Ran a cross a guy (Like 50 or so guys I’ve ran across in the past) that said he’d though me some work — IF — I would pay him $25 for the referral. I told him I would buy him a cup of coffee — IF — I got the project and I’d keep him in mind to refer IF his skill set was needed by a HO that I ran into or did work for. He said no thanks.
I’m just venting a bit here fellas. Guy 51… camels back sort of thing. But most of us that have been in the trades a long time have our core group. Plumber, Carp. dude, Sparky and that mutual acquaintance guy. And it just twists my neck the wrong way when I hear this. I’ve never have asked for cash for throwing business in the path of a quality minded tradesmen. It always come back to me, positively.
Am I the only guy that thinks this kick-back stuff is tacky? Am I the only guy that thinks this kick-back stuff is tacky?
Best to you and yours, Chris.
Some say I know too much.
Replies
I would agree with you. I got a similar line from an interior decorator. Thanks but no thanks. I do not think it is very professional at all.
When I get referals-which is all my business, I follow up with a token gift to the referrer just to say thanks for recommending me. Depending on the referral it could be a bottle of wine, gift card to a restaurant-whatever.
People who send me lots of referrals get lots of attention from us. But I would never pay someone for a referral.
Bruce
It's the Doctors that started it but they have office staffs and health networks etc. to make it work. Sucking every penny they can out of the rest of us.
It must be easier to be a doctor, after all they out number us meager mortal carpenters 10 to 1.Best to you and yours, Chris.
Some say I know too much.
Sucking every penny they can out of the rest of us.
I'm not a doctor and I'm not related to any doctors, but I suggest you are wrong to characterize an entire profession that way. Anyone who spends 12-14 years in higher education and training is generally not in it for the money.
I was jokin'!!Best to you and yours, Chris.
Some say I know too much.
Asking for a monetary kickback is unprofessional and unethical. I guess the only way you can get most of the good referrel from that source is to tip the guy also. Wrong, wrong, wrong.
Asking for a monetary kickback is unprofessional and unethical.
Not to mention illegal...
If you use ServiceMagic or their ilk, the contractor is paying a fee for each referral...hardly illegal.
Asking for a monetary kickback is unprofessional and unethical.
Not to mention illegal...
Where's this? I'd be interested to know where referral fees are illegal.
'Cause in my business (real estate), there are all kinda outfits that charge for leads and referrals. A referral fee generally is 20-35% of the gross commission payout for the brokerage that receives the referral. The catch is that we're only allowed to pay people for referrals if they have a real estate license.
Case in point: This summer I got a referral from a brokerage in southern California. A very nice one - they bought a $400,000 home here. Of my brokerage's take (which was 2.4%), the referring broker received 25%.
Now, when a non-licensed individual refers business to me, I have a policy of sending them a nice restaurant/shopping gift card after the closing, as a token of my gratitude, as paying them cash will in fact get me in hot water with the Real Estate Commission.
What, ultimately, is the moral objection to asking for a referral fee? The whole point of it is that you don't have to go out and hustle/advertise/whatever for the business, it basically just drops in your lap, usually thanks to the hustle, connections or goodwill of another person. And it's work you otherwise wouldn't have had. Seems fair to me.
Jason
No wonder home prices were skyrocketing so much. The selling and purchasing agents make a ton of money for a few open houses, adds, and phone calls. I'm not knocking the profession, though you gotta get rid of the gold blazers, but how do realtors make more on the sale of a house than the people involved with taking on the liability it is structurally sound (designed and built). And then get a commission a few years down the line when the home has to be sold again because the home owner can't make the payments.
No wonder home prices were skyrocketing so much.
Hm. Last I checked, the prices had much more to do with speculation by buyers and sellers, and hardly anything to do with realtors.
The selling and purchasing agents make a ton of money for a few open houses, adds, and phone calls.
See, all those things take time, which is a lot of you're paying a Realtor for. That and their knowledge of the ins and outs of selling a house, but mostly for being willing to put up with the BS involved. And you're also paying for time in the sense that listed houses tend to sell more quickly than FSBO houses, and for more money
Being a listing agent is less work than being a buyer's agent, as a rule, but by the time I'm through with any single transaction I usually have a few dozen hours in it. Not to mention all the hassle, marketing expense (if it's a listing), and my overhead.
I'm not knocking the profession,
Whatever.
though you gotta get rid of the gold blazers,
Snork. My company doesn't do blazers. And the company that did, I think they've quit it.
but how do realtors make more on the sale of a house than the people involved with taking on the liability it is structurally sound (designed and built).
