What Are The Unwritten Rules About Real Estate Referrals?

By
Real Estate Agent with RE/MAX Compass, formerly RE/MAX WHP 0524642
https://activerain.com/droplet/4QbQ

When the market crashed in 2008 I wasn't ready, but I was fortunate. At the time I had been licensed for about 5 years and had worked hard at creating my business. I was all but forced into an "all referral" type of life. I had to cut expenses, trim the fat and find new ways to generate leads that led to closings. Since that time I can truthfully say that 90% of my business is now referral based. Over the last 8 years I've learned quite a bit about "the referral process" and how it should and shouldn't be handled. Here are some unwritten rules, situations to consider and pieces of advice that I hope will serve the AR community well...

 

1. Once you send a fellow agent a referral consider the fact that you trusted them enough with the initial call so it isn't necessary to continually follow-up with procedural steps, inspections, open houses and routine questions about the process.  It's insulting, rude and "over-stepping." Nobody wants to be baby sat by a referring agent. 

 

2. It's never a smart idea to coach the client you just referred (while they're working with the agent you referred them). If Bertha has questions about inspections she should call the agent YOU referred her. There's nothing helpful about clouding the room with your opinions, doubt and knowledge. It's unprofessional and rude. When I send referrals out - I take a step back approach. It's in my best interest to set the tone with client I'm referring upfront and let them know that they are in the hands of the agent I just "told them to trust and work with."

3. There are no residuals in real estate referrals. If I refer a seller to you I get paid on that deal. Period. End of story. If the client I referred you decides to buy 6 more houses over the next 20 years that's all your money and your business. I should have no expectation to "keep getting referral checks." If you want an annuity, invest in the stock market. 

4.  If you refer me Jose and I list his home in Houston then I will certainly pay the agreed upon referral fee. But if I find a buyer for Jose's listing then you shouldn't expect to get paid a referral fee for that transaction too. In other words, you don't get paid twice simply because I found a buyer for the listing  you referred me.

5. I'm the type of guy that pays you the agreed upon referral fee on the ENTIRE check that I receive, as in the gross amount. Let's say I help a referring buyer purchase a brand new home and it comes with a BTSA (Bonus to selling agent / extra commission) then I'm still going to pay on that full commission.

6. Let's say you refer me a home seller who also wants to "buy a home" with me after I help them sell theirs. During the listing appointment the seller asks, "will you lower your fee from X to Y since you're also helping us buy a home?" Assuming I said yes, I would still pay the referring agent the agreed upon percentage of the entire "normal" commission.  It would be incredibly selfish of me to pay a referral fee on a reduced fee I collected from the seller. 

7. It doesn't matter that your broker takes 50% of your commission. Nobody cares. When you pay a referral fee it should be based on the GROSS amount you are paid, not your net. Keep your sob stories and list of expenses for the IRS, your mother and your wife. Pay up. 

8. If you send someone a "lease" client who will eventually purchase you should document the expectations on the referral agreement. Something to the effect of.. "WHEN THEY BUY, I GET PAID." 

9. You should never expect a referral fee on a lease.

10. If you send me a buyer whose price point is "too low" with too many hurdles there's a high likelihood that the fee you're expecting may not be what you're looking for. I once had an agent refer me an 80k buyer who was looking for short sales. The buyer had marginal credit, no money and was looking for down payment assistance. If the roles were reversed, I'd probably just "give the buyer" to a referring agent. 

 

Lastly, never get cute with a referring agent. You can dry up the source permanently. Never stop saying thank you to agents who help you keep your lights on.

 

 

Posted by

 

 
Greg Nino
, Houston area Realtor®.
Helping residential buyers, sellers and tenants 7 days a week.
Available @ 832-298-8555 

RE/MAX Compass (Formerly RE/MAX WHP)

www.GiveMeMyHomesValue.com

www.EverydayHoustonHomes.Com

 

 

The information contained in this blog is believed to be reliable and while every effort is made to assure that the information is as accurate as possible, the author of this blog, and its comments disclaim any implied warranty or representation about it's accuracy, completeness or appropriateness for any particular purpose. All information is copywritten and the property of Greg Nino.  

