Real estate referral fees are often mysterious to folks who are buying and selling homes (whether in Silicon Valley or anywhere else), and there are a lot of misconceptions about them. So I’m going to explain what they are, who can get them,  how it works, and what to “beware of” with them.

What is a referral fee in real estate?

What they are: referral fees are a broker-to-broker (agent to agent) payment of money for business that one agent refers to another.

In short:

• Real estate licensees who generate new business for another agent may charge and earn a referral fee for the new business.
• The amount is not fixed by law and is negotiable (25% is common, however).
• The referral and fee may be generated by an agent, a brokerage or a relocation company (with a license) as well, and sometimes the paid referral fees help to generate the benefits package for the person or family being relocated.

For instance, I have a friend who is a retired Realtor, but she keeps her real estate license active. A past client of hers reaches out to see if that retired agent can list a home to sell or help a buyer to buy. The retiree explains that she is now retired, but can recommend a good agent to do that. These are high value connections because it’s personal and the agents involved know each other and the referring agent knows what kind of professional service will be given to their past client.

Whatever fee is agreed upon between the two real estate sales people is disclosed to the consumer. For buyers it is in the Buyer Representation and Broker Compensation contract, and for sellers it is in the Residential Listing Agreement. The amount of the fee is not fixed, but negotiable. A commonly seen amount is 25%, but it does vary.

 

Sometimes there are people who would like help finding a Realtor in another area but their trusted agent friend  doesn’t know anyone there. Then what?

For me, I will reach out to real estate people whom I know who may have a connection in that area, because a personal endorsement means a lot.  But if such a connection doesn’t exist, I will roll up my sleeves and do some research. When I find someone who looks good (solid, very experienced, successful, but approachable and able to take time as needed, etc.) I will pick up the phone or jot that person an email and ask for a conversation. Sometimes this can be a short amount of time, but others it can take an hour, two hours, or more.

Referral fees and relocation companies

Relocation companies also vary among themselves in how this works, but basically they may charge the agent a fairly high fee (35 – 50% is not unheard of, sometimes more – and the agent’s company often also reduces the “split” between the agent and the company) so that the buyer or seller’s move is underwritten somewhat by the commission dollars. The agent makes a lot less than usual on this deal, but hopefully the client will be happy and refer the agent to others (who will not have a referral fee attached to them).

Back in the bad old days, real estate agents who were paying a referral fee to a relocation company were strictly not allowed to tell the home buyer or seller about the fee. This made it difficult if a seller wanted to negotiate a lower commission and the agent trying to earn the business was prohibited from saying “I’m already taking X% less because that’s what your relo company is charging me!”  I’m extremely happy that the laws have squashed that situation and the consumer now has transparency into the situation.

We do sometimes get people relocating to Silicon Valley who find us on our relocation website, Move2SiliconValley.com (not updated as often as this site) and sometimes people moving here hire us rather than going through a relo company.

What about other companies that “match” buyers or sellers to real estate professionals?

Have you ever seen ads for finding a Realtor or other real estate sales person through some company like AAA,  that promises to connect you with vetted agents and also secure you discount pricing for the real estate services?  Some of them make connecting consumers with agents their #1 business, but for others, it’s a less visible part of their company’s offerings.

To work a “referral” deal, these companies have to be licensed by the department of real estate in the places where they are referring business. Let’s say a big company wants in on this lucrative market. They get a license and offer to “feed” potential clients to hungry agents and in turn charge a set amount, such as 30%, as a referral fee. The big company, in turn, tells the potential buyer or seller, “find your agent through us and we’ll get you a rebate (kickback) of XX% or XX dollars!”  So maybe the agent is charged 30% to “find” a client and the client gets 20% back. Guess who gets the rest? Yup, the big company, the middleman.

There are lots of licensed middlemen which generate leads and basically sell them to agents for a fee, whether a referral fee at closing, a “per lead” cost to the receiving agent, or a (costly) monthly subscription (perhaps for a zip code, town, or other geographic area). These are lead aggregators.

As a consumer, is a referred real estate agent better for you or not?

Let’s dig a little deeper:

Are you better off with an agent you get by referral from another licensee or company than you are finding one yourself?  Some buyers and sellers are very cynical and suspicious of referred agents because they know that the referring agent or company is getting paid.  To see if it’s really in your best interest, we need to view the referral types distinctly from one another.

1. Agent to agent referrals

Often agent to agent referrals are excellent because the referring agent hand picks the individual that he or she feels will be your best match.  The agent who gets the referral is normally very grateful for the opportunity and will work hard for you both because he or she wants your repeat business and referrals, but also because of the hope for more future business from the referring agent.  Conversely, the agent who gets the referred business knows that if he or she screws up, there will be lost opportunities on both fronts.

When I make agent to agent referrals, I take it very seriously and do research before deciding not only who’s most knowledgeable but also who I trust to be honest, hardworking and diligent while assisting the client.  A bad referral reflects poorly on me, too, so not only will I make the original introduction, but I’ll check back to make sure all stays on track and that my clients are taken care of from start to finish.

Agent to agent referrals are usually not at a high cost.  Sometimes they are made at a really low cost to the receiving salesperson, and occasionally at no cost at all.  Don’t assume that if your current agent is referring you to someone else that there’s a big payoff happening.  Of all referral categories, in my experience, these are the most trustworthy and are often head & shoulders above picking someone you don’t know (and might not know how to glean on your own).

2. Relocation referrals

Many times, when a company relocates its employees there is a benefits package which requires that you work with a real estate licensee or brokerage which is assigned to you.  Because relo referral fees are so high (50% in many cases), the best agents – the successful ones – won’t do it.  Why work so hard for half the pay?

Sometimes, though, the fees aren’t so high.  And sometimes you may be able to work with anyone you want (and get your benefits if the agent agrees to the fee).  In some cases, there is no fee from the agent at all.  They’re not all alike.

Relo benefits are hugely helpful in making a move, both for assistance on the practical items but also for the cash assistance which is very often involved.  Best if you can find out upfront, before you even start surfing the web about your future home, what the rules of engagement are so that your relocation is as smooth as possible. (Your agent will thank you for it too.)

3. Lead aggregaters

The final category is that of lead aggregaters. These companies have websites which are designed to “capture leads” – that is, you and your contact information – so that they can sell them off to hungry agents who “buy leads”.  Sometimes the cost by the agent or Realtor is per lead, other times it’s a referral fee if a transaction closes, sometimes it’s a monthly fee – or some combination of all three.

Even within this category there are better and worse companies which provide more or less help to the consumer.  Some home buyers will want to use these companies or sites because of a promised rebate or lower selling commission. Just remember that as with other cases discussed above, the more of a discount there is from the agent, very likely the lower the quality of the agent since the best agents don’t have to work for pennies on the dollar – and they won’t.

In order to work for a really low amount of pay, to make a decent living these same agents absolutely must increase their volume and lower what is offered to their customers or clients in terms of time and attention.  This may not be true on every transaction but over time, it will happen because there’s not nearly the profit margin built into the traditional model that the public might think (there’s a lot of hidden work in the real estate business which isn’t obvious to those outside of the industry).

Referrals are very helpful for agents looking to grow their business, whether by relocation companies or via an agent network. If you want to make some money in real estate yourself, get your license and network like mad. You can make a decent amount of money and never have to actually sell a house yourself!

 

This article originally published by Mary Pope-Handy for this blog in 2008; updated & expanded in 2011, and edited again in 2026.  Lots of changes have happened since the original version was published!