As a real estate licensee, you expect to receive a fee for referring a client to another licensee who completes a transaction involving the client you referred — right? Typically, your fee would be a share of the commission or fee earned by the licensee working with the referred party.
The best way to ensure that this arrangement proceeds smoothly and to protect your right to receive the referral fee is to have a written referral agreement.
Checklist for referral fee agreements
All referral agreements should be in writing. Brokers may wish to enlist the assistance of their company attorney to develop a referral fee agreement format that is appropriate to the company’s marketplace, policies and transactions.
The following points should be addressed in any referral fee agreement:
1. Referred party: The full names and contact information for the referred party.
2. Referring and receiving agents and companies: The full names and contact information for the referring and receiving agents and companies.
3. License confirmation: Written confirmation that the referring agent holds a current Wisconsin real estate license or an active license from the appropriate state real estate commission where the referring agent practices.
4. Agent or company referral: An explanation of whether the referral is from the referring agent personally or from the referring agent’s company. In other words, if the referring agent goes to another company before the referral fee is paid, does the fee follow the agent or stay with the company? This may depend on the referring agent’s company policy — are referrals personal to the agents in that company or are they considered part of the company’s business?
5. Exclusive or multiple referrals: Is the referral being made only to the receiving company or are referrals being made to other companies as well? If the latter is the case, address how to decide which receiving agents/companies are responsible for paying the referral fee.
6. Referral fee computation: A clear and precise statement of the basis for computing the fee. If the fee will be based on a percentage of commissions actually collected, specify if this is the gross or net commission received by the company or the agent. Business practices vary from market to market, so it is necessary to spell out exactly how the fee will be determined.
7. Payment details: State exactly who is responsible to pay the fee, exactly to whom the fee should be paid, and when the fee will be paid.
8. Standard of performance: Indicate the performance standard that must be met before the fee is earned. For example, the fee may be due if there is an accepted offer that closes. It should also be stated if there are any restrictions or limitations with respect to types of properties or transactions or geographic areas.
9. Time limits: Indicate the duration of the referral agreement. If the referred party buys or leases a property with the receiving agent 10 years after the referral was made, is the fee still due?
REALTOR® practice tip: Real estate companies should establish company policies requiring confirmation of the licensee status of referring licensees, and indicating whether referrals and the fees they produce are personal to the agents, business income for the company, or a combination of both. For example, referrals of friends and family members might be personal referrals and referrals involving contacts made from real estate practice on behalf of the broker/company might be company referrals. Office policy should also specify how referral fees are allocated between the company and the agent.