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.