Um...if I screw up, my license can be suspended or revoked, and I lose my income. And it's remarkably easy to screw up paperwork. And when, say, a termite inspection misses an infestation, or a home inspector misses some non-code plumbing or electrical, we get sued too. I have to carry a $300,000 errors & omissions policy for just such events.
And last I knew, architects make quite a bit on a house themselves. Far more than we do. On the aforementioned $400,000 house, I made about $5K. It took me about 100 hours' work over three months plus mileage, to get that $5,000.
On a design/build, what's an architect make? 7-10% of project cost? So, more like $30-40K? Seems worth it to me - I've never questioned the value of those services, myself. My dad's an architect, and I agree that what he does is worth more than what I do. But any idiot with a scale and a mechanical pencil can draw a house, right?
And I've never heard a story about a realtor who's been in business under 10 different DBAs, screwing customers left and right, leaving work unfinished all about. I have heard stories like that about hacks who call themselves builders. Both professions have their share of housecleaning to do.
And then get a commission a few years down the line when the home has to be sold again because the home owner can't make the payments.
At the risk of sounding mercenary, I sell houses. I don't manage people's finances. If a builder sells someone a house he knows they can't really afford, who's at fault? The builder, for building the house? The realtor who sold it for the builder? The bank, who loaned the buyer the money? Or the buyer themselves, for living beyond their means?
(Besides - the people who get that far underwater on their houses often have them foreclosed upon, and are sold by the bank itself or someone who's contracted to them at cut rates. They aren't hiring me, because they can't afford to pay for my services.)
Jason
You made $5,000, but what did the seller pay the realtors? At least $20,000 I'm sure.
I think a distinction needs to be made between a referral and a recommendation.
In my mind, a recommendation is a vouch for something- and should be never bought.
You made $5,000, but what did the seller pay the realtors? At least $20,000 I'm sure.
Knowing the listing agency, more like $28,000. In that particular transaction, the home had been on the market a year, and the sellers came down over $40K in price before my client came along. And they owed about $15K more on the house than it sold for, too. It was pretty ugly for them, but they were selling into a declining market.
Jason
Different business groups, different ethical practices. Doctor, attorneys, R/E. For you and them there is an established system in place. In R/E by the way, helps feed a lot of single mom families. So I don't have issues with referral dollars outside the trades.
With Nail Pounders, Wire-runners, ETC... It's more to do with our reputations. Motivating the up and comers to better their craftsmanship and business practices. In the trades, one bad apple effects dozens of us. Public trust of contractors is at a premium. One deck collapses with too many people on it gets on the evening news and ... Well it just makes it tougher on the good guys.Best to you and yours, Chris.
Some say I know too much.
I've spent many years in both the construction business and the real estate business. I have never paid for nor asked for a referral fee in regards to construction work. The system for referrals in the real estate business is entirely different and works just fine, again IMO. There is one big difference between the real estate biz and the construction biz: In real estate you can "get the job" of listing a property or working with a buyer to find the property that buyer wants. However, there is never an assurance of making a nickel for the work you do! (and it will always cost you money up front, not to mention time) And there is never an assurance of when you will be paid, if you are lucky enough to get paid.How many of you contractors would like to work under those conditions? You know, get a signed contract, work for six months or a year, pay for all expenses along the way, and then see whether or not you can get paid?Remember folks, brokers only get paid for the sales that close. How many of you have talked to a broker, a bunch of brokers, about all sorts of things from "hot area" questions and "what can I sell it for" questions to "I inherited grandma's run down place and don't know what to do with it" or "I've over-extended, lost a job, had a work stopping accident, etc. and I need to sell my property fast".... and then never did actually do any business with many of those brokers who gave you their time and the benefit of their expertise?If you are reading here I'm going to assume that you are likely to be smarter, more diligent, and more likely to succeed than the average man or woman on the street (or clerking at a convenience store). Well, folks, I know you've run into some prospective customers who knew so little about construction that their expectations were completely out of the realm of possibility, right? If you don't want to spend your life being oblivious to how the real estate biz works it is up to you to learn your way out of it, just like we are all doing with our understanding of construction by reading here at BT.Honestly, I can say that the commission paid on a specific property sale may be too much, but if it wasn't, the brokerage couldn't afford to be in business. Why is that? Because way over half of a broker's time goes into things that pay nothing, at least directly. How many of you want to do business with a broker that has a dumpy office, a beat up car and shabby dress? No. Of course not. You want to do business with someone who looks and is successful! But it costs big $ to buy the trappings of success, right? We have a small company in a small town, but it still costs us overhead of around $40-50k per year.The fact is that, like in the construction biz, only a few really make big, big bucks. And they do that by accomplishing what no one else seemed able to do.If you younger construction folks want to do yourselves a big favor, get to know a good broker and study up a bit to understand how the real estate business works. You will benefit greatly over time by the knowledge and experience you gain from it.Many people seem to have the idea that real estate is the realm of some fast talking slick types who make big bucks for doing next to nothing. That sort of thing has almost become a cliche.The reality is that many people start the real estate training and never take the State exam. Half of new real estate licensees never renew their license. Only ten percent of those who begin in real estate are still working in the biz ten years later. Yup. It's just that fun and easy.I worked most of 20 years in construction, got into real estate by accident and worked in that biz for 7 years. I was extremely lucky in that I started my own real estate company, trained my wife to run it, and then quit. My only real estate work now is consulting with DW and our staff of four.Why did I quit? The stress of real estate was too much for me. The construction business is ssoooooo much more to my liking. Remember the law of supply and demand? It's that law that determines profit and that lets a few earn top $ by doing what nobody else can or wants to do.OK, I've stomped on my soap box enough times now that it's getting squished. Hopefully my off-topic rant might be helpful to someone's understanding of the transactions that they will surely make as they go through life.
