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IT'S TIME FOR THE 10% REFERRAL FEE

I think that 25% referral fees between agents is too high.

Sure, during the hey-day when you took 'em out, showed 'em a few houses or took the listing and waited for it to sell and went to the closing, no one complained. I have always had an issue with a 25% referral fee and have made it my own policy to only ask for 20%, as an incentive to the agent I was referring to. After all, if you have two referrals, one at 25% and one at 20%, what does human nature lead many to do?

Another thing that lead me to believe that 25% is too high, has been all the out of market agents who had put websites together, fishing for "Hamptons" buyers and sellers - JUST so they could capture them and turn them around and refer them to a Hamptons Agent. With an average sales price of $1,500,000, that turns into a referral fee of $11,250 JUST for passing on a name - no thanks...

Now, with business being more challenging and both buyers and sellers requiring more time and effort (and expertise) to put a deal together, I am going to be requesting a 10% referral fee. As an Exclusive Buyers Broker, the clients who have listed with me over the years are going to get assistance in finding the absolute best fitting listing agent for their properties, and I want that agent to be motivated to do a bang-up job for them - 10% is fair.

In addition, I always tell my referral clients that I am getting a fee for referring them - it's part of transparency and full disclosure, folks. There have been a number of times where buyers or sellers (in the days I was a listing agent) were never told by the agent who referred them to me that they would be getting a referral fee. They JUST made it out like they were doing their relative, friend, etc a favor.

Let's be open, honest and generous with each other.

What do you think?

Michael Daly

True North Realty Associates

www.beachamptons.com

Posted by Michael Daly on 10/27/2008 09:10 PM

Comments (52)

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52 Comments on IT'S TIME FOR THE 10% REFERRAL FEE

OCT

2008

Hi there Michael-

As a newer agent, I have to say I agree. I was shocked to see a referral fee of 30% sent my way and after I messed with my calculator a bit, I have to say, that was a ton out of my pocket. Granted, I wouldn't turn one away but it would be nice if you could keep a little of the money you work hard for. I myself would only charge about 10-15% as well because after all, if you do your homework and pass the client on properly, it should be a nice process for all involved. I wish you the best and if you have any advise for a "newbie", feel free to let me know. check out my blog as well, I need some advise from others on AR.

I have to say that I agree. Some lead genearators want 30% - for just supplying a name, phone number or/and email address. That's insane, but it is a symptom of a larger problem - TOO MANY REALTORS. If leads weren't so precious - no one could get away with that.

You can offer anything you want. just like 6% is negotiable so is the referral fee. If you made $11,000 for referring, think what the agent closing the deal made? I personally can live with the fee but I don't see any reason to go higher like I see some asking or offering.

What portion of your business dollar goes towards marketing/advertising for business? If you spend 25 cents out of every dollar looking for new business then it would seem right that if business was handed to you it would be worth a 25% referral fee.

What I find confusing is the number of agents that spend a lot of time and $$$ soliciting referral business and promising a 25% referral. Basically they are advertising to find business that pays them 75% of what other business pays them.

I love getting referral business but what I have stopped doing is paying for it. Spending money to get 75 cents dollars makes no sense to me. If it happens along great.

At leasst that is the way I see it.

Most of the out of state referrals I send I request that the agent I refer clients to credits the entire referral fee to my client at closing. By the time the brokerage I work for take their share there is nothing there and I would rather them have it.

I need buyers to work with, therefore I am offering a 39% referral split, and I am on a 97% split.

61% of a commission is better than 0% of no commission

This is a buyers market,

However, I see your point as being a listing agent. You do not have to take a referral,

I have seen it argued both ways, but it seems to me that 20 or 25% is fair. I have known agents to ask for 30% and this week heard a webinar in which the guru suggested a 50% referral fee! I was shocked! as someone else said, it's negotiable, like our commissions.

OCT

2008

Another point is that the "richness" of referral fees has not only created the market for agents who "live off" referral schemes, but gave rise to the entire "interloper" industry (ie Homegain, etc), which seems to be fading now in this market.

We have no problem with 20-25%. It's the relocation companies wanting 35% that is the hard one.

I think it depends on how much effort you still have to keep with the client and the agent. I don't really mind too much about the referral fee as long as it closes and the fee is paid.

I just turned down a relo company with a 35% referral fee. Too much.

25& seems reasonable. You don't seem to factor in the cost of obtaining that referral, maintaining that referral, checking in with the client and agent.

I've had friends call me/email me wanting me sell their property or help them buy a property. They are out of state or out of my area, so then I have to locate an agent, talk to that agent, see if they can help me, blah blah, blah. The last referral I did it took me 6 hours over 2 days to get an agent out the property. It was a remote area and not many agents.

