Lately, there have been a few online postings that referral fees should be illegal because they add cost to the consumer. I’ve read all the arguments, yet I’m not sure how they arrive at that conclusion.
I could see the argument, if I were to raise my cost to the consumer on transactions where I have agreed to pay a referral fee. While this may happen from time to time, I believe the vast majority of brokers see it as the cost of doing business. I either pay to advertise, farm, or some other means of acquiring new clients or I pay a referral fee to an out of area broker who has a client needing to buy or sell a property in my area.
While I don’t work relocation business, relocation companies collect referral fees from brokers who accept their relocation clients. Why is a broker-to-broker referral any different?
The bottom line is that unless brokers raise prices on transactions involving a referral fee, there is no additional cost to the consumer.
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Originally posted at http://www.referralagentsoftexas.com/2012/01/09/do-referral-fees-add-cost-to-the-consumer/
Tom Branch and Gina Branch, The Branch Team with RE/MAX Dallas Suburbs, service the greater North Dallas suburbs including Dallas, Plano, Allen, McKinney, Frisco, Lewisville, and Carrollton. While Gina concentrates on traditional listings and buyer/tenant representation, Tom specializes in assisting distressed homeowners to avoid foreclosure. Tom and Gina have published two books (Achieving Rock Star Status and The Field Guide to Short Sales) and are available for speaking engagements in the greater Dallas - Fort Worth Metroplex. Subscribe to The Branch Team Blog.
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Tom, Wouldn't even THINK about raising the consumer cost to compensate for a referral fee. That's my business decision to eat the cost. It's business we wouldn't have had otherwise. I'm either okay with that cost, or I can decline the referral, but either way, it's not an increased consumer expense to pass on.
I'm not even sure if this was something consumers believe, where did they get it from? But I do know it costs an agent a cut (sometimes huge) out of their paycheck.
The referrals I receive all come off my commission. I would never dream of asking my client to eat part of this.
Doug,
I agree with you. That said, there are a number of consumer groups who would like to see the practice banned as it is with LOs.
Tom
Could you name some consumer groups? I've never heard of an agent passing on increased fees because of a referral. I have heard about clients (mine) elated at getting a good agent in their new home town, and of other agents (referees) elated at getting new business that they otherwise wouldn't have had!
Tom,
I agree but then again that is the way to lose a referral in my book. If an agent I refer a client to bumps their commission to cover the referral, GUESS WHAT they don't get the referral I will refer my clients to someone else.
Well said, Tom. It's quite clear to me that I am ahead of the game by accepting a referral, earning a new client (perhaps for life!), and making a commission I otherwise would not have.
Here's one example:
http://raincityguide.com/2007/01/09/is-your-agent-spending-your-money-without-asking-your-permission/
Tom
I do relo business, and I almost never think of referrals as giving away money. I'm not crazy about the upward creep, but it's usually business I wouldn't have otherwise.
And I really don't understand when agents or brokers complain about paying referral fees, If it's part of your business plan you should be giving and getting referrals.