Creating value with a real estate license holding and referral company

When real estate agents retire or move out of state or move on to another career, brokers shouldn’t let them walk out the door with their contacts and licenses. Keep them referring to your company. We aren’t talking about real estate holdings here, we’re talking about holding state real estate licenses for referral purposes. In fact, “a number of RealTrends clients are doing this now,” says Steve Murray, senior advisor to RealTrends.

Real estate license holding companies go by various names, sometimes they are called referral companies, but whatever the name, they can be a great retention tool for real estate brokers.

How it works

When a licensed real estate agent quits practicing real estate, they need to remain affiliated with a brokerage so they can legally receive referral fees on referrals of past clients, friends, family and acquaintances who want to list or sell real estate in any market. But because they are now non-practicing, you probably don’t want to keep them in your current brokerage.

Retired agents have a wealth of contacts and moving them into a referral company often makes the break easier if their production has dropped off. When they move their license into a referral company, they may not show or list property or discuss or negotiate contracts. They also can’t represent themselves as a practicing real estate sales associate. It allows for a graceful exit from full-time selling and their primary focus becomes referring their contacts to other real estate associates.

It’s about managing relationships, not just licenses

Some brokers allow licensees to stay in the agent’s branch where they previously practiced actively. The challenge with that is branch managers have enough to handle with active selling agents, and it skews productivity numbers. Often their licenses will lapse and they still remain on the company roster, or they continue to pay dues unnecessarily because they haven’t been moved to a non-practicing status. The broker may have referral company that’s underperforming. It can’t be a set it and forget it entity. A broker needs to actively engage their members to achieve maximum benefit for the licensee and the company. A license holding company isn’t just about managing the licenses, it is about managing relationships.

Benefits of a referral company

In a license holding company, licensees may not have to pay real estate Association and MLS dues and fees because they no longer need access to what those entities provide. However, that’s not true everywhere, so check your local rules. They are only acting in a referral capacity, so they likely don’t need Errors and Omissions Liability Insurance either.

Whether they partner up with an active agent in your brokerage to deliver all of their client referrals or work through your coordinator to rotate the referrals out to the best suited agent, it’s a win for your company. You’re able to deliver referrals to your active agents and the referring agent maintains a connection with your company. You can place their out-of-area referrals for them through your Relocation Department.

The benefits for the broker owner:

  • Provides a source of referrals for your practicing agents
  • Moving them from your branch’s roster avoids skewing production numbers
  • Continues a relationship with them that is more productive for both parties
  • Gives the broker continued access to the referral agent’s contacts who buy and sell real estate through referrals to your brokerage
  • Provides a supportive way to transition agents out of brokerage
  • Eliminates the use of office resources if they are not producing

The benefits for the non-practicing licensee:

  • Can put personal and professional contacts to work
  • Possibly don’t have to pay MLS and Board dues, fees and insurance costs
  • Can maintain a full-time job in another field and earn extra income through referral fees
  • Don’t have to create their own marketing materials to stay in contact with their past clients
  • Don’t have to show or list property or manage transactions
  • Does not incur any marketing expenses a listing agent incurs
  • No specific production is required to stay a member of the referral company
  • They can feel confident their contacts are well taken care of

Licensing laws vary by state

States requirements vary on how a license company should be set up. Some require a different broker of record from the primary brokerage. Some allow for the same broker of record, but it must be a separate company in the eyes of the governing state department of real estate. You can’t co-mingle practicing and non-practicing real estate licensees in the same brokerage, which is why it must be a separate company.

Some states don’t require licensees to take continuing education to keep their license active, so in those states there are a huge amount of people who maintain a real estate license because the cost and requirements are low. In other states, the renewal fees and hours needed in continuing education to maintain a valid license are high, so you have more people who let their licenses lapse once they are done actively practicing real estate. Whatever the situation is in your state, it’s still good business to create one of these companies by providing them an option to continue to earn revenue from their contacts. One successful referral will likely pay for their continuing education courses and their referral company annual dues.

Recruiting to your License Holding Company

Some brokers don’t have an entity to hold licenses of non-practicing agents, so when agents retire or leave the industry, they have nowhere to hang their license. One strategy is to market to licensees that you have a place for them when they leave active real estate practice. You may also market to people who have a license, but have never used it to actively practice real estate. Or to people who have recently taken the real estate test, and have no intention of actively selling real estate at this time.

There are many people who get a real estate license for the sole purpose of referring people they know to real estate agents for referral fees. The most promising group is the bottom quartile of agents in your MLS and your company. They may be leaving real estate anyway, so it’s easy to move them into the referral company and then move them back to full-time brokerage when and if they’re ready to give full-time sales a try again. According to the 2020 NAR Member Profile, 22% of all Realtors make less than $10,000 a year. Insurance, Association and MLS dues and other fees and expenses easily top $10,000. They are perfect candidates to step into a referral role.

Setting up a company

It’s easy to set up a separate company. Typically, your broker of record or your corporate attorney will know the general rules around your state’s licensure laws. The key to a successful referral company is to have someone manage the communication with the members. Have a program coordinator who can facilitate the referrals and license renewals, send the confirmation for the referral fees, provide regular updates on referrals, and ensure they get paid in a timely fashion. They should also manage the flow of resources and information to the member group. The easier you make it for the referral member, the more likely they are to refer. You might start out with a part-time coordinator to manage the program in partnership with your licensing department. A handful of closings can cover the expense of a coordinator.

  • You will need to get a separate Tax ID number for the company.
  • Create an Independent Contractor’s agreement different from the one you typically use that clearly outlines what they can and can’t do as a non-practicing agent and how they get paid on their referrals.
  • Help them transition their license into the license holding company and get all of the necessary documents, payments, etc. together to keep their license valid.
  • Offer continuing education classes if you have a real estate school or a partnership with one, provide discounts and make them aware of the classes.
  • Collect their IC agreement, profile information and a W9.
  • Alert them when their license is up for renewal.
  • Allow them to participate in agent selection for their referrals, if they choose to do so.
  • Facilitate their referrals from beginning to close and ensure they get paid in a timely fashion.
  • Invoice them for their annual dues to the license company (even if they never send one referral, you can earn revenue by holding their license for an annual membership fee.)

From a marketing perspective:

  • Create a company name and logo different from your brokerage and then set up the company with your state’s department of real estate.
  • Build a website where they can go to get information on the program, tips on where to find referrals and details on state licensing requirements. Make sure and add a Frequently Asked Questions section and a link to your state’s licensing website.
  • Provide scripts and sharable content that they can use in social media and emails.
  • Let them order referral company business cards so they can pass them out at social events identifying them as referral agents.
  • Set up an email for them to use for their referral business.
  • Create monthly newsletters and communications, coaching them on where to find referrals and how to send them.
  • Invite them to company events to keep them networking with your active agents.
  • The key is to give them the tools to keep them engaged with your firm and with their past clients and contacts.

By having a license holding company, brokers deliver referrals to their active agents and keep their non-practicing agents producing referrals. But just having a company doesn’t guarantee it will generate significant revenue. The value lies in staying engaged with the member licensees to capitalize on every referral opportunity that might come their way. The member can earn passive income by putting their contacts to work through referrals and your firm retains the clients. Having a license holding referral company is a win-win.

Teresa Howe, SCRP, SGMS, is a consultant with TRH Consulting, and has created and managed multiple referral companies for brokerages.