 

 

 

 

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Rainmaker
670,963
1~Laura Filip
1~Laura Filip Broker , Opening doors for All Seasons of Life - Whitesboro, TX
What can we do for you today?

Thank you for sharing this post very insightful. Referrals are always nice and appreciated. Myself when receiving a referral always make sure that the person giving the referral knows what is going on and when the transaction is closed the check is sent from the title company directly to the agents office along with a call saying it is on its way. Always keep your word follow through with what you said you would do. 

Mar 29, 2016 11:00 AM #21
Rainmaker
705,051
Richard Bazinet /MBA, CRS, ABR
West USA Realty - Scottsdale, AZ
Phoenix Scottsdale. Sellers, Buyers & Relocations

Ha, Ha, I love this discussion. I see some people took out their calculators.... 

Mar 29, 2016 11:42 AM #22
Ambassador
2,559,438
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

It is all common sense and personal integrity, yet some agents still try to find a way to reduce or even avoid paying the referral. 

Mar 29, 2016 11:52 AM #23
Rainmaker
686,125
Cynthia Larsen
Cotati, CA
Independent Broker In Sonoma County, CA

CA referral agreement says "nn% of the total gross compensation earned by Recipient Broker based upon the principal's side of the transaction". That cements two of Greg's points and I couldn't agree more. I'm a broker/owner and I always pay the referral off the top, then I pay myself and the procuring agent (if applicable).

Mar 29, 2016 11:58 AM #24
Ambassador
1,162,141
Jerry Newman
Brown Realty, 210-789-4216,www.JeremiahNewman.com - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

Love this post, Greg Nino The referral fees always come off the top, and then the broker's cut, and the agent's cut is last. I especially love how to summed up No. 3.

Mar 29, 2016 02:31 PM #25
Rainmaker
1,437,188
Kat Palmiotti
406-270-3667 (MT), 914-419-0270 (NY), Broker in NY with Grand Lux Realty and in MT with (coming soon!) - Kalispell, MT
The House Kat

And the rules are no longer unwritten!

Mar 29, 2016 10:46 PM #26
Rainmaker
442,659
Dianne Goode
Raleigh Cary Realty - Raleigh, NC
Realtor/Broker

Great list.  I disagree with #3 though.  If the referral is presented up front as a sell/buy, then the referral should be paid on both transactions.  

Mar 29, 2016 10:54 PM #27
Rainmaker
361,789
Jeanne Dufort
Coldwell Banker Lake Country - Madison, GA
Madison and Lake Oconee GA

I love your sense of fairness - your rules make perfect sense to me!

Mar 29, 2016 11:05 PM #28
Rainmaker
493,416
Terry McCarley
REMAX Realty Team - Cape Coral FL - Cape Coral, FL
REALTOR, SRES, CDPE - Cape Coral, FL

This is absolutely one of the best posts I have ever read!!! Congrats on the much deserved feature!!

Mar 30, 2016 12:35 AM #29
Rainer
342,296
Raymond Denton
Homesmart / Evergreen Realty - Irvine, CA
Shady Canyon Specialist

It's never a smart idea to coach the client you just referred

I "wish", Greg.  3 weeks ago I referred my Brother in Austin to a local Remax Agent, and my Brother is now more stressed and frustrated then I've ever seen him.  The Agent doesn't seem to have much time for him, so he's always calling me.  The Selling Agent sent in their request for repairs, and every single item on the Home Inspection Report was in the Repair request.  His Agent told him to sign it so they could move forward.  I explained that's not how it's done.  Only the major repair stuff should be repaired, and even then who pays for it is negotiable.  I should have interviewed his Agent better.  I thought because his office was 2.9 miles from my Brother's house, and hes been in that office for 10 years, was enough.  Lesson learned.

