Our last deal was a success in every aspect. Not only did we make $10,000 to split between us, we gained another great cash buyer. This experience continued to validate that every one of your buyers is different. Even if the first 8 buyers you talk to don’t think it’s a workable deal to them, the 9th buyer on your list might give you your full asking price.
With the good also comes a potential situation that will almost certainly come up if we are not careful. We got this buyer through another investor which we then gladly payed that guy a portion of our profits for bring us that buyer. So…
Is He Our Cash Buyer Now?
The obvious question that comes to my mind is what happens if we use that buyer again? Are we going to have to always pay a referral? This is important because the last thing I want to do is to do something that would be unethical, shady or wrong. Life is so much easier and more enjoyable when you do things the right way.
I’ve asked this question on a few forums and here are some of the responses I got…
…it depends on the agreement you had with the referring person…
…did the buyer and/or investor give you any indication that the buyer “belongs” to the investor. Do the buyer and investor hang together on a lot of deals?..
…In my opinion, you should flip a few bucks or a healthy gift card their way with a note thanking them for the introduction. However, do not feel that you have to do this each time…
The responses surprised me in how split they were, I figured it was a slam dunk on the side of pay the referring Investor every time. There was even a comment from someone who has lived on the east coast, but no longer does. They said that the thinking is different on the east coast then in other parts of the country. We east coaster mostly think that once a referred buyer, always a referred buyer. While in other places it’s customary to just send a small thank you gift (small check, gift card, etc…) for each closing.
Never Assume, Just Ask and Sign a Contract
Because of this diverse response, I’ve come to the conclusion that the best practice in this situation is to talk with all parties involved and come to an agreement. Then write up a quick contract and have everyone sign it. Don’t let being friends get in the way of making a smart business move either. When money is involved you’ll find out how little friendship means to some people, so get a contract. Nobody should be offended, and if they are then don’t do business with them.
For my partner and I it’s more important to keep our relationships on good terms. Even better yet, we believe that if we even take it up a notch and provide great value to the relationship it will benefit us more in the future. That is why we have decided to always pay the referring investor every time we use his buyer. It just makes sense for us and everyone involved. How much we pay per deal is going to have to be agreed upon. We wouldn’t want to underpay, that sometimes pisses people off more then not paying…crazy I know!
The Referral Contract
Sure you can write your own simple contract, but I think it’s better to use an established contract if there is one. To be honest, I haven’t found this contract just yet but got an example of something that might work..
I’m terrible at understanding legal mumbo jumbo but this seems like, with a few modifications, a good base contract. I just have to figure out how they are using the term “Fund” here. Anyone have a clue?
Continue to Market for This Referred Buyer?
This is a tricky one because it comes down to money. This buyer is great, but every time we use him we will lose money to the referring investor. So should it matter? This is what it boils down to though…
Option #1: Use the referral buyer only when your Top buyers fall through
Option #2: Include your referral buyer as one of your top buyers and not worry about the profit sharing
What would you do?
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