Have you ever worked with a real estate agent who was eager to refer you to another agent in another real estate market?
Well, there’s a reason for that eagerness.
That reason is a “referral fee”.
One of the inside secrets of real estate is the practice of referring clients to other agents in return for receiving a portion of the receiving agent’s commission when a sale occurs.
In real estate speak, that’s called a referral fee.
Referral fees aren’t illegal, but I believe they should be fully-disclosed to all parties to avoid the appearance of a conflict of interest.
When I have a client who’s relocating, I ask them if they’d like my help finding an agent in their new location.
If they want my help, I discuss the details of their move with them in detail so I understand their needs, wants, likes, and dislikes.
Then, I research the market where they will be relocating to identify competent agents who might be a good fit for my client.
Then, I “test” one or more of those agents by calling and e-mailing.
I actually hope they don’t answer their phone so I can leave a brief message to see how long it takes them to respond.
If they don’t respond promptly, I eliminate them from consideration.
Those agents who answer their phone on the first or second ring go to the top of the list!
I also evaluate their internet presence as an indicator of competence.
Agents with no internet presence, only a business card webpage, or a sub-page buried deep in their broker’s website, are automatically eliminated.
If they don’t understand the role of the internet in today’s real estate market, they’re probably lacking in other areas of real estate too.
Finally, I interview them on the phone to determine how active they are, how long they’ve been in real estate, if they’re full-time, if they know the area where my client will be relocating, and assess their business practices to determine if they’re a good fit for my relocating client.
If they pass those tests, I refer my client in return for a portion of their commission.
I also follow up on the transaction afterward.
In other words, I “earn” my referral fee vs. just passing along my client’s name, hoping to receive a referral fee.
Typical referral fees range between 20% to 25% of the receiving agent’s commission and cost the client nothing.
Corporate relocation companies also require referral fees from receiving agents and their fees are almost always considerably higher.
Agents willing to accept relocation company referrals are often required to pay a referral fee of 30% or more (I was offered one for 37% earlier this year and renegotiated it).
Referral fee agreements should be documented in writing before the transaction occurs.
In Idaho, it’s illegal to pay a real estate commission to anyone who’s not a real estate licensee.