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The Importance of Real Estate Referrals

A Real Estate Referral Fee is a portion of commission paid to another agent in exchange for a client that closes on a transaction. Referral’s have been around in the business for a long time now, but many tend to look past this route of a very lucrative way of growing your business. Especially with the newer agents, they seem to think one of two things. First they think that because they referred the business out it means they’re not capable of handling the transaction and it looks bad in the clients eyes. Second, they assume that because they’re not making 100% of the agent fee they’re not making money. We’ll run down why those two ways of thinking are absolutely WRONG and will hurt your business drastically. Then we’ll discuss topics like the best real estate referral companies, how much you should charge for your referral, and the most common reasons you’d make a referral. 


So, what is a referral? A referral is when you have a client you’d like to pass over to another licensed agent so they can completely take care of the deal and help your referral client close a transaction. As much as us real estate agents would love to be the go-to, all things real estate related contact for everyone we get in touch with, there are occasions where it's not practical for us to take care of a client. Bound by the code of ethics, it's our duty to ensure that real estate clients work with someone who has their best interest in mind. If there comes a case where it’d be the best case to pass over a client, then you ought to do it. 


What are the most common reasons for referring a client? 


Unqualified Transaction

There may come instances where you have clients that would love to work with you but you are unqualified to handle that transaction. A referral may be the best way to provide the best service they deserve, even though you’re not qualified for that specific transaction.


Say you’re a premier residential Realtor. You’ve been working with residential buying and selling clients for your entire career but now you have a previous client that's interested in purchasing a commercial property to move their business. Legally speaking you can help them transact but morally speaking it’d probably be best if you can refer them out to a highly qualified commercial agent. 


Out Of Area Transaction

There will come times where your previous clients would like to relocate and request your assistance in selling their home. Great! You can do that with no problem. But if they’re going to be purchasing in another county or even another state you’d be less than qualified or at times not even be licensed to perform the transaction. You don’t want to lose the client for good and send them on their way looking for an agent that will fit their needs. It would be best practice to find a like minded agent that you know will work well with your clients and refer them into trusted hands. 


Don’t Want To Work With Buyers

Many times once an agent picks up a huge book of business they only want to focus on listings and work with a very limited, selected buyers. In these circumstances that agent probably is a team leader or the head broker of an office so they don’t have a problem referring buyer clients to newer agents to take care of while they shadow the transaction. If you’re a busy agent and want to focus your business more on listings, explore this route. Or, if you’re a newer agent, a part of a team, ask your broker if they’ll refer some business your way. 


What to charge for referral clients? 

There is no set fee for referring a client to another agent or broker, that's the beauty of it. I have 1 tip a referrer or a referee should follow. 


If you're a referrer, charge a percentage amount as hot as the client is. If you're referring a buyer client that's on the fence of purchasing and needs some convincing you should charge a modest 15 - 25 percent of the deal. If you’re referring a hot lead that's ready to pull the trigger in the next week or so, cash in hand or home ready to sell then don’t be afraid to try to charge as much as a 40% fee. There are tons of willing agents ready to do business regardless of the cost. Many new agents need the experience so it’s a win / win for the both of you. The harder or longer you know it's going to take to close a transaction the less you should charge. The easier it will be, the more you should charge. Remember that as a simple rule of thumb. 


If you’re the one receiving the referral it's time to negotiate! Contrary to what I just said you should go all in to try to get the best deal out of the referral. Don’t push too hard or the referrer will just choose another agent but remember that there's always wiggle room. 


Why you should consider referring

At the beginning of the blog we mentioned that if you don’t refer business you’re wrong for doing so, but why? First, you cannot be greddy in this business. Your clients come first, so if it's better for you to refer them to another agent to do so. You’ll look even better in their eyes if you’re honest and tell them that you have a more qualified agent in mind that would handle the transaction with more professionalism. 


Secondly, when you refer a client that doesn’t mean you’ve lost them forever. In our business repeat clients are huge and if you properly took care of them this time they’ll trust you down the line. Whether it's to ask for another referral or for you to take care of them, they’ll be back. If you nod them off without referring them directly, you won't be building that long term trust with them therefore guaranteeing a loss in their future business. If you’re in this for the long term, referring clients is essential to your continued growth. They’ll thank you now, and remember you later. 


Where can you find referrals? 

Real estate referrals can be found in multiple places. Most common is in your own office or brokerage. Many agents will either have clients that would need different experience. Or like mentioned before, top producing agents may want to refer clients over if they’re too busy. As around your office and be willing to receive any and all referrals. 


Many connections outside your brokerage. That’s one of the main purposes of The Pocket Network. We want real estate professionals to share their business and their knowledge of everyone across the country. Connect with professionals in other areas and offer your willingness to assist their referrals. You won't imagine how quickly your business will grow by making a few simple contacts. 


Join online referral services. Websites like Zillow Flex, Nuop, or Opcity are great resources to look into. These suppliers typically charge higher referral fees but it may be worth the try. New agents literally have nothing to lose. 


Wrapping it up

All real estate agents must understand how referral fees work in the real estate industry. Whether you have clients who are movers or you live in a desirable area where people are relocating or buying vacation homes, you must be aware of real estate referral fees. They can be a fantastic source of cash for you, and the practice is essential to provide the finest service possible to your clientele.