Agents Referring Investor Clients — Worth Setting Up Formally?

Question

Had a few conversations lately with agents who get investor clients they don't really have the bandwidth or network to serve well. Curious whether others are formalizing referral relationships for that (with a fee at closing) versus just handing the client off informally. Does a structured referral arrangement actually get used, or does it tend to fizzle?

Marvin Chapman · Answer

Jack, this is my take on formalizing referral relationships and using a structured referral arrangement. Structured referral relationships for investor clients are very common. Handling the needs of investors typically requires special knowledge -experience with cap rates, lending, and 1031 exchanges. As a result, you want to a transition or hand off formalized to protect your work and future commission.

A formal referral agreement works for these reasons. First, a signed agreement will secure any commission earned from taking on a referral that eventually closes. Next, a referral agreement will set expectations and ensure that the receiving agent knows what to perform to get a commission. Last, most brokerages require formal agreements to legally process referral fees for distribution in the escrow process. Because of these, a signed referral agreement will not fizzle.

Crystal Smith · Answer

It looks like no one has responded to your query. I never hand a client off informally or take a calient informally from other agents.  If it's not formal you will not get paid.