A question about referral fees.

9 Replies

I've heard that its a good idea to offer $100 referral fees for leads. But, there's something I'm not sure I understand. 

If I'm given a bad lead, should I still pay the referral fee? I'm worried about the possibility of someone giving me bogus information so that they can make some quick cash. Or, someone with good intentions could give me terrible information. I don't want to pay a bunch of money for bad leads. 

What do others do? If you pay referral fees, do you provide payment only after you've verified that the lead is good? Or, do you just eat the cost and pay for good and bad leads alike?

@Bob Jones in NJ, if you’re licensed agent, you can’t offer referral fees to anyone not an agent. I can pay a flat fee for leads like $50/lead to Zillow. If you’re not licensed, you can offer like $500 per closed transaction to your bird dog.

when offering a referral fee, make the fee contingent on locking in the business. 

For sales, we pay the referring agent a fee AFTER the home sells and we've collected our commission. For property management I pay the referring agent AFTER I've signed the owner up with a one-year contract.

You are paying for the business, not the lead.

@Bob Jones your thinking is correct. However you choose how much you offer. You can offer $1.00 per unqualified lead if you want. Likewise you can offer a much higher amount for deals that close. 

  • In MD an agent cannot offer a fee to a non agent. 
  • If you are not an agent it is illegal to accept a fee. (I would guess this only applies to fees where a deal closes.) 
  • As I interpret the law, if you are not an agent it is legal to pay the fee but illegal for the person who accepts it.

Thanks for the responses. I guess I'm a little confused about the legalities. I've heard that there are laws concerning referral fees, but I suppose I thought they must apply to something other than what I'm considering. 

I was I thinking about giving small amounts of money to property managers, mailmen, neighbors, etc, if they can give me information about homes that I may be able to purchase.

It seems odd to me that something so innocuous could be illegal.

In Vermont you cannot pay anyone unlicensed for a lead. I think that's everywhere, and probably in the Realtor code of ethics somewhere. You can't pay the mailman for a referral. You can certainly set up your own system for thanking them... send them a thank you card with a gift card or something. Do something to encourage and reward the behavior of referring, but you can't directly pay them for leads.

With licensed agents, the way it usually works in Vermont and everywhere as far as I've experienced is you agree on a referral fee of a percentage of the commission once it closes. 25% is pretty typical in my experience for a qualified lead. But that's only if it closes.

Hope that helps!

For the exact reason most internet leads are questionable and not credible. However, many public companies have proven tract record stating that works.  It is a numbering game for realtors, brokers.

However, you can give a gift to someone subject to $600 tax cap for a 1099.