What is a Standard Referral Fee?
For a typical real estate transaction, the referral fee is generally around 25% of the gross commission earned by the agent who represents the client you’ve referred. This percentage applies more to agent-to-agent referrals rather than to real estate lead services that operate on a success-only basis. Services like OpCity, Real Estate Exchange, and Redfin often charge referral fees ranging from 30% to 35%.
However, there are exceptions to these standards. Notably, retiring agents may negotiate significantly higher referral fees as part of their succession strategy when transitioning from a full-service role to one focused solely on referrals.
Who Pays the Referral Fee?
The broker of the agent who receives the referral is generally the one responsible for disbursing the referral fee. This payment is typically required within 10 days after the closing of the transaction and is subtracted from the gross commission that the firm earns from representing the referred client. The payment can be processed in one of two ways:
(i) The referral fee is documented on the settlement statement, and payment is then managed by the settlement agent.
(ii) Alternatively, the fee isn’t listed on the settlement statement, and it’s paid directly by the receiving real estate firm.
For a practical example of how referral fee calculations work, continue reading.
How Do I Request a Referral Fee?
Unlike buying from a store, there’s no fixed price for referral fees in real estate. The fee is negotiated between the referral agent and the receiving agent, where factors like client details, property specifics, and local market dynamics significantly influence the final amount. Here’s how to approach this negotiation:
Prepare the Ground. Begin by ensuring the receiving agent knows that the standard referral fee is around 25%, setting a baseline for the discussion.
Provide Your Rationale. Explain why this specific referral justifies a fee higher than the norm. Use elements like social proof, scarcity, or your expertise to justify your case.
Make Your Proposal. Clearly state the referral fee you’re seeking (anchoring), then inquire if this amount is acceptable to the receiving party.
Stay Focused on the Goal. Listen to their response carefully. If you need time to think, let them know you’ll get back to them. Remember, the key isn’t just the fee but ensuring the lead gets to an agent who can close the deal. A high referral fee on an unsuccessful transaction is meaningless.
It’s advisable to negotiate this fee upfront, document the agreement in writing, and obtain signatures from all involved brokers. If confidentiality is a concern, negotiate without disclosing names until there’s an informal agreement via text or email.
How Much Can a Referral Agent Earn?
Calculating your earnings as a referral agent involves three key steps:
Identify the Gross Commission. Determine what the receiving firm’s commission is for representing your referred client.
Calculate the Referral Fee. Multiply that gross commission by the agreed-upon referral fee percentage.
Apply Your Brokerage Split. Multiply the referral fee by your split with your referral brokerage.
Here’s an example:
If the receiving firm earns a $10,000 commission from selling the referred client’s property and you’ve negotiated a 30% referral fee, your firm is entitled to a $3,000 referral commission.
If your agreement with your referral brokerage, like at NJR where you get a 100% split minus a flat transaction fee, you keep the full $3,000, minus that fee.
However, if your split with another brokerage is 80%, your take-home would be $2,400 before taxes.
This demonstrates how lucrative a well-placed referral can be, even if your involvement is limited to making the introduction.
