The real estate world can get a bit fuzzy on the difference between recommendations, referrals, and commission splits, especially in Costa Rica. First of all, ALL services rely on recommendations. A good recommendation is what we all hope for and need. A bad recommendation can kill a business. How is a good recommendation rewarded? Normally, through a big “thank you”, but maybe a dinner or discount on future business. We all understand how important it is to receive these recommendations and those of us in the service business should always try to find a good way to reward recommendations.
Referrals in the real estate business or in other businesses usually mean referrals between realtors or to related businesses. For example, if I live in Costa Rica, but my client wants to find a home in Miami and I know of a good Realtor there, I might refer my client to that Realtor. In this case, the fee for a real estate referral can vary, but it is typically 15% of the commission received when the client buys. There are some agents that work this very well and can live off of the referrals without actually ever having to buy or sell a house themselves. I have to admit, it’s one of the areas that I have to work on. In referrals, the referring agent, gives all contact information to both sides and registers them as a referral. No other work is necessary.
Split commissions occur when one agent represents a buyer and the other represents a seller to make the transaction. Both sides work to make the deal. For example, the buyer’s agent takes the buyer all around to see the homes, making suggestions, recommendations, and finding the right home. Once this is done, the buyer’s agent makes an offer on behalf of the buyer, follows through, making sure that the buyer has all of the information about the home that is needed (registry, map of the land, etc). The buyer’s agent represents the buyer through the whole process. On the other side, the seller’s agent spends time and money representing and promoting the home that is for sale. When contacted by the buyer’s agent, they make the appointments, show the home, share papers that are needed to the buyer’s agent, and so on. In this case, the commission paid is shared 50/50 between the two parties. Simple. It really only gets confusing when additional realtors want to get in the middle which is why they call them in Costa Rica “intermediaries”. Does the commission get split three ways? And what if there are more parties? Usually the best way is to assume that anyone who started on the seller’s end, splits the seller’s half and anyone who started on the buyer’s end splits the buyer’s half. Of course, everything can be negotiable, which is why there is a gray area.
However, it is important to recognize the difference between the three levels. If you were to recommend your electrician, you would not (normally) go and ask for 50% of his payment to compensate for the recommendation. You could have a deal with this person that you would actively recommend him/her for a referral fee which would be determined in advance. So, if you let an agent know that your neighbor is selling his house, you are making a recommendation. If you recommend someone on Facebook, it is a recommendation (a VERY appreciated one). However, neither of these makes you obligated to receive 50% of the agent’s commission off of that sale. To receive 50% of someone’s commission, you would have to actively represent in all ways the buyer or seller as mentioned above.
I wish I could say that everyone understands the difference. I have several locals who bring me copies of planos of people they know (many are related) that want to sell their properties, but they want me to advertise them in all ways, find a buyer, and then pay them 50% just for bringing this property to my attention. When I explain that I would be willing to pay a referral fee, they get upset, but they aren’t willing or capable of doing any of the work. I receive this on the buyer’s side as well. Someone recommends a friend or relative and wants 50% of the commission. Don’t get me wrong, I REALLY REALLY appreciate the recommendation, but it is still a recommendation although maybe it could fall into the referral category, but it isn’t a split commission.
How do you know if you qualify for a split commission? The Chamber of Real Estate would make the argument that the person needs to be a registered agent–someone who pays taxes to the government on all commissions. However, to be fair to those who might not be fully registered, I would just ask, “Will you be representing your client (buyer or seller) through the whole process? Will you be working for your client and providing what is needed for him/her? Or, will you really be passing your client off to me to represent them in the transaction?” The answers to those questions determined the level of commission split.
Wouldn’t it be nice if we could all receive 50% of the income received from a recommendation? I could get rich off of doctors and dentists! Recommendations are so valuable and absolutely needed for any service provided. I promise to always try to let you know how much I do appreciate every recommendation I get and I also appreciate the understanding that it is my job and I do have to feed my family.
Tina Newton has lived in Atenas, Costa Rica for over 19 years and was a licensed Realtor in the States. Her business partner Cecilia Tristan is a bilingual lawyer and was one of the forming members of the Chamber of Real Estate of Costa Rica. Their commitment to honesty and full service is their promise. You can contact Tina at email@example.com, check out the website at www.tnrealestatecr.com and see the newest listings on Facebook.