I tap my entire SOI when I do my mailings and marketing. It is out of pocket cost to me. I only refer out a couple times/year, but the additional check helps maintain my lists.

With the new adjustment in home prices, 25% may be high. Of course, it would be nice if the relocation companies saw it that way, too.

If there was a time for an uprise against relocation company fees - it would be now!

I used to work for a company that had its own ReLo department AND also got referrals through Lending Tree or similar. Needless to say the agent's split on such a deal was ridiculously small.

It really seems greedy. I've paid up to 35% to a relo company in the past but this particular deal was a real loser. Low income potential and a lot of work. The house was a mess and the pain is I already worked 3 months on it with the sellers. I wished the sellers the best, but when the relo company bought them out, I had HAD IT. Over 25% is just plain greedy.

I'M CALLING FOR NATIONWIDE STRIKE AGAINST GREEDY RELO DEPARTMENTS AND COMPANIES, GREEDY INTERLOPERS AND GREEDY AGENTS.

LET'S BRING THE NATIONAL REFERRAL FEE TO

20% IN 2009

15% IN 2010, AND

10% IN 2011.

WHAT DO YOU SAY?

GRASSROOTS! BRING IT UP AT YOU OFFICE MEETINGS, WITH YOUR COMPANY HEADS, BROKERS AND DON'T ACCEPT ANY MORE REFERRAL FEES OVER 20%. LET THE DESPARATE AGENTS TAKE THEM AND WORK THEIR WAY OUT OF BUSINESS. REMEMBER, EVERY TIME WE TURN DOWN A BAD CUSTOMER OR CLIENT, WE ARE THEN AVAILABLE FOR A GOOD ONE! WORK YOUR STRENGTHS, NOT THE CHICKEN FEED THROWN ON THE BARNYARD FLOOR BY OTHERS.

IN THIS MARKET WE NEED TO QUALIFY, QUALIFY, QUALIFY...AND REFERRAL FEES OVER 20% ARE A MONEY LOSING PROPOSITION.

THIS INDUSTRY IS IN FOR CHANGE, ENOUGH OF THE SAME OLD SAME OLD. IF WE WAIT FOR "LEADERSHIP" TO MAKE THE CHANGES, IT'LL NEVER HAPPEN.

Being that we're in a bum market I don't see them going down anytime soon. I'm guessing there are agents who would pay 50% just to get a deal.

jared.pro

OCT

2008

10% in a market such as yours is perfectly reasonable. $xxx for picking up the phone? Noooo problem here.

Good luck convincing the greediest of the greedy (the LI real estate contingent) that it's appropriate-this market is used to easy money. I prefer "I'll send you one; you send me one" gratis on both ends. Referring is not our job; selling real estate is. While I have much respect for a handful of individuals that set their business up to work with people that they'll refer, most agents that engage in this are just looking for a quick buck with the agent on the receiving end doing the lions share of the work. I wouldn't consider 25%, but would be fine with 10 (whether sending or receiving).

1. Unless ALL companies agree to try to work on this nothing will happen.

2. Trying to do this would amount to price fixing, I think.

3. As long as ANY agents/brokers are willing to be scalped for 35%, the referral companies will get away with it.

OCT

2008

Hi Michael,

At first glance, 10% sounds quite low. Most of my clients use 25%. However, I didn't realize that other agents fishing in your pond was such a big problem.

I have a question about how you will effectively move forward with this idea. Won't you be cutting yourself out of almost all potential referrals when agents learn you're only willing to pay 10%?

Respectfully,

Bruce

Erica-

1-If we sit and wait for the "companies" to do something, you're right "nothing will happen". This needs to be a cultural shift among the people in this business. Watch the movie "Network"

2- well, if we're "price fixed" (which I don't believe we are) at 25% now, why not make it 10%?

3- sure, some agents are desperate enough for the business at 35% - let 'em have it...

Bruce-

Perhaps I will lose some referral business due to only offering 10%, but my main job is to keep the flow of my own 100% customers coming in the door. Every moment I spend with a customer I'm only making 75% on, I'm NOT working with a 100% customer.

It's also my job to sell the other agent on why they should refer to me at 10% versus someone else at 25%. There are a lot of referrals out there that are just flapping in the wind, not buying anything at this time, partly because their agent can't get bring the right properties to them. I would venture to say, in part that many agents don't work as hard on 25% referral customers and clients because, at some level, they resent the fact - especially in this market- that they will be having to give away a big chunk of their income on their deal! Whether they admit it to themselves or not!!!

