you’re not licensed. If that’s the case, you won’t be able to help them with their purchase.

Another example is if your residential client is interested in buying a commercial property for their business. In this case, you should refer them to a specialist with a broker referral so they can assist with issues like zoning laws and different avenues for financing.

The good news is that you’ll receive a percentage of the commission when the transaction closes.

How Much is the Real Estate Referral Fee?

Real estate referral fees can run anywhere between 20 to 50 percent, but the industry standard is 25 percent of the gross commission received by the brokerage you’ve referred to.

The amount can vary depending on a number of factors, and you can negotiate a higher percentage of the commission if you think it’s warranted by your efforts.

Referral Fees for Non-Agents

One surprising aspect of real estate law is that paying referral fees to individuals is not permitted. The Real Estate Settlement Procedures Act (RESPA) of 1974 makes it against federal law for a real estate broker to referral fees to a non-licensed individual.

Doing so could result in the broker or agent losing their license.

Real Estate Referral Agreements

Before referring a client to another agent, you’ll want to have a clear referral agreement with the other brokerage. NAR provides an excellent form online you can download. It outlines all the considerations you’ll need to make before sending a client to another brokerage.

New real estate agents should always confer with their supervising broker before making a referral. Many brokerages have their own forms and terms, and your broker will help walk you through their policies.

Building Your Network With Referral Fees

It may seem crazy to turn away a client, but sometimes it’s the ethical thing to do. It can also work in your favor. Referring a client to another agent helps create good relationships with other professionals, building a network of individuals you can rely on.

Success in sales is all about building relationships. In real estate, it’s even more critical. As well as building relationships with clients, you have to build relationships with other professionals. One excellent way to create good relationships and an extensive network is with referral fees.

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