Smashing The Referral Fee Myth Part 1

The Referral Fee Myth –

A Narrow Mind Will Always Stunt The Growth of your Business!

Smashing The Referral Fee Myth Part 1There has been an ongoing rift between agents and brokers over referral fees and I am quite sure the writing of this article is not going to have some overarching impact that will change it any time soon. But, for those that lead from a position of strength and clarity along with agents that operate with an open mind to leadership and truth, if you take action based on the business principles I share, both parties have an opportunity to better, broaden, and grow the business experience.

First, let’s all understand that we are all in a “for profit” business. Agents want to make a profit and brokers want to make a profit, but it’s an elephant in the room that is either not talked about directly or consists of conversations of conflict.

Leaders: Stop avoiding the truth

It starts with your recruiting. My experience is the recruiting process is so based in sales that leadership tip-toes around realities that can create fracture after an agent joins an organization when not dealt with up front. This is a subject with much depth, so for simplicity and support, here’s my suggestion when you are hiring an agent or interacting with existing agents:

The Conversation:

Broker:  “Super Agent, are you in the business to make a profit?”

Agent:  “Of course I am.”

Broker: “Great, so are we as a company and we are looking for agents that want to partner in a business relationship that supports the mutual benefit of profitability.”

Simple? How often are you having that conversation with future and current agents? As I stated earlier, there is much more depth to this and I will cover it in a later blog.

Agents: It’s all about the whole not the part

Your first response may be, “I understand your position Jon, you coach, train and lead managers.” As a matter of fact I do, ironically I also coach a small group of highly productive agents. This blog was birthed out of a coaching call with one of my clients and top agents in the country.

Here’s some food for thought. The health of the organization you work for has a huge impact on your success.

  1. It provides your company with more resource to continue to take action and invest in the many ways a company should to enhance the experience of the agent. Including quality human resource to support you.
  2. The healthier the organization is the more agents will want to join which means more signs in the market, which means more market share, which means more brand extensioning, which means higher conversion rates for you when you are toe-to-toe with the consumer.

It’s ok for everyone to make a profit, agents and brokers. You must find a space that balances out the investment return of human resource and financial resource that will lend itself to ongoing growth and profitability for all parties.

I hear it from agents all the time, “Everyone is always in my pocket for some kind of fee:  my broker, relocation companies, buyers, sellers, and even other agents.”

There are a couple of things I must point out.

  1. The real estate business, like any business continues to evolve and with evolution comes change. I think it’s safe to say there are more parties to a transaction today than ever before. You can resist it or accept it.
  2. The buyers and sellers won’t be in your pocket if you stand in value.

So let’s roll our sleeves up and drill down into this.

The Account Balance Not Paid Attention To: TIME

It’s easy to take a look at a commission check and do the quick math of what it started at and where it ended up. Unfortunately this is where the battle begins and to this day marches on. Here’s some quotes that may sound familiar:

“Damn referral company took 50% of my commission and I busted my ***.”

“I paid a referral fee, a franchise fee, and I only get a 50% split after that.”

“I’m never taking another referral.”

Or the one with a little bit more validity and requires further consideration, besides what I am going to share with you:  “All the liability we expose ourselves to on that referral for that little return!”

My experience has been in dealing with this as an agent, manager, executive level leader, and now a coach — money is typically the focus. Yes, it’s part of the equation, but there is a piece to this that has more value than the money involved. It is your time. They do go hand in hand of course.

Here are some questions for agents in evaluating your own business — by the way, Brokers, this is the elevated conversation you need to be having with your agents. Non-manipulative, instead of trying to create an External Decisioning Process for the agent, you are going to allow agents to reflect and self-discover for an Internal Decisioning Process via thought provoking questions they may not have considered.

There are Two Resources exhausted in business, Human Resource (Time) and Financial Resource (Money).

  1. How much is your time worth?
  2. How much time does it take to generate a lead?
  3. How much money does procuring that lead cost you as a measurement of your time?
  4. How much money does that lead cost you as a measurement of your time to incubate that lead?
  5. How many leads never become a closing?
  6. How much money do you spend in generating leads?
  7. How much money do you spend in your incubation system consisting of marketing material and other forms of communication?
  8. How many of those leads never become a closing?

Are you all tracking with me, brokers and agents?

As an agent, are you measuring all aspects of the transaction; your time and cost to just generate a lead vs. a lead that is handed to you or, are you closed minded and focused on simply counting other people’s money?

I have one other piece. I am going to go out on a limb here with the safe assumption that ANYONE you engage with and start to build a relationship with, NOW expands your audience into a whole NEW sphere of influence you were never exposed to. Staying in this assumption, how many future transactions are you losing that won’t involve a referral fee over the life of your career because you didn’t want to pay a referral fee one time?

Much to consider . . . and I look forward to your feedback . . .

Stay tuned . . . in the next couple days, my follow-up and completion blog will bring it all together. I promise I will wrap it and put a beautiful bow on it.

After you read both blogs:

Brokers:  You will never deal with a complaint about referral fees again if you lead a group of savvy business people. At a minimum you will be able to have a responsible and direct conversation about referral fees that is educational and enlightening instead of one where you are dancing around in explanations.

Agents:  Your desire for transactions with a referral fee will change dramatically and you will discover a whole new way to expand your business.

You both may already be there if you really take the time and digest what I have shared here today.

Til next time. 🙂

Ready to focus on the referral fee myth? Start Here

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  1. Kevin
    4 years ago

    Its not referal fees you should be blogging about- its low ball buyer broker fees from rip-off realtors that yoyu should be blogging about- they want to pay you 200 for a 1200 rental listing and then charge 200 to your client for a “filing fee” plus they charge other petty charges and outrageous credit fees – and then try to brand you as unethical for not showing their properties- when in fact your protecting your clients interest-


    • Jon
      4 years ago

      The principles are universal, whether referral fees or rental placement fees. Like any business there are always going to be people that don’t do business the right way. I suggest not given those people any energy.


  2. Kevin
    4 years ago

    Anyone paying 50% to their broker is falling for a bunch of BS


    • Jon
      4 years ago

      That is one perspective Kevin. Here’s a question to consider. What is the value of your database? How much value is there in the long run of business to pay a referral fee once, and then 1. Get referrals in the future from that new client you never would of had otherwise. 2. Market yourself around that new transaction in multiple forms to generate more business. Food for thought.

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