I think it should be illegal for ANYONE to pay or receive a referral fee.
In today’s competitive market, where listing fees have gone to about 5% or less, are we doing the consumer any good by paying between 20%-35% of our commission to another agent? Does that keep fees artificially high for sellers who were referred?
Personally, I’d like to see that restriction added to RESPA.

Why would RESPA have an interest in one professional providing business for another professional in the same line of work? Just asking for discussion's sake.
If you figure out how much you spend annually in getting clients, you decide for yourself whether it's worth it to you to pay another professional for a qualified lead. If it's not worth it, negotiate the referral fee down or don't take the referral.
Why would you dock the seller - or the buyer - for the fact that someone handed you their business? This is something you would be grateful for, and you would realize that you did not have to perform marketing in order to get this client, and that someone else could have easily handled this client and taken the shared commission.
--A

It should be a federal law, not state and RESPA gives current authorization to pay broker to broker referral fees.

It certainly would take the wind out of those lead selling companies, who use our listings to market to buyers and sell those leads back to us.
Do you know of any other profession that sells leads to each other besides ours?
Is that a professional way of doing business?

How competitive can I be if the seller does not understand the referral business.
One seller who was an American Airlines referral did not understand why I couldn’t list his house for x%, but he still wanted his 100k extra Advantage miles which cost me a 30% referral fee. Obviously I did not get this listing which was taken at 4.5%
By not having to deal with referral fees, it would level the playing field for agents and assure that the referred client gets an agent based on competence and not the highest fee.

Wow you guys are doing 4.5's up there!

That must be a tough market.I would never do a 4.5.

NEVER, say NEVER!!

Why on earth did you sign up for the AA referral service. If the program doesn't work for your business model, why on earth do you participate?

A law against legitamate referrals isn't going to help you run your business any smarter.

Major Real Estate Companies such as ERA, C-21, CB, GMAC and independents etc. have obligations in their franchise/contractual Relo agreements to service clients that have contracts with their owners to provide this service.
For the individual agent it's not a choice, either you work the referral, or you look for a different company.

What makes you think having to pay referral fees will increase your income?

I don't understand why listing fees are going down in your area. In my area we are turning away listings and charging a higher listing fee than before due to the fact that it is now a seller's market and our marketing costs have risen along with the increased time on market. We are also focusing on 12 month listing agreements vs. 6 month listing agreements.

You made the choice to work for a company where you are obligated to pay these referral fees.

There are probably dozens of other brokerages in your market where you would have more control over your business.

However, I'm willing to bet that one of the reasons you work with your brokerage is that you are promised leads.

Passive lead generation is the cause of your problem, not referral fees.

When I get my CRS, I intend to work with others with the designation to insure that my clients get superior service. I also would like to be paid for professionally advising them on what agent to use.

Referral fees are not your problem. Your business model is your problem.

Since I'm a CRS myself, I do CRS referrals. However, I'd rather do them on a "handshake" or lunch than a referral fee.
Wouldn't it be great to deal with each other on a professional rather than financial way?

Well if you start passing laws, that lunch date with your fellow CRS might be illegal as well.

Anyway, I think we would agree at a certain point referal fees get excessive, and that lead generators are a great way to seperate new agents from their money.

However... it shouldn't be illegal.

"I don't understand why listing fees are going down in your area. In my area we are turning away listings and charging a higher listing fee than before due to the fact that it is now a seller's market and our marketing costs have risen along with the increased time on market. We are also focusing on 12 month listing agreements vs. 6 month listing agreements."
I don't know where you are, but on the FOX and CCN news it's a BUYERS market. What's killing the market is the listing fee, most sellers are taking their homes off the market, there is no BUYER that will pay almost 7% interest and for what, sellers greed? Forget it.

rwilson99, I’d rather deal with you on a professional than financial level. Since you chose financial, I probably would not do any referrals with you.