 

Mar 30, 2016 02:56 AM #30
Rainmaker
44,418
BARB KELLEY
NextHome Realty Center - Cypress, TX
The 'Golden' Experience Team!

Hi Greg!  Nice to see a fellow Houston area RE/MAX agent featured on a topic I haven't seen in a long time!  Referrals are great and always appreciated.  We should be willing and able to make it a 'win-win' for everyone!  Congrats!

Mar 30, 2016 05:37 AM #31
Ambassador
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Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

This was excellent, Greg, and it generate some great conversation. Cynthia Larsen already snared what I was going to say about the basis for determining the referral amount - the gross commission. I agree that in general you should not interfer, but there could be times when it might make sense. I also think it's reasonable for the agent receiving the referral to keep you apprised of the major steps along the way. Is it necessary? No. But I like letting the referring agent know how I am taking care of their client.

Jeff

Mar 30, 2016 05:41 AM #32
Rainmaker
1,534,836
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

These are actually 'Referral Rules of the Road'. Great post.

Mar 30, 2016 08:00 AM #33
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Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Greg Nino - I learned that clarity is power - and that's what you have done! Ground rules for referrals. 

Though I do not agree with couple of them (For me - referral is for LIFE!), I still love everything you have shared in this post.

Mar 30, 2016 12:33 PM #34
Rainmaker
533,321
Eve Alexander
Buyers Broker of Florida - Orlando, FL
Exclusively Representing ONLY Orlando Home Buyers

Very well said.

Referrals is a very sore subject for me since last year when an active and well liked Active Rain member tried to screw me out of a $19, 208 referral fee.

Among her long list of excuses she claimed that I did not call her enough and did not stay involved with the buyer.  She also said that referrals die after 2 years...(despite the fact the we still communicated and there was no expiration on the written agreement she signed)  We were friendly, until she sold them a house and then fell off the face of the earth.  Her greed simply took over.

I filed an arbitration and went to Colorado to the hearing.  She lost and paid me $19, 208.  I also filed ethics complaints.  She was found guilty, had to take class and was fined $1,000.  That was a very good day, as I have no doubt that she has gotten by with this before.  

I am the type of person that will pay a referral fee with or without a written agreement because I am trustworthy to the core. 

It was mind boggling that someone who had been a BOD director twice could be so blatently dishonest.  Trust no one.

Eve

Apr 01, 2016 05:24 AM #35
Rainmaker
1,086,367
Greg Nino
RE/MAX Compass, formerly RE/MAX WHP - Houston, TX
Houston, Texas

Thanks, Mike & Eve.

Apr 02, 2016 03:08 AM #36
Rainmaker
1,560,731
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

The #1 example sounds like a very desperate agent if they are constantly hounding.  It seems they are too eager to get the referral fee.  Plus . . . now that you're the agent, don't interfer with what you're doing!  They are your client now.  Great points and post!

Apr 04, 2016 01:27 AM #37
Rainmaker
889,505
Sussie Sutton
UTR Texas Realtors - Pearland, TX
UTR TEXAS Realtors - Rep for buyers and sellers.

Great post!  I follow all but one of your rules and I have never seen them written down or discussed them at length. Taking a double look at the one I don't follow.

Apr 05, 2016 08:20 AM #38
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I have nothing to argue with here.  I will say that when I worked for other brokers that we paid full referral and the broker took less too.  In short on an 80/20 agent broker split paying a 25% referral they agent got 60% and the broker took 15%. 

Apr 08, 2016 04:18 AM #39
Ambassador
779,617
Doug Rogers
Bayou Properties - Alexandria, LA
Your Alexandria Louisiana Agent

Number 10 sounds like one of the referrals I sent you :)

Apr 14, 2016 12:45 AM #40
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