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Janurary 30, 2007

Leads vs. Referrals, Develop a Referral Mentality

Contact with people creates an opportunity or, said another way; contacts create contracts.  Never forget this basic truth in sales. In the real estate sales business, contacts are also referred to as leads. A lead is someone who is at some point on a continuum to purchase or to list real estate.

The day to day success of your business depends upon a steady flow of leads and your ability to convert the leads into sales. The more efficient you are at doing this, the more successful you will be. Pretty simple.

But not all contacts are created equal. While the day to day success of your business depends upon a steady flow of leads, the long-term success of any sales business is referrals. This is especially true in the real estate sales business. 

What is the difference between a lead and a referral?

While both a lead and a referral can be classified as customer contact, there is a tangible difference between a referral and a lead. The difference is where the contact lies on an abstract and multi-dimensional continuum from the initial contact with the person to closing, and beyond to more referrals. What many people call a referral is often no more than a name and phone number or e-mail address, an “unqualified referral,” or more appropriately, a lead.

A referral requires less of your time and other resources to convert to a sale. A referral can be called a “qualified lead.” The better qualified it is, the more valuable it is to you.

The quality of customer contacts can be stated as:

1. Suspects
2. Prospects
3. Customers


A lead falls into categories 1 or 2, a referral falls into category 3. It should be the intention of your business to deal with more category three contacts over time and less of category 1 or 2.  Doing so will allow you more time to build your business, spend time with your loved ones, or whatever else you deem important.

Leads and referrals are generated from many different sources.

True referrals fall into distinct categories.

1. Personal Referral- This is contact information and even an introduction from someone you know.

The average term of home ownership is some five to eight years, so you must leverage the relationship and goodwill you have created with your customer base by asking for the help of past customers, friends, relatives, and even acquaintances in obtaining new business. Referrals from satisfied clients are the “referral gold.”  When a referral is made by another REALTOR®, communication with the referring REALTOR® and prompt payment of the referral fee is essential if you expect repeats from that REALTOR®.

2.  Designation referral- If you are a CRS, an e-PRO, or a member of WCR, you can cultivate relationships with other REALTORS® who are members of these “communities” and referrals of this nature are usually of reasonable quality. Quick response to requests for assistance is the key, followed by follow through and completion of the transaction, and payment of that referral fee to the referring REALTOR®.

3. Leveraged relationships with other professionals such as tax preparers, CPAs, financial planners, insurance agents. These individuals have the trust and rapport with many people, and if you can gain their trust and confidence, you reach many through a few.

4. Relocation companies -– These are usually good quality referrals and worth your time.

Remember, the feature that distinguishes a leader from a referral is the quality of the customer contact. How well do they know the party is making the referral? If they have a high degree of trust and loyalty to the person making the referral, there is a good chance they will be loyal and have a high degree of trust in you.

Compensation for referrals

Compensation will vary based on the type and quality of the referral. When a referral comes from a non-licensee such as a past satisfied customer, no compensation is necessary, but a nice gift thanking them for sending the business your way is appropriate. Compensation to unlicensed persons is a violation of real estate license law in most states. A dinner gift certificate or a gift of nominal value is fine. It is good practice to keep the referring party informed of the status of any referral.

Referral fees to other REALTORS® who refer business to you are negotiable, but a range of 20% to 30%  of the commission you receive (agents split) is not at all out of the ordinary and you may, when structuring a formal referral program, ask if your broker is willing to participate. Speaking of your broker, referral fees are paid from your broker to the broker of the referring REALTOR®, and not directly from you to the REALTOR® who made the referral.  Once again, It is good practice to keep the referring party informed of the status of any referral.

Online Lead Generation Companies

Companies such as Zillow and other Internet companies are not referrals but leads, and leads of varying quality. These companies may have training information about the best ways to take advantage of their leads and if you are going to use one or more of these programs, take advantage of the training and materials offered. Learn how to work online leads if you are going to pay third parties for them and you have a better chance of your investment in these programs bearing results.

Developing a referral mentality and a referral marketing plan

While referrals can just “happen,” to create a rich source of continuing referral business, you need to develop an aggressive referral program. You must plan and dedicate resources to it, just as you would any marketing program. You must develop a referral mentality.

If you do nothing more than asking for referrals at every opportunity, it will have an impact on your business over your career.

“Have I done everything I can to earn your referral business?” should be your mantra. Ask it often, at every opportunity. Let people know how important referrals are to you, and don’t be shy. Remind yourself by:

1. Setting reminders in your contact management software to appear seven days a week.

2. Place a sign in your workspace in clear view, so you see it often, and so your clients and customers see it. ”Have I done everything I can do to earn your referral business?”

3. Place a sign on your refrigerator door. ”Have I done everything I can do to earn your referral business?”

In addition to the above,

1. Create a direct mail campaign to your customer base with a referral theme and mail four times a year.

2. Add the line to your signature in your e-mail software, ”Have I done everything I can do to earn your referral business?”

3. Implement an e-mail marketing campaign with the same message as item 1.

Creating sales opportunities in the real estate business is requires constant client contact and asking for the business. Doing any of the above consistently will bring you more business.

Your intention must be to develop a solid referral business. If you focus on your intention, you will be amazed at the results.

(Saul Klein is CEO of RealTown LLC)

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