Dan McGonagle, what's your favorite cocktail?
Relax!
There is lots of competition out there. Many new agents with new ideas of how to get rich quick, offering "if I don't sell your house in 89 days I'll pay you $10,000” etc.
Many other gimmicks are offered to the public making us look like the Swami on the late Johnny Carson show. (Sorry I regress)
Our professional image is at stake and the new snake oil salesman has arrived to convince the public that they have the magic potion.
One agents listing marketing piece I looked at this weekend said: “72% of all sellers are not satisfied with their agents”. Are you the one in the majority? Do we need to drag down the rest of our competition to feel successful?
I hope not. Lets bring professionalism back into this business.

Not True,
If you do not want to be on the referral team that is your choice. Company referrals are great and I have never had a problem in paying the referral fee. You get a qualified buyer with a deadline. Life does not get better than that!

[QUOTE]Originally posted by pikes peak:
[QB] [QUOTE] Major Real Estate Companies such as ERA, C-21, CB, GMAC and independents etc. have obligations in their franchise/contractual Relo agreements to service clients that have contracts with their owners to provide this service.
For the individual agent it's not a choice, either you work the referral, or you look for a different company.[QUOTE]

True, but who doesn’t want to fit in as a newbie and take advantage?
I guess I’m at a stage in my career/life where I’d like to improve the RE industry rather than profit from referral fees. Why do you prefer paying for referrals, rather than get them as a no fee professional referral?
My question is still open, which other profession asks for a referral fee besides Realtors, and does asking for referrals improve our image?

I think you mean that it's a buyers market! How can it be a sellers market and your marketing costs are rising at the same time? If your marketing costs are rising, then it's definitely a buyers market.

Agent 007 you’re to sober, have a drink.

We all take different paths and have different goals in re.An agent friend of mine loves relo's and i can't stand them.

She has to pay a huge referral fee to the relo department,the people want to go over the whole state and see everyhting because for the most part they haven't been there before.

If you have never been to hartsfield atlanta airport you aren't missing anything,it's a nightmare to go into atlanta and pick people up.These are just a few of the reasons i don't do relo's.

Pikes,
How does an agent referral fee reflect badly on our profession?

So how does this handshake Utopia benefit the industry? What makes it so much more professional?

Clients are a commodity! Once they move from your area you lose the possibility of future revenue so the referral fee is payment for that client who will be current and potential future revenue for the new agent. This is just simple economics in a sales business.

When the percentage of the referral fee is more important than the agents qualifications or service.
Look in the back of any RE magazine (CRS etc.) where agent's try to trump their ad by paying a higher referral fee. Are they advertising their superior skills or service, or are they looking for a client referral because they offer a higher fee?. You tell me.

That's only a factor if you work that way. Personally I like to make the initial contact with any agent that may get one of my referrals. Most of my referrals are based on my own database that I have put together from classes or agent I have had dealings with when purchasing out of state investment properties.

I can spend $200 on google ads in your market and generate a buyer coming to Tampa just the same, so I couldn't really care.

I think there is nothing wrong with qualifying a referred agent. However, I remember major RE referral companies pushing for 35% and 40% referral fees. Luckily, my broker at that time refused to pay more than 30%.
So, who benefits the most from referral fees, the agent, the buyer/seller or the relo. Companies? (beware, it's a loaded question)

And just think, you could have had a referral for free without spending $200, how smart is that?

That was a wishful thinking typo on my part. Replace "seller's market" with "buyer's market" in my post above.

Two-part question...1st answer:
Every sales job ever. It's entirely up to you how you handle referrals, but if I were to work at a Toyota dealer, and you wanted a Honda, I'd refer you to someone at the Honda dealer and they'd pay me a referral. Heck - I bought an Acura a few years ago - referred my cousin to the sales guy, and when he bought his car, my salesman sent me a check for $50 to say thanks (completely unexpected to me...but definitely appreciated). If I worked at a music store and I'd worked with you in the past, you came in today looking for a guitar but I only sell keyboards - I'd refer you (or turn you over) to one of the guitar guys and I'd get a referral...it's a professional courtesy to say "thanks for sending me business that I wouldn't otherwise have had".