"Doubt is not a pleasant condition, but certainty is absurd."
~ Voltaire
I have no problem paying for referrals and I expect to. But not for a guy just saying...hey my neighbor needs some work done...you should call them. I am strictly a new home builder and always find the best clients come from people that refer them to me.
We have just moved to a new area this year and are starting over here. The entire county we live in is only 20,000 people, so we are going to have to rely on referrals for a big part of our business.
Just this week the wife and I put together packets of info for all of the realtors in the area and all of the people that we have gotten to know over the past year or so here. We have a cover letter that offers them a referral fee (3.5% for agents that will be representing the buyer and 2% for friends that are strictly just referring), a copy of a referral agreement that we use, and also a handful of our brochures.
As soon as someone refers their friends to us we fill out the referral agreement so they know they will get something out of it. Its like having 100 salesmen working for you!!! We will see how well it works in this new area. Luckily we have a subdivision of condo's and townhomes to build so we aren't completely dead work wise.
I'd be happy to share copies of what I send out if anyone wants to see. Email me at [email protected]
I bet you'll do quite well.
"Doubt is not a pleasant condition, but certainty is absurd."
~ Voltaire
Sam,
Make sure to check with your lawyer. In my state this is illegal. It's actually one of the questions on the Residential Builder's exam.
Even if not strictly illegal in your state, there may be liability. A referral fee is different than a commission. If the "agent" making the "referral" is getting paid for it, (s)he has a financial interest in it, so it is a sales pitch, not a "referral".
The client has the right to know that this is a sales pitch, not an objective opinion from someone with no axe to grind.
If a job turns out badly and it comes to light that the contractor got the job by duping the HO through a "referral" that was really a disguised sales pitch, there will most definitely be liability to contend with. And rightfully so.
Edit: The only way to do this legally in my state is for EVERY agent you use to register as your salespeople and INFORM the potential clients that they ARE your salespeople. And there is a set of requirements for becoming a registered salesperson for a contractor.
Edited 12/10/2006 3:53 pm ET by dgbldr
Sam,
I would like to see what you came up with, I'll send you an e-mail.
Thanks Neil
I'm a solo operator and focus on small projects/handyman type work but invariably my customers have bigger plans for their house; additions, garages, etc. I've built a very steady and loyal customer base because I hold their hands throught whatever project I'm doing for them. And that used to be the case for referrals too; digital pics of the job site, copies of plans and whatever other info I could pass on to the contractor before they even talked to the HO so they could have an educated and productive conversation.
Over an 18 month period I was averaging one solid big referral per month and these jobs were about as teed up as they could be. I can't even begin to remember all the trade specific referrals I've made.
For my efforts I rarely got a "thank you" and never got the proverbial "cup of coffee". A few months ago I started to re-think the wisdom of such a strong referrals after getting pulled into a couple of HO/contractor disputes or the contractor/trade guy was blowing off meetings, not returning calls, etc. I had one contractor who offered to pay me for refferals because he wanted to break into the pricey college town I had alot of work in - he promptly blew off the first customer I set him up with.
I've backed away from referrals, if I do give one now it's with the caveat; "some of these guys have their own unique way of running their businesses, they're all busy, you might/might not get a call back..." in other words, 'buyer beware'.
After my experience, if a contractor/trade guy wanted to toss me a gift certificate, a new tool or, good gawd, $100! for teeing them up with a big project I'd take it and not feel slimy.
