Real Estate Referral Fees: The Ultimate Guide for 2024 by Emile L’Eplattenier for HousingWire

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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?

What are the benefits of referrals?

What is a real estate referral fee?

How much are real estate referral fees?

Who pays the real estate referral fees and how are they paid?

Drafting a referral agreement that works for all parties

How to find a great real estate agent in another area

When to accept a referral (and when not to)?

Other real estate referral sources

The Bottom Line

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).

Many other industry professionals aren’t allowed to give referrals to each other and collect fees, so we are fortunate this is an option for us in real estate!

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!

Only people with a real estate license can receive referral fees. Paying a real estate referral fee to an unlicensed person, like a buyer or seller is illegal. Some agents try to get around this law, but it’s not worth risking your license.

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.

It’s not always the most tenured agent who’s the best fit. Sometimes, newer agents who are highly trained but have less experience do an even better job than the 30-year veterans because they’re working hard to prove themselves.

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.

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