If you're buying leads from a referral company - guess what you're paying for? ...the better marketing that they did to get those leads that you didn't get on your own. Otherwise you'd have had those leads without paying for them...but you didn't, so you paid for that. If American Airlines or whomever it happens to be, hands you a customer/lead and you have the opportunity to make money that you wouldn't otherwise have made, you should be happy to kick them a percentage - the difficult part (at least in my area) is to GET the clients, not to retain/service them.

Part 2:
The only people I ask for referrals from are my current/past customers. Usually they're so pleased with my service that they're very happy to send their friends/family my way. Since they're not involved in the business, and since they're happy customers who are looking to have their friends be happy customers too, no referral fees are paid to them. Other than that, I don't ask for referrals, so I'd say that asking for them doesn't affect my image at all except in a positive light (when people refer me to their friends it makes me look good).

That's my take on it.

Josh

Lawyers.

Management consultants ask for referral fees, when they make an introduction to their client to another consultant.

When I make a referral for a client to another agent, I try to get them the best possible agent. I don't just refer to agents I know. I check on MLS to see which agents are most experienced and get the most value for their clients. I study their bios. Then I call the Sales Manager and ask about them. Finally, I call the agent and ask a number of questions and work out the details of the referral fee. I then stay in touch with the agent and offer to help in any way I can.

When I sold my parents' home in another state, I could have taken a referral fee, but I needed the agent to do a lot of work for me above and beyond the normal real estate role. I didn't take the referral fee so that the agent would pocket the full commission. The agent respected me for that and gave me great service.

For the people that think that referral fees are stupid:

If I send a referral through my Prudential Relocation Network, they will contact a qualified Relocation agent in the area that I am referring to! I say qualified because these Relocation agents have to have been in the business for a specific amount of years, they have to have sold so many homes, and they have to be chosen and approved by their management! Basically, they are mostly the top agents for the company in that area.

Hopefully this makes sense as to why referring a client this way is a positive move.

Every lawyer I’ve asked, will not pay referrals to other lawyers for ethical reasons.
Also see Calif. Bar Opinion.

http://calbar.ca.gov/calbar/2cbj/96mar/art7.htm

http://calbar.ca.gov/calbar/html_unclassified/ca83-70.html

Fees do not guarantee good service. Maybe the incentive of not having to pay a referral fee will increase the level of service?

It's still found money on your part for taking the referral. If you choose to pass that percentage on to your sellers by increasing the fee you charge to list their home, and you lose a listing because of it...that's because you were greedy/stubborn/not hungry enough/whatever the excuse may be - not because someone handed you a client.

To paraphrase a great movie "your excuses are your own" (those that know the quote, feel free to chime in with the rest)...don't point your finger at the system just because you lost a listing for yourself.

-Josh

No, but referrals through specific Relocation Networks regulate the referral fee and they pretty much give you the best (most qualified) agents.

I suppose that as long as everyone offers the same referral fee across the board I don't have any problem with it. Personally I'm not more likely to send a referral to someone just because they pay 35% instead of 25%, but I know some people out there are motivated that way- so I wouldn't mind seeing the percentage regulated. I just want to make sure my clients receive the best possible service- referral fee or not. Along the same lines, I think it's even more of a problem when junk builders offer HUGE incentives to us to get their inventory sold. I don't care if they're giving away a free house and a trip to the moon; if I don't believe that they have a quality product, I won't sell it. BUT lots of other people will. I know of some Realtors who sell 20-30 pieces of junk per year just for the incentives. The playing field needs to be leveled for those who are more concerned about stuffing their wallets than serving their customers.

Well, that's the way it's supposed to work.