Today, with business being sooo challenging, and sooo many agents not having the skills to thrive in this business, most referrals fall by the wayside ANYWAY. I have heard agents say "Oh, they're a referral, why should I spend so much time on them when..." and that was in GOOD TIMES!

If you refer a client, customer, friend or relative to someone because they offered you the highest referral fee and your referral gets dropped, how does that reflect on you?

MY whole point is, let's be fair and generous with each other and, in a market like this, identify those agents who can get the job done and incentivize each other in the process. I'm not going to get rich on referral fees, but 10% of something is better than 25% of nothing!

Michael

I'm with you... let them have it. We need to prioritize and take the listings we can sell. Not grab everything that comes our way.

Mike,

I agree with you, I have always felt that 25% was way too high. It get really ridiculous when Relocation Companies come in. I was asked to give a listing presentation a few months ago for a relocation company and they wanted a 35% referral fee and when you added that with the company's split and then the split with my real estate partner it was pretty much not even worth it.

I actually gave a referral to someone a few cities over about a month ago and told the agent that I was not comfortable asking for a 25% referral fee so offered a 10% fee. The other agent however, argued with me that his policy was 25% and would not take my offering of 10% and insisted on 10%...go figure??

OCT

2008

Just say no.

No one requires you to take a referral

25 or 30 % is okay if its an almost sure thing, but when you end up doing all the work like you were talking about forget it. I have referred clients, I even told the other agent the car they drove, property types they have ruled out, there family info. It makes since to do my job before I ask someone else to take it on. If I do Nothing but get a name and a number and pass it on yes 10 % seem appropriate.

If everyone just said no there'd be no drugs 35% referrals! Someone will always say YES, unfortunately.

ok, SING IT NOW!

"Let There Be 10% Referrals On Earth,

And Let It Begin With Meeee...

With Every Breath I Take,

Let Me-eee Not Be Gree-deee.."

I personally think 25% is alot for just giving me a name.....But then again I wouldn't have the 75% without it....(well less by the time you split with brokerage...) Darned if you do...Darned if you don't....

NOV

2008

Wow This is a great topic you brought up.I'm going to re-blog it to my blog site "You Blog" Eveyone has a good point and I know there is a "expected 25-30%" But I have heard this is greatly negotiable in this type of market.

NOV

2008

It is negotiable and if you don't want to pay it don't take it.

OK EVERYONE - NOW, LETS GET SOME IDEAS FOR HOW TO MAKE THE NATIONAL REFERRAL RATE 10%

i MADE A SUGGESTION EARLIER; TAKING IT DOWN 5 % PER YEAR FOR THREE YEARS.

WHAT ARE YOUR IDEAS??? those who don't want to see this happen or don't believe it can, please move on...enough nay-saying...we want ideas to make it happen from here on in, please...thx. md

I think it should depend...some leads are more qualified than others. For example, if I have a client that I've gotten to a lender, is pre-qualified and ready to buy in an area I don't serve, that's worth more than the one that is 'my friend is moving, who do you know in...' and I've never met the person that's moving. Say 20% for the former and 10% for the later. Actually, maybe even less - sometimes it's just, 'hey, this person might be moving to your area. Keep in touch with them.'

My only comment to this is that price is only an issue if something lacks value. 10% or 25% of nothing is nothing.

A strong referral source may mean that you may never have to prospect anyone.

Referral fees should be negotiated.

Just my opinion.

NOV

2008

I agree--and they can be negotiated in theory. But how the big referral firms work it's "35% or nothing". NEXT. There is no negotiating with the majors. With an agent who calls in personally, yes it's all negotiable. No issue there, I think.

ERICA- GOOD POINTS!

BUT, WHERE DO THE BIG REFERRAL COMPANIES GET THEIR LEADS FROM? WE NEED TO IDENTIFY THAT AND REDUCE THE INPUT OF LEADS. THAT WILL BRING THEM TO THEIR SENSES.

MANY LEADS COME FROM AGENTS WITHIN THEIR OWN COMPANIES, RIGHT?

WELL, LET'S STOP GIVING THOSE REFERRAL LEADS TO THE RELO DEPARTMENT AND START REFERRING THEM DIRECTLY, NEGOTIATING A BETTER RATE AND, AT THE SAME TIME, HAVING PERSONAL CONTACT WITH EACH OTHER. AFTER ALL, THIS IS A 'PEOPLE' BUSINESS, ISN'T IT?

Referrals, just like commission rates and commission splits should be negotiated between the parties involved. When a referral comes my way I judge the referral itself and then negotiate the fee as appropriate. Hard to believe but there have been times when I have insisted on sending back a higher referral fee because I thought the other agent was being too generous.

