Real Estate referral fees are a seldom-discussed little secret of real estate.
A referral fee can be earned when one agent refers a client to another agent.
They’re perfectly legal, if correctly handled.
In Idaho (and most states), referral fees must be paid to the receiving agent’s broker.
It’s illegal to pay a referral fee to an unlicensed person or entity.
Idaho law also prohibits “after the fact” referral fees (where an agent or relocation company demands a referral fee after an agent is already working with the client).
Amazing as it may seem, there are real estate brokerages whose sole business is referring clients to agents who are willing to pay a referral fee to them.
Those companies don’t sell any homes; they make their money on referral fees.
While there are not set rates for referral fees, it’s common to see them range between 20% to 25% of the commission the receiving agent earns.
I routinely help my relocating clients find a competent agent in their destination city and receive referral fees in return.
Unlike some referring agents, I earn those referral fees by confirming the competency, experience, and responsiveness of the agent who ultimately gets my referral.
I love to test those agents by calling, leaving a message, and seeing how long it takes them to respond.
The agents who answer their phone or respond quickly get my referrals.
The ones who take three days to respond?
Not so much.
The key to handling referrals ethically lies in full disclosure.
Lacking full disclosure, the client has no way of knowing that money will change hands in return for a referral because they seldom show up on closing statements.
Referral fees are usually paid broker-to-broker after closing, which avoids full disclosure.
I disclose referral fees to my clients because I firmly believe they have the right to know who’s being compensated in their transactions.