A real estate referral fee is a fee that a brokerage pays to another brokerage. We will call the brokerage who pays the other brokerage “brokerage A”, and the brokerage who receives the real estate referral fee “brokerage B”.
Let’s say John Smith works for brokerage B in Orlando, FL. John has recently sold his clients home in Orlando, FL. His client is now moving to Los Angeles, CA and wants to purchase a home there. John does not have a license in CA so he cannot sell his client a home there. John does the research to find a great brokerage for his client to work with in Los Angeles, CA. John finds brokerage A and reaches out to them. They agree on a real estate referral fee and draw up a contract for brokerage A to pay brokerage B a real estate referral fee of 25% of the total gross commission if brokerage A sells John Smith’s buyer a home.
A few months pass and brokerage A closes on a home for John Smith’s client. After closing, brokerage A pays John Smith’s brokerage which is brokerage B 25% of the total commission that brokerage A made off of the transaction. John is happy as not only was his client in good hands, but he also received a quarter of the commission as a real estate referral fee.
Real estate referral fee's are normal practice in real estate. Most Realtors know of someone who is looking to buy or sell real estate but maybe not in their market. If they are not buying in the Realtor’s market, you can still make money off of them by referring them outside of your market and earning the real estate referral fee.