Sometimes a referral is worth very little, just a name and maybe an email address. Other times it's worth alot when all I had to do was complete the necessary paperwork and babysit the escrow. It just all depends.

All that being said, I'm against the lead generators. I don't see any value there ... let's see you come into a market and have no physical presence. You advertise like crazy, sometimes using my listings to do so, then you offer to sell me back leads on my own listings? That's not going to fly with me, in fact that gives us all a bad reputation!

NOV

2008

Chris--AMEN to that. I won't use the lead services either.

Eric and Chris~~Ditto.

Michael,

Very nice post...it is good to read the many different persepctives.

A 10% referral fee?!...

That will never happen!... Frankly, I have no problem with 25% (paying or receiving) and feel it is fair and reasonable... But on the other hand 30% is pushing it!

Nevertheless, real estate practitioners are under no obligation to accept a referral... If the fee is too rich for your blood... simply pass.

Best regards,

Wayne Gomilliion | www.PinehurstHomeTeam.com

NOV

2008

REFERRAL FEES SHOULD BE 10%. If we all keep blogging about it, maybe it will happen. We should train the new agents to this thinking.

NOV

2008

I disagree with 10%, I think 20% to 25% is fair. If you have any Referral to Houston, TX. I am willing tp pay you 25% referral fee.

Steven Teoh
Houston Luxury Homes and High Rises Specialist
www.HoustonLuxuryHighRises.com
www.StevenTeoh.com

What a topic. I would be happy with 10%. But I will have to go with my market!

NOV

2008

I agree with Keenan: any percentage of zero is zero...If you pay a referral to someone only when something closes, what's the big deal? It's business you wouldn't have had and you have the opportunity to not pay a referral on their friends and family when they know how great of a job you did for them while not taking a full commission.

Wow. Alot of interesting points. True, a half a loaf is better is better than none. However, there are different split structures in the marketplace prior to kicking to the referral agent. If it truely is a referral agent not just a friend or relative looking for a piece. I also feel on a higher priced listing a lower referral fee may be in order.

NOV

2008

I think the most challenging part of the business is generating qualified leads - not closing deals.

If somebody can give me an unlmited amount of these types of leads, I will be happy to pay out a 25% referral fee.

The thing about leads is that they aren't free.

You either have to advertise or hold open houses to get them. There is either a monetary or time cost to generating leads. So there is "risk" involved with gettig a lead.

But if an agent can hand you alead without you having to pay any money up front - I think that is a good thing. :)

I think the fee should be comensurate with the work down and the quality of the lead. If someone referred me a listing, with executed paperwork in hand, well maybe thats worth 50%. If someone just gives you a name and a number of a person they had a 5 minute phone conversation with, well thats probably worth 10% if that.

NOV

2008

Agent to agent referrals has always been 25% in my business giving or receiving. The way I look at recieving a referral is 75% of something is better than 0% of anything.

But thanks for the info... I'll look to send my referrals elsewhere.

Let's remember what our objective is here, ladies and gentlemen - It's to be so busy with our 100% business from doing the fundamentals of a good real estate practice and building relationships within our marketplace so that our referrals are from satisfied clients (who don't require a referral fee).

Anyone who's building a business based upon keeping 75% of whatever their split is, is focused on the wrong things! Sure, there will always be those agents who live off of the scraps that the highly productive agents can't capture, but do you want to be one of THEM? It's the same principal as "qualifying" our clients. If we spend time running around with unmotivated people, trying to get them to do something they are not really prepared to do. While we're running around with the unqualified, we're missing out on a motivated client.

Please note, I'm not asking anyone to reduce their referral fees...I'm telling you that I AM offering referrals at a 10% rate from here on in, because I know how hard you are going to have to work with my referral, and I want you to be both motivated to work with them and I also want you to be justly rewarded when you make the sale.

AND, I'd appreciate if you would approach referrals to others in that same spirit.

What comes around...goes around.

NOV

2008

Everything is negotiable on a case per case basis. I really enjoyed reading everyone's comments.

NOV

2008

Call me crazy Michael, but in today's market a qualified referral aka a bonafied lead that I had to pay nothing to generate is worth paying a competitive referral fee for. Would a 10% referral be more attractive? Of course it would, but these days we'd be hard-pressed to find agents willing to turn over qualified referrals for 10%.

By the way, I am offering 30% referral fees to any ActiveRain agents who send me qualified referrals. Hope to do business with you.

All the best,

Amber Noble-Garland

www.AmberLovesRealEstate.com

APR

I wholeheartedly agree! Tell Kevin it's 10% first thing Monday!

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