-Norm
I've used that "caveat" too and still do. But guys that don't follow up with HO leads I give them, don't stay part of that core group long.
Best to you and yours, Chris.
Some say I know too much.
CS,
It seems to me that tradesmen, builders and GCs should cooperate. A strict account of favors with monetary considerations is awkard, but helping each other and building relationships is fantastic and hard to measure.
As an example, I recently designed a very fancy gazebo / summer kitchen / bathroom for a pool company.... $150,000.00 retail project. Considering my homebuildng business, I did dot want to build the project for the pool company. I refered a good friend / contractor whom I have employed in the past and still mentor and teach on a weekly basis. He wanted me to continue to be involved in the project and offered $1,500.00 for continual consulting. I took the consultating offer, which has already paid back, saving him time and money.
Yesterday I told him about a cedar shade trellis I was building for a friend. He said he had a direct purchase account from Warehauser (mispelled / yes, the big boys). I was able to buy $1,520.00 worth of cedar (contractor price) from his source for $860.00.
I was not looking for a referal fee, but continuation of our realtionship as in the past and it has already paid off.
He is benefitting beyond the measurable gazebo project, telling me yesterday that the clients have refered him to several neighbors in this upscale gated community, and asked him for pass out business cards. Everybody is happy and there is no "Hey, you owe me."
As a bonus. If you can download and view the large file, see 4 pages of 24 x 36 size gazebo design work grouped as one in the attached pdf. I also wrote the specs for the project.
The pool company's plan are good for pools, but they fall short in building design efforts. They think I am the greatest thing since the invention of self rising dough and have given me another similar project in Galveston, TX for design. They want my friend to build the Galveston project.
Who knows how far and how much momentum the ball of good relationship will take you. Why spoil it with a strict account and direct monetary considerations for referals, keeping "help me / help you" realtionships on a cold business level?
Nice! I liked the pics.
And I agree, there is a way things things will work out for the best if you take the high road. People like "Guy 51" are clueless.
Oh well, I'm done venting for one day. Time for the mid-daycup of java.Best to you and yours, Chris.
Some say I know too much.
Bad idea.
For some reason I have found that designers and interior decorators are some of the worse offenders with this practice.
I got burned by doing it once with a guy who was a designer and (I thought) a friend. He had designed sets of high end built ins for a living room for which he was well paid and so the customers now owned the set of plans he had done. They were putting out to bid to 3 different guys, me being one of them, and they had gotten my name from the designer. I won the bid, and the designer turned around and told me that he had talked with the customer and pushed me through and that he now expected a $1000 kickback from me. I was hesitant because I knew it wasn't right, but I really wanted the job. So I went to another very well known NY designer friend of mine and she told me that this type of thing is done all the time. So, I agreed. Long story short. I had underbid pretty badly, (I was a greenhorn), and I appealed to this designer to give me a break and he went ballistic. I apologized and tried to reason, I had little mouths to feed... all he had was his new Mercedes to feed, and he never budged an inch for me. I could have told the customers what he was doing,and that would have really screwed him, but I didn't , and he freaked out when he found that I was thinking of doing that. I gave him his money because I believe in living up to my word. We parted angry and I never saw him again.
The upside to this little story is that it was a lesson well learned, and I will never forget it. Toni Morrison told me once that money does strange things to even the nicest people. She was right.
I have been approached subsequently several times by interior decorators with promises for my talents in exchange for lining their pockets. I tend to steer clear of them now.
No, I think it's not a good idea.
"... We parted angry and I never saw him again. "
All the better. When I deal with Design/ Interior Decorators, I tell the that if they're looking to make a commission on my work that they should be the ones to directly commission the piece from me. The HO pays directly to me for the install if needed. Either way I include the delivery cost and bill the designer for said delivery.Best to you and yours, Chris.
Some say I know too much.
The strangest case I have ever come across was regarding a house which I designed and had out for bid.
My client bought a property with and existing house in order to tear it down and build new. We went out for bid to four general contractors. Two GC's were guys I've worked with before and recommended. The other two were GC's that have done a number of teardown projects in the area, one of which was recommended by the real estate agent who represented by client in purchasing the property. The two who've done work in the area knew what the going price was for teardowns in this up and coming upscale area. The other two bid it not because of the zip code, but because of what was on the drawings.
