Referral fee

What is a referral fee?

The referral fee is a payment that a real estate agent receives for providing a client to another agent. Referral fees are typically a percentage of the final commission for one side of the transaction. 

What is the average referral fee?

The industry standard for referral fees is 25% of one side of the final commission. But referral fees can vary widely. Sometimes agents offer flat dollar amounts for referrals. In other cases, referral rates can vary based on how large or small a potential referral is. Typically, agents on both sides sign a referral agreement in advance of the transaction closing to finalize the fee structure.

Why do agents refer clients?

There are a number of reasons an agent or brokerage may refer a client and opt for a referral fee:

• Not licensed in the client’s target state: if a real estate agent has a client moving out of state but does not have a license in the state the client is moving to, they will often refer that client to another agent.
• Too busy: if an agent is very busy with their current clients they may refer a new client to an agent they trust. This way they can still provide great service to the client and receive some payment for the relationship.
• Lack expertise: if a client wants help on a segment of the market where the agent doesn’t have expertise or connections, it may be in the best interest of all parties to refer the client to someone who does have this expertise.
• Focus on marketing only: some websites and marketing portals will market homes and then refer any client leads to agents in exchange for a referral fee. This means that the referring party earns less on each client but doesn't have to handle showings, closings, and other operational components.

Can you collect a referral fee without a real estate license?

Typically, only a brokerage can collect a referral fee and then distribute it to a licensed agent. This means that a licensed agent can collect a referral fee through the brokerage, but an unlicensed person can’t. There are some exceptions in certain states where some small referral fees are acceptable for consumers.

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It is also frequently allowed for a brokerage to collect a referral fee from a transaction completed in a state where it does not have a license. This is often why agents will refer clients moving to another state to other agents.

How common are referrals?

Agent-to-agent referrals are fairly common, with some industry data suggesting over half of agents receive over five referrals per year.