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The Power of Real Estate Referrals

Jan 12, 2017
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Agent-to-agent referrals are a foundational piece of the real estate industry.

Download the report here: The Power of Real Estate Referrals

They are a source of passive income for those who send them. They are a key source of sales volume for those who receive them. By all accounts, they convert far better than the online leads with which the industry has been obsessed for the past 20 years. And yet, we don’t know a lot about them. There is a huge and active Referral Economy that remains all but unaccounted for.

First of all, what is a referral versus a lead? Both are terms used in customer acquisition, but many agents will immediately get the difference. Referrals are a subset of leads. While a lead could come from any sort of “cold” channel like an online form, a referral sits in a very warm spot at the top.

A referral comes from another person.

A referral tends to be serious and ready to act.

A referral will not waste time.

Behind the referral is a cooperative system among real estate brokers and agents that generates revenue for both the referring and referred agent, but also enables agents to build their sphere and reputation simply by providing a successful connection. The numbers tell a story about the details and flow of the agent-to-agent Referral Economy. Beyond the data, what became evident with this study is that an agent’s reputation is the foundation upon which any referral business is built.

Referrals aren’t purely important to agents for their monetary value. Many agents’ primary concern when referring out business is maintaining the reputation they’ve worked to establish with current and past clients.

Here are some key findings from the report The Agent-to-Agent Referral Economy: A Study of the Power of Referrals in the Real Estate Industry, by Referral Exchange and The Council of Real Estate Specialists (CRS).

The close rate of a typical referral, whether inbound or outbound, hovered around 50% for the majority of respondents.

Outbound referrals, according to this study, make up a median of 12.5% of total transactions per agent per year. The majority of respondents (75%) make $10,000 or less annually by referring business to other agents.

Over half (58%) of outbound referrals are generated from past or current clients. The rest come from a combination of family and friends, other agents, referrals companies, and raw leads.

Most respondents expect to receive 25% of the total commission when they refer out and prefer to pay around 25% when they receive a referral.

Nearly 40% of inbound referrals come from the agent’s sphere with a majority of those coming from past or current clients. Another 40% of inbound referrals come from other agents.

- Posted by Tracey Velt from REAL Trends, which provides news, analysis, and information on the residential brokerage industry.

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