As I reviewed the four bids and did a comparison of cost breakdowns, the GC that was referred by the real estate agent had a $25,000 line item listed for "Referral Fee". I typically call the bidders when I don't understand something on their bids or think that something obviously looks out of whack (either too hight or too low). I do that so that no body gets burnt (GC or client). I called this particular GC to ask what the $25,000 "Referral Fee" was. He responded it was for the real estate agent that referred him to my client to bid on the job. I nearly fell off my chair with laughter hearing that. But I do have say, he was upfront about it and did not try to bury it in some other line item such as General Conditions, on Contingency Fund.
No he did not get the job.
I pay big money for private referrals from private people. I currently have about 600k in contracts for the next 4 months strictly from private referrals. (private meaning people not in the trades)
As far as people in the trades go, I have yet to have someone demand something monetarily from me before they would give me the referral. I have had situations where lets say the plumber or sparky says if I give you this lead, would you use me on that project. Which of course is acceptable.
The homebuilder that I do occasional trim for pays about 2000.00 for a referral. I know of one instance where he sold 8 houses to a family that all wanted to live near each other, all based on one referral.
Absolutely, referrals in the real estate market and construction industry is a viable form of sales. It saves me the big headache of having to keep a sales force on hand.
mark
"say the plumber or sparky says if I give you this lead, would you use me on that project. Which of course is acceptable"
I agree there. Provides the guy thinks your the right guy for the client and he's the right guy to be the Sub for that task. If you are and he's not? Then what?
And if you want to pay big for referrals, thats your choice. But blow the cash exchange just once, Just Once, and you'll be tarnished like old copper for a long time.Best to you and yours, Chris.
Some say I know too much.
As long as the referral fee is clear up front, I don't see any problem with it. If it is brought up after you have spent any time on the project (even just meeting with the client), it is unethical.
As some have mentioned, there is a lot of trading of favors and referrals among the trades. We often get referrals from our plumber and excavator. Over the years these have led to over a million dollars in work. We also use them to screen undesirable customers, often people who are reluctant to pay their bills. In return we give them as much work as we can give them. We do this mainly because of their competence but it is all part of being on a team, a team that does quality work and makes money. Last of all, this is what friends do for each other. We are not friends with everyone we work with, but it is an added benefit of many business relationships, one that makes our work especially enjoyable.
Amen.John
J.R. Lazaro Builders, Inc.
Indianapolis, In.
PEOPLE, CHECK YOUR LOCAL LAWS CAREFULLY.
In Michigan it is indeed illegal for a contractor to pay for referrals. If you pay someone, (s)he has to be registered as your salesperson and must inform the client of that fact.
I'm sure we're not the only state with that statute.
A welldriller offered a 50 dollar kickback for referals. Less than a year later he was being investagated for false well logs. Actually seen some of his work later, great stuff foam to seal the top of well casing when the well pit flooded later the foam naturaly floated. Daaa!
He sound like "Guy 51".Best to you and yours, Chris.
Some say I know too much.
Tacky or not-- if the guy is willing to give you a quality referral (not given to 6 other guys--and telling the client that you are the best guy for the job).. take it. $25 is a pittance--a nice lunch. Buy the guy a nice lunch for giving you a lead that might have cost you $300 in marketing to obtain.
Don't get me wrong--Servicemaster and all these directory sites evoke my ire. I can't think of a single reason they exist but to separate my listings from all of the other contractors listed on page 10 and lower. They charge 6 or 10 people for a lead that is barely saleable. Its unmitigated BS. They cheat in the search engines and because of their size and the fact they buy ads from the Search Engines... they are left to get away with it.
Now, a referral fee is very different that commission right?
Commission (in real estate or home improvement sales), is for the salesman broadcasting marketing for leads, working those leads and signing up the contract for the contractor. I do that all the time. My competition does that all the time. That is pay for marketing, selling, organizing and troubleshooting during--and playing middleman if required.
People-- Other people are entitled to make a living--smart people will make more money and that is not wrong. It is precisely why everything is right in the world. We are all learning--certainly hanging around Breaktime makes us smarter!
L
GardenStructure.com~Build for the Art of it!
Edited 12/10/2006 11:32 am ET by Lawrence
Lawrence
I agree with you, whats the diff if you buy them dinner or give them cash, still cost ya and you benifited so......
If somebody gave me a real referal they would certainly see some compensation for it.
Doug
Regarding your, "--Service master and all these directory sites evoke my ire. I can't think of a single reason they exist but to separate my listings from all of the other ... "
They exist because the net exist and homeowners use the net. Breaktime makes us smarter, yes, but also allows us to vent now and again as I did. More business is good no matter the source but, "Guy 51" with a take it or leave it ultimatum about being paid for a lead is just wrong.Best to you and yours, Chris.
Some say I know too much.