What is a Real Estate Referral?
A real estate referral is the act of getting a client into the hands of the person (licensed broker or real estate company) who is most qualified to get them the real estate services they need.
You merely refer a client and you don’t add value to the transaction. Our company will not allow you to make representations to government offices for the transfer of ownership of the property in exchange for half of the professional fee due on the transaction. As a licensed real estate broker, we do not and will not condone any unauthorized practice of real estate. Your transaction is limited to “capture” would-be clients and refer them out for a fee. You cannot do the tripping, research property prices and perform documentation and representations in the different government agencies involved in the transfer of the property from the seller to buyer.
We take a different approach and engage someone further by telling him or her that we can only give a referral fee for his or her referral. If he or she agrees then the fee will be given if and when the transaction is consummated.
When to Make a Real Estate Referral?
You have an acquaintance, relative, colleague or friend seeking real estate options or investments and you’re not licensed to provide the services they need and don’t have the knowledge and expertise to be confident your client’s best interest will be looked after. So a referral to an experienced and licensed broker or real estate agent would be the best option for your client.
Another good example of this is let’s say you’re a real estate agent working in Manila, and you have a client who wants to purchase a property in Davao City. You as an agent in Manila are unable to conduct business in Davao because of proximity. However, you can refer this client to a real estate agent who is licensed and conducts business in Davao City and in exchange for that referral, you or your broker receives a percentage of the commission.
If you do refer a prospective client to a colleague who’s in real estate business, you acknowledge that there is someone better skilled in handling the particular type of property and also know that the prospective client will be in good hands because the real estate broker is competent enough to provide the best service to the client.
What is a Real Estate Referral Fee?
It is a portion of a real estate commission that is paid to an individual in exchange for referring them a client.
How Much is a Real Estate Referral Fee?
Just like real estate commissions, there is no predetermined amount that you have to charge or be charged for a real estate referral fee. Though subject to negotiation, a typical referral fee is 10% to15% of the gross commission for a single side of a transaction.
Example of a Referral Fee Computation
Total Contract Price: Php 10M
Developer is giving the Real Estate Company or broker a 5% commission from the TCP.
10,000,000 X 0.05 = Php 500,000
Php 500,000 is the real estate company/broker commission
Arreo Realty’s Standard Referral Fee is 15% from the total % commission we get from the developer.
500,000 x 0.15 = Php 75,000
Php75,000 is the referral fee.
When to Negotiate a Real Estate Referral Fee
Given that there is a standard fee, there may be reasons for negotiating the percentage for the referral fee. For instance, say you have a buyer who will be making multiple purchases, you may want to talk to the real estate manager and request for a bump up. But if the lead is very high up in the funnel, is not prequalified and is going to need a lot of work to get them under contract, the real estate manager may not grant an increase.
How Do I Get Paid When I Make a Real Estate Referral?
When you make a real estate referral, you are handing over the care and keeping of your client to a real estate agent for that particular transaction. Just like when you are a broker or another real estate agent, you don’t get paid until the transaction closes.
A typical referral fee payment looks like this
Buyer paid the full contract price: Referral fee is released in full as soon as the broker or real estate company receives the full commission from the developer.
If the broker or real estate company is written a check by the developer or seller dividing up the commissions of the sale, it is treated like a normal real estate transaction and they will put their percentage for your split and issue you the rest.
The only paperwork required for a real estate referral is a real estate referral agreement. This is a basic contract between the broker/real estate company and you, who has referred the client. It will cover things like how the commission will be split and the length of the referral. It’s the broker or real estate company’s responsibility to supply the said agreement based from the stated terms.
Can a Broker Pay a Referral Fee to a Non-licensed person?
Yes. This isn’t recruitment of a clientele for the purpose of real estate purchase or sale is considered to be the work of licensed professionals but this is sending a new business our way so we pay an individual a cash referral fee. It isn’t illegal since you are bringing a buyer and seller together, you are just bringing the possibility of a deal to a seller. Some calls this a “finder’s fee”. The only way to legally send and receive a referral is via a brokerage and we focus entirely on this practice.
Sounds Great, But What’s the Catch?
There’s no catch, only extra income.
While this appears to be a lead generation strategy without an upfront cost for us, remember we are going to pay pretty dearly for these leads. From the above example computation, a referral that purchases a Php10Million worth of property with a 15% referral fee from the broker’s commission will cost us Php75,000. That is a hefty cost per lead, especially when we have properly placed ads from somewhere like Property 24 which can yield us the same exclusive lead for significantly less cost.
Bringing It All Together
Now knowing how real estate referral fees work, you know that this can be a great source of income, but this practice is vital to providing our clients with the best service possible.
About Roger Ursos
Roger P. Ursos, a licensed Real Estate broker also a proud recipient of Megaworld’s Top Broker of the Year Award for 2 consecutive years, has established Arreo Realty Exchange, Inc. in March 2019 to offer an advanced and innovative approach to real estate. Roger stands by his professionalism and level of service. What sets this company apart from the competition is it fuelled with a young professional outlook and brings a fresh, vibrant and enthusiastic approach to the property market. We aim to be the Philippines leading real estate providers with service excellence being noticed in every aspect of our business.
His company, Arreo Realty Exchange, Inc. is dedicated to providing clients and property seekers with superior real estate service. Supplying a full and comprehensive service from property listing through to the exchange of ownership, we will guide and advise both the seller and purchaser through the process.