*Please note, this post is written in regard to the State of Virginia rules and regulations. Please check your state rules and regulations regarding referral status. This post was recently updated for better understanding.
Now that you have passed the real estate licensing exam, you have a big decision to make. Do you join a brokerage firm to jump in and actively sell real estate? Or, have you realized that you may not have the funds readily available that you need to get started on this adventure? Maybe you think working as an assistant or transaction coordinator may be a good idea to learn the ropes and earn some cash until you are ready. If you are one of the later people, you are probably wondering what to do. Good news! There are two options – you can place your license into inactive status, or, the BETTER option, you can become a Referral Agent. I highly recommend the Referral Agent route, but what does this mean and who would benefit from this?
What is a Referral Agent?
Basically, a referral agent is a licensed real estate agent who does not directly sell real estate, but instead, refers their clients (friends, family, co-workers, any of their contacts) to another active licensed real estate agent, who will then manage the client’s real estate transaction. The referral agent then earns a percentage of the active agent’s commission generated from the referral. Being a referral agent can be a lucrative way of earning income in the real estate business.
Who would benefit from becoming a Referral Agent?
Becoming a referral agent is a great option for real estate licensees such as:
- an experienced agent looking to semi-retire and still generate income.
- a licensee who excels at generating leads but would rather not show or list property.
- a newly licensed agent who is not quite ready to actively sell real estate.
- a newly licensed agent who does not have the start up funds that are needed to launch their business.
As a referral agent, you have the ability to create a “triple win” transaction. Your clients win by being referred to a handpicked trustworthy agent who can handle their real estate buying and/or selling process (hopefully this is an agent you have a relationship with). The real estate agent who receives the referral wins by being referred to a new client and receiving new business, which will lead to a commission. You win by receiving a percentage of the commission of the client’s real estate transaction! I’d say that’s a true win-win-win situation!
Requirements of a Referral Agent
In order to earn income as a referral agent, you must be licensed and affiliated with a brokerage firm that can receive and process the commissions you earn from making referrals. You cannot receive commissions for referrals unless you are part of a brokerage firm. Period. There are several brokerage firms out there that are set up strictly as referral companies. If you have passed your exam, you may affiliate with a referral brokerage firm immediately to activate your license.
You can refer your clients to ANY active real estate agents or brokers at any firm anywhere in the country! This brings me to the importance of growing your referral network. Having relationships with respected and successful agents all over the country can be very advantageous to your success as a referral agent. Once you have referred your client to an agent, there are typically no other duties for you. However, a good referral agent will stay in contact and follow up to make sure that the real estate agent to whom their client was referred is doing a good job for them!
You are also required to complete your PLE (post-licensing education) and CE (continuing education) as required by your state and pay the licensing renewal fees as well (every two years in Virginia).
Now for the good news … as a referral agent, you are NOT required to be a member of a real estate association or pay any MLS (multi-listing service) fees. Basically, little to no fees to be a referral agent with the potential to make some income. Yay! (Remember to confirm this with your state licensing board).
How much commission will you receive?
Typically, real estate referral fees range from 20% to 35% of the take-home commission of the agent the client was referred to, but the standard fee is about 25%. Of course, like everything in real estate, this is negotiable. Your brokerage firm will then take a small percentage of the referral fee (the split) before you receive your commission (again, this varies per company).
For example, my license is currently with a referral company. When I refer my contacts to another agent, my brokerage firm receives the 25% commission fee. Our agreed split is 75/25 meaning I then receive 75% of the commission we receive from the referred agent.
Here’s an example: If I referred friends to an agent to sell their house for $600,000 with a 3% commission, the listing agents’ share would be $18,000. The 25% referral fee paid to my brokerage firm would be $4,500. My 75% split of that amount would be $3,375. Just for referring my friends! *Please note, this payment is received just like an active agent, as an independent contractor and 1099 agent. No taxes are withheld from this payment, you are responsible for paying federal and state taxes on any commission/income you receive.
I hope this post provided you with some insight regarding referral status. Don’t waste all of the time and effort you spend studying as well as the expenses you incurred to get your license! If you’re in a tough situation and have realized that you may not have the funds readily available to get started, become a referral agent. Maybe you can pick up a position as an assistant or transaction coordinator to learn the ropes and earn some cash until you are ready.
*Please note, in the State of Virginia there is only two license status’ – active and inactive. As a Referral Agent, your license is active, but you are not permitted to actively practice real estate.