Getting Paid Now and in the Future (Part 5 of 5): Referrals
On the surface it may not seem like the broker commissions lawsuits and potential changes to our business practices should affect broker referrals, and I would like to take just a few minutes to point out why I think building your referral business is more important than ever…
Did you know that you can set your own percentage for giving/receiving referrals? People in our company often ask what the “standard” referral rate is, and an easy answer might be 25%, but that number varies greatly depending on the situation, the parties involved and the geographic location of the sending/receiving parties for the referral. I’ve heard of referral arrangements as low as 5% and sometimes greater than 50% so there is no set “rule”.
I would also like to point out that some of the most successful brokers have a significant portion of their income come from referrals, and they often offer (and receive) 25-30% on almost every referral deal. The bottom line is that each one of you brokers has the purview and opportunity to set your own referral rates (for sending and receiving)…and obviously the other party needs to be in agreement.
That reminds me of an important point…get it in writing…and do so at the very start of the referral relationship.
Did you know that ASSIR brokers and staff can give referrals, and that ASSIR brokers and staff can receive referral payments? Be sure to understand that a referral fee involving a buyer who purchases a property with a federally insured loan can only be paid to a licensed realtor.
Why does all of this matter?
Aside from the obvious connection to building one’s referral business and the financial benefits of doing so I’d like to point out that referral fees are not included in all of the current broker commissions lawsuits – in other words, there is no imminent plan to place restrictions on the amount brokers can charge (and earn) on referrals as a percentage of the commissions paid for every closing.
It is possible that as a result of the coverage the current broker commissions lawsuits are enjoying you will encounter more situations in the future where a seller prefers you act only as their agent, and that you aren’t able to represent the buyer (i.e. both sides of the deal). Those situations will be a golden opportunity for you to refer the buyer you are working with to another broker in our office – so make sure you are continuing to build and foster positive referral relationships inside of our own company!
There are often cases where a listing agent becomes a transaction broker to represent both sides of the deal, and there may also be opportunities for broker partnerships/teams to represent both sides of transactions, with one broker remaining as a seller’s agent and the other becoming the buyer’s representative (agent or transaction broker). Some of you have asked, “can a seller’s agent change that agency relationship to then represent a buyer?” and “doesn’t that seem inappropriate for a broker to represent a buyer with their intimate knowledge about the seller from their seller agency relationship?”
Those are valid and great questions! I will address these below and if you have any concerns about the mechanics of this situation, or just don’t feel comfortable with the concept then I encourage you to consider just referring the buyer.
In the case of broker partnerships/teams working as co-listing agents I am not aware of any regulations that prohibit a listing agent from signing an amendment to a listing agreement with the seller that removes them from the listing agreement, and then allows them to enter into a buyer agency or transaction broker arrangement with a buyer for the same listing. I also want to be clear this possible change of status should be fully explained and approved (in writing) with the seller/client – a listing agreement amendment and change of status form are required.
NOTE: There are the contractual mechanics of situations like this that must be understood and adhered to, and just as importantly there are the communication and ethical responsibilities that you should fully understand.
From a practical standpoint think about the scenario where you are acting as a sole listing agent, then through a change of status become a transaction broker to represent both sides of the transaction (this happens all the time!)…you still have a responsibility to the seller to not disclose certain information, and you also have a duty to the buyer to disclose certain information. This scenario is really no different than one broker partner/team member being removed from a listing agreement and then representing a buyer – what is key in these situations is fully transparent communication, disclosure to all parties about what you can/can’t share and are required to disclose about the property and parties involved. And that you get it all in writing!
Another example would be if you are a listing agent for a property where the listing agreement expires…then that listing is signed with a different listing agent…and you eventually bring the buyer for that property. You still have a duty to your original seller/client not to share certain information (this duty carries forward indefinitely).
Keep in mind through all of these scenarios (and all of the other possible scenarios you may encounter) that you ultimately have a duty to your clients/customers; that you always have an opportunity to refer business whenever it makes sense to do so; that you can always come up with appropriate commissions sharing/referring arrangements that represent a fair arrangement between you and the other broker(s).
Regardless of how you may proceed in referral and change of status situations in the future it’s imperative that you keep the realtor code of ethics (attached – please read and refresh your memory!) and broker uniform duties & responsibilities (link here) at the forefront of every situation.
Thank you for reading through my thoughts, suggestions and information about our changing business landscape this week!
Onward!
Andrew