Here is one article I happen to agree with:
http://realtytimes.com/rtapages/20021126_referralfees.htm

I don’t know where you are coming up with the idea to increase your/my fee because it’s a referral, that does not make any sense to me.
But what would you say, when the seller asks you to reduce your 3% commission to 1.5% and you know that you have to pay a 30% referral fee? (See my American Airlines example)
There is no such thing as “found money”, although agents might think so. You are performing discounted service, and someone else, just picking up the phone and giving you a name and telephone number, who might not contribute anything to the transaction, is taking money out of your pocket.

I understand the gripe but not the rationalization that referrals should be illegal. What next recomme ndations should be illegal and wait so should gifts to clients and so on. Its business you have a choice, take it or leave it or find another stream to fish in.

By the way I love referrals

Nobody is talking about making referrals illegal.
Make paying referral FEES illegal.
Carla made an excellent point about builder’s incentives. Would you keep that Rolex watch or have the builder give your buyer a credit instead? By accepting the Rolex, are you really having your buyers best interests in mind?

Using that logic, you yourself don't have your clients' best interests in mind because you work for commissions that could otherwise go directly to your client. So next time you take a listing or represent a buyer we'll all expect you to refund every last dime to your client.

Wrong! The buyer agency agreement determines the amount of my compensation, and there is nothing in there about the the "bribe" of giving me a Rolex for bringing a buyer to a specific builder.
How do you address any possible type of incentive that could be offered to you in the buyer agency agreement, and do you discuss it with your buyer prior to showing homes?

You're using faulty logic, and it's so faulty that I'm just going to walk away from this one. Good luck with your one-man crusade.

Thanks, no crusade intended, just a healthy debate.
Logic? I'm talking about disclosure requirements, not something I made up.
Does your BAA have a disclosure such as:
“Brokerage firm shall be entitled to receive additional compensation, bonuses, paid by seller or listing broker”?
As long as it’s disclosed up front, you would be ok the take the watch.

I agree with Pikes Peak. Let's start calling this for what it really is. Anything over and above the traditional compensation is just that- bribery. I'm not saying that I will work for free... I don't even discount. But if one builder offers me x%, and the one next door offers x% + a Rolex... Sounds like a bribe to me.

Carla,
It would only be a bribe if you had absolutely no intention of showing the property to your client in the first place but suddenly decided to because of the Rolex and then Pushed your client to buy this home over any other they have looked at to date. Then and only then it would be a bribe.

Without those two factors it is strictly a marketing ploy of the builder to drive traffic to his homes and if the builder is offering a Rolex to the buyers agent then you can bet that the builder is prepared to offer the buyer some additional upgrades.

just an fyi...re "traditional compensation"...

there is no such thing as traditional compensation, and to imply that there is, is a discussion for an anti-trust thread, no? Honestly, I'm surprised to see things of this nature written by a broker who should know this better than I do...then again, maybe I'm wrong, in which case, please let me know.

You are worth what you negotiate, price fixing (which is what it seems you are suggesting) is illegal. A seller can offer whatever they'd like in the form of incentives to agents and/or buyers...to say that someone can't (or shouldn't be able to) offer a rolex as incentive, is to tread on dangerous territory...

Lets all try to move back to the topic as posted. Builder incentives to agents is another topic as is traditional compensation vs. non-traditional.

BTW ManFromTheBand, I believe by traditional she meant a percentage instead of % plus gifts such as watches, cars etc....
Since amounts are not being discussed it is not even close to anti-trust or price fixing. I am amazed you missed the point of all the postings so badly.

It's really just a little banter for the sake of banter anyway. I am planning to do a little shopping today compliments of a couple of gift cards I got from a builder- but I didn't sell this builder's homes because of the incentive- I sold it because the homes and area met my buyers' needs and because the builder is a reputable builder that I trust. Truth be told though, I know agents who sell many, many homes for a builder that I believe is overpriced and has an inferior product- and they do it for the incentives.
Back to origional topic... I don't really have a problem with referral fees, but I have a problem with people who are willing to refer people to an agent based on the amount of the referal fee they pay as opposed to the qualifications of the agent.
And anti-trust has to do with how much we charge- not how much we offer as referral fees or bonuses. I am in no way suggesting that we do this, but fixing referral fees would help protect the public. Then more agents would be inclined to refer someone to another agent (or builder) based on what is best for the customer instead of what is best for their wallet.

