How do Real Estate Referral Fees Work?

Here’s a question that real estate agents, real estate brokers, and home buyers ask all the time: how do real estate referral fees actually work?

There are a ton of different terms flying around in the home buying process, so it’s natural that all parties can get confused about this one! Real estate referral fees are an integral part of many different real estate transactions around the country. It’s important to note that not every transaction will include a real estate referral fee – but some of them definitely will.

As such, the more you know about real estate referral fees, the better. That’s where LemonBrew is here to help! This is our blog on how real estate referral fees work.

What Are Real Estate Referral Fees?

Let’s start from the beginning when we tackle this question: what are real estate referral fees?

It’s probably easiest to answer this question by concocting a sample scenario. Let’s say you – a smart, talented, real estate agent in location A – have a client that’s looking for a piece of property in a different location. Let’s be crazy and call that second location, “Location B.” Creative, right?

Well, that’s all very well and good, except for one, teeny-tiny, incredibly minor problem: you don’t actually have a license to act as a real estate broker in location B. This situation happens more than you think; imagine homeowners that want a second home in a beach or in a mountain state, or are looking to invest in another house (perhaps for friends and family) in a different location. They might not have the time, inclination, or desire to peck through internet listings and deal with real estate agents in a different state in order to get their dream home in a second location. Or, they could just feel very comfortable with the level of service you gave them in the past – and just don’t want to work with another real estate agent. They want to sit back and let you help find the perfect spot for them so they can relax. In either of those cases, you’ll probably be dealing with a real estate referral fee in order to get paid for all of your hard work.

There’s another situation that would also be appropriate for real estate referral fees. Let’s go back to that “smart, talented real estate agent” statement. That’s still true, don’t worry!

However – as all good real estate agents do – you know that you don’t know everything when it comes to real estate. You’re smart enough to know that there are some aspects of the business that you’re not qualified to speak on – certain types of transactions, for example. You’re also smart enough to know that you can still help guide your client to the right people in the industry. In those cases, you’re still doing plenty of work. You’re doing the research to find the right type of real estate mind that can help guide your client into the property they desire – which makes things worthy of compensation, right? So, the same logic applies. Helping to guide customers to the people that can get them their deal is still worthy of a real estate referral fee – so you can get some money owed to you!

How Do Real Estate Referral Fees Work?

Let’s get into the nitty-gritty of how the real estate referral fees work. As with all real estate transactions, it’s very important to have an open line of communication when it comes to establishing the real estate referral fees. First, make sure that the other party knows that this isn’t just “doing a favor for someone” – this is a service that you’re providing to them. They should know that you could bring the client elsewhere and that you expect compensation for your time. Remember, you (as the referrer) have the leverage here. Let that knowledge inform all of your decisions.

Next step in the process? Agreeing to the terms of the real estate referral fees. This is the fun part – figuring out exactly how much you’re going to get paid as a real estate agent. Something important to know here is that there is no set real estate referral fee. Many places use 25% as the average real estate referral fee, but that’s just a guideline. Some circumstances – a long-standing client relationship, for example, or the amount of work done by one side or the other, for example – might require that amount to go up higher or lower. Be sure that both sides get treated fairly. You’re looking for these relationships to last.

As soon as those terms get agreed to, the next step in the process is to draw up a referral agreement. In this case, you should consult with legal experts at your firms or in the industry that can put together the paperwork. This should be a relatively standard part of the process. As soon as that’s complete, the real estate transaction continues as normal – and the payment should get processed once the sale finishes.

Who Benefits from Real Estate Referral Fees?

For real estate agents, real estate referral fees offer a good deal – and plenty of opportunities – all around. Not only are you adding some money to your own pocket (which is always good), but you’re sending some business to other real estate agents in different locations. They might be able to do the same for you in the future! With enough legwork, you could build up a very profitable network in the real estate industry that helps a whole lot of people.

Oh, also in that “whole lot of people” bracket? How about the people that you’re actually helping find that piece of property! That’s another real “pay it forward” moment. They’re (presumably) going to be very grateful to you for helping them close on that transaction or acquire that dream vacation spot somewhere else; in turn, that should make them all the more happy to employ you for their other real estate transactions. You know, those ones where you can actually make commissions!

How Can LemonBrew Help With Real Estate Referral Fees?

Looking for help with the home buying or selling process? LemonBrew is the resource that helps get the transaction moving forward! LemonBrew connects home buyers, real estate agents, and real estate brokers to help with the homeownership process – especially with those types of transactions that include a real estate referral fee. Got a question about the real estate referral fee process? Looking for an agent or a client in a different area (or a different specialty) that can bring you in one of these profitable referral fees? Use our website to get connected today!

Another way LemonBrew can help the transaction? Check out our detailed blog, with a wide range of helpful articles for everyone involved in the process – including pieces like “Listing Agent vs. Selling Agent: What’s the Difference?” and “What are Title Fees? Things Home Buyers Should Know.”