Amongst real estate investors (and most group of people) there’s a lot of confusion about how organized real estate works. Commissions are pretty straight forward, though they very by location and property type (i.e. commercial properties have a different commission because they require different efforts).
Referral fees are pretty simple and describing them makes me feel like a pimp. I’m going to explain how they work for me, which is generally how they work across North America.
I pay for business
When a great REALTOR® in Toronto has a client moving to Edmonton or looking for an investment property here, they introduce their client to me. I help them find a property they love, they buy it and I send them a cheque for at least 25% of my commission. Actually my brokerage sends the money to their brokerage so it’s all above board.
Ok, maybe I am a pimp
I love when people come to me asking for referrals. Yes, I do get paid eventually, but I enjoy the process of helping find the right agent for someone. Sometimes I already know someone (Calgary, Red Deer, Grande Prairie, Fort Mac, Vancouver, Toronto, Hamilton are all covered already) but sometimes I don’t. Then I get to earn my referral fee, if I ever get one, by doing the leg work to help them find the right agent.
When an old work friend called to say him and his wife were moving to a small town north of Barrie I was glad they asked. I had a great time calling around and getting to know some agents near them. I ended up suggesting a couple but found one that I thought would really click with my friend’s sense of humour. When I dropped him an email after their first trip up there to look around they’d already bought a house and had a great time. Home Run!
It’s the cheesiest line in real estate, but referrals are awesome. It’s also a part of the real estate economy that you should be aware of before you start calling around. Asking a great Realtor can help simplify your search and help you both out.