I'll bet anyone, if I refer a buyer, where the buyer is looking to buy a $3.25 mil. property and I ask for a 40% referral fee, I'd have agents lined up to take it, however, reduce that amount to a $125k purchase, I'd be looking long and hard to find any agent.
The point I'm trying to make is, the incentive for the agent is to make money and the above example would demonstrate, that referral fees do make a difference in the effort.

As to builder incentives, how do you split a Rolex with your broker, if all fees or compensation/incentives are supposed to go through your broker?
Some have office policies where the broker divides everything according to the agents split.

Pikes Peak makes a good point. I think the referral based on the sale price does matter to most agents. I also believe that it would be hard to fix referral fee amounts because some people spend more time with the client before they refer them to the other agent as opposed to spending no time and no money on the client.

Is absolutely on the money. What many agents, old and new forget, is that we are AGENTS to our clients and not a SALESPERSON, which is different from what most of our customers expect. They want us to SELL their home instead of marketing their home and being an advocate for them, after all, we are the specialists in SELLING homes.
It is our job to know the difference and to act it, and make certain that the consumer knows the difference. We talk about comparing ourselves to attorneys, heart surgeons and other professionals, but as long as we act like salespeople instead of agents/advocates for buyers and seller, we will never rise above that perception.
Personally I don’t have the solution to overcome the publics perception of who we are and what we should do, but I believe, by not accepting referral fees, it might accomplishing that first step of getting the publics trust we deserve.

With broker referral fees costing about 25%, why are agents so repulsed by 3rd party lead services who charge similarly--25% referral fee after closing? Or is it just the "cost per lead" variety that is so repulsive?

Just my personal opinion.
Because you are not contributing anything to the transaction and are taking money out of my pocket.

But how is a referring broker who sends Mr. & Mrs. Buyer/Seller your way "contributing" to the transaction? Aren't 3rd party lead services contributing just as much? Do you see my point?

Marc,
You are kidding right? You think pulling someones name off a website and forwarding this to an agent that is paying you is the same? If you believe that then you are a fool.

There is a huge difference when an agent or brokerage refers a client to another agent\Brokerage in the area the client is relocating. We have a previous client relationship with the person and they are moving to an area we are not licensed or do not cover and have asked us to refer them to someone we know or are aware of that can be their new agent.

When an agent refers a client to another agent that new agent knows there will be a sale when the person finds the home they are looking for because this is a referral of a new client and not just a prospect or should I say suspect since that is what lead generators like you refer!

Don't be so quick to insult me, Paul, and think about what I was asking. Pikes Peak said 3rd party lead services "don't contribute to the transaction" and "take money out of...pockets". I asked what the referring broker "contributes to the transaction" (other than the introduction).

Context: a day does not go by that I don't see a broker on a mailing list or message forum trolling for a someone to forward a buyer/seller while expecting a 20%-30% referral fee on the back end. It's unlikely a prior relationship exists between the originating broker and referral recipient. Granted, the broker likely qualifies the agent, but so does my website (I won't speak for all 3rd party lead services on qualifying leads).

Try speaking to what you know.

