As much as real estate agents would love to be the go-to resource for all clients all the time, it’s just not possible to deliver on every request, especially if you’re not licensed in the state in which your client is looking for a home.
However, these situations are perfect for a real estate referral, which is essentially the act of sending a client to the person who is the most qualified to provide them with the services they need and can be a great source of income.
Here’s how real estate referrals work:
A real estate referral fee is a portion of a real estate commission that is paid to a real estate broker in exchange for referring them a client. Though subject to negotiation, a typical referral fee is 25% of the gross commission for a single side of a transaction.
Real estate referrals happen all the time for a variety of reasons. Most commonly, they happen because a real estate agent is either unlicensed or unqualified to service their client in the purchase or sale of property in a particular geographic area, or for a particular type of real estate.
Here’s an example:
Let’s say you’re a real estate agent working in California and you have a client who wants to purchase a high-rise condo in Nevada. Even though these states are right next to each other, California license holders are unable to conduct business in Nevada.
However, you can refer this client to a real estate agent who is licensed in Nevada, and in exchange for that referral, you (actually, your broker) receives a percentage of the commission. Another good example of this is when your client is seeking services that you’re technically licensed to provide, but you don’t have the knowledge or level of experience needed to properly service them.
How do I get paid for making a real estate referral?
Just like the agent you’re handing your client over to, you don’t get paid until their transaction closes. When an accepted offer has been written on your client’s behalf, a clause is included in that contract that entitles you to the agreed upon referral percentage. When it comes time for the closing company to cut checks dividing up the proceeds of the sale, your broker is written a check just like the broker of the real estate agent to whom you referred the client.
Once your broker has your referral amount, it’s treated like a normal real estate transaction. They will pull their percentage for your split and issue you the rest.
The only paperwork required for a real estate referral is a real estate referral agreement. This is a basic contract between the two brokers of the referring agents that covers things like how the commission will be split and the length of the referral.
If you need a referral contract, the National Association of Realtors has an easy-to-use referral form you can get here. Unfortunately, a broker cannot legally pay a referral fee to a non-licensed person.