Updated August 25, 2023
A real estate referral agreement is used when a real estate agent refers a client to another agent in exchange for a referral fee. This is commonly used when an agent’s client is seeking to buy, sell, or lease property outside their own jurisdiction.
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Table of Contents |
What is a Real Estate Referral Agreement?
A real estate referral agreement is used when an agent has a client they would like to refer to another agent in exchange for a “finder’s fee.” This is most common when a client requests services outside of the agent’s jurisdiction or if they are requesting real estate services the agent does not offer.
Average Referral Fee
25% is the national average referral fee amount (Source: Zillow).
Can a Real Estate Agent Pay Referral Fees to Non-Agents?
No. In most states, the practice of agents paying finder’s fees is illegal unless the individual is a licensed real estate agent or attorney.
How Does a Real Estate Referral Work? (4 steps)
- Understand the Client’s Needs
- Contact Other Agents
- Create a Referral Agreement
- Collect the Referral Fee
Referrals in the real estate community are so common that many offices make exclusive deals with one another in certain jurisdictions. It is a great way for an agent to point a client in the right direction and collect a fee if a transaction occurs.
1. Understand the Client’s Needs
The agent should meet with the client to discuss their goals and desires. If it is outside the expertise or jurisdiction of the agent, they should still obtain as much information about the client’s needs in order to pair them with the best real estate agent who can help them.
3. Create a Referral Agreement
Once the client and the recommended agent have been introduced, a referral agreement should be signed. This will legally bind and confirm the referral fee, commonly around 25%, and any other terms in the agreement. After the referral agreement is signed, the client and the new agent will need to sign a listing agreement.
4. Collect the Referral Fee
A real estate referral fee is commonly paid immediately after the closing of the client’s property. The referral fee is equal to the percentage (%) of the net commission that was paid to the referred real estate agency. The referring agent should send a request for payment using the real estate commission invoice.
Reciprocal Agreement
Whenever an agent should send a client to another agent, they should request a reciprocal agreement. A reciprocal agreement requires both agents to refer clients to one another for specific situations.
Example: A real estate agent who services San Francisco enters into a reciprocal agreement with an agent who works in Los Angeles. Under the terms of the reciprocal agreement, they must refer clients if they find any in the other’s market area.