Most agents that refer a client to a new agent know the agent either as a past client, past co-worker, fraternal brother, friend etc... This is most agent to agent referrals...the others are the exception and not the rule.
In my case when someone I know says "I am moving to X, TN and need a good agent" I say I will be happy to refer you to someone. And I spend about 15-20 minutes with that person doing a short buyers interview. I also verify if they have been pre-approved by their lender and if that pre-approval is based of the house I am listing for them. I get a copy of that pre-approval and scan it to a pdf and then scan the buyers interview sheet as well. I then hit my database and find an agent in the area and that agent may or may not be a Coldwell Banker agent. If I know someone moving to the Knoxville, TN area I would definately refer them to Jim Lee as an example.
I would then pickup the phone and call the agent and do a short interview if I was not already familiar with the agent. I would iron out the referal agreement and get that signed. Then I would call the agent again and do a conference call and introduce my referral client to their new agent. I would have also e-mailed the 2 scanned pdf's to the new agent and after a few minutes I would excuse myself from the call and let my former client get to know their new agent.

So I would say Yes I bring value to the transaction.

What value does the lead generator bring? You do not even verify who they are or if in fact they plan to buy a house or loan pre-approval etc... and the list goes on! You bring Zero value to the transaction in my opinion.

If I understand RealtyBarons model, they try to pit agents against each other to bid on what they would charge a consumer, AND THEN they expect to be paid by the winning agent for the lead.

I'm at a loss to understand why they think brokers would want to participate in that... perhaps they can explain.

Obviously the relationship between Zillow & RealtyBaron is to make money off Realtors.
Zillow Opens Up at SF Connect
Seen as the big, bad wolf of the real estate industry by some, Zillow just announced they’ll be opening their services in the fall in the form of an application programming interface (API). Basically, it means websites like RealtyBaron.com can ask Zillow.com…programmatically speaking…for things like Zestimates, Zindices, and specs on a home such as square footage, number of beds and baths. This is great news for small operations (i.e. unfunded) like ours. Kudos, Zillow.

This entry was posted on Wednesday, July 26th, 2006 at 6:03 pm and is filed under zillow, web2.0, zestimates, connectsf. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

http://blog.realtybaron.com/2006/07/26/zillow-opens-up-at-sf-connect/

The thousands of brokers/agents who use RealtyBaron want a lead service that costs them money only after a lead earns them money and are not afraid to compete based on their track record .

That's like saying, "Obviously, the relationship between agents, mortgage brokers, and title insurers is to make money off homeowners".

I do not sell clients names to Title Co's or Mortgage Brokers or ask for a kickback.

Likewise, I don't sell customer names to Zillow or visa versa.

And "kickbacks" are under the table deals. Every consumer who uses RealtyBaron is told explicitly how we're compensated.

(do over)

But you do sell them to other brokers in exchange for a referral fee.

Which begs the question: do you *explicitly* tell the clients you refer to other brokers that a 20%-30% referral fee will be paid to you as a result?

Sorry, Paul, I'll have to disagree. That sounds like 30-45 minutes total of your time invested in the "transaction" before the client has even set foot in his/her new city.

Marc, Here is the difference for us between a referral from another agent and a generic referral.
I would say that close to 90% of people who are referred to me end up buying or selling their home with me. They aren't just a "lead". I don't need to make sure they are serious or qualified, and they trust the person who has referred them to me, are expecting my call and ready to work with me. So I just about every "lead" I get is ready to go. They'll be out in 2 weeks to look at houses, and I get them on my calendar.
On the other hand, with lead generation companies, the leads may or may not be serious, and they may or may not be qualified. They don't know me from Adam, and you can't tell them anything about how great I am. We have to talk to 30 people before we find anyone who is REALLY serious. That means we would on average work 20+ hours just to convert one of those leads.
Bottom line: leads from your service need CONVERTED. Leads from other agents come to us already converted.

Not any more.
They are free without fees and kickbacks (under the table without disclosure).
The only reason you can sell your referrals is, because of the many new agents in the business who have no referral base and need the money.
If they could spend on self marketing, what they have to pay you, they'd be better off, but many agents don't look at it that way, to them it's "free money".
But you do sell them! To whom is not important to you.
You sell information to who can give you the best return. You are a user of information, not producing anything of value for society. You are the the kingpin of insider trading.

Carla, thank you for responding to my original question with sound reasoning. I appreciate your insight.