You've probably heard about the new companies that will sell you leads for a fixed or referral fee. Many agents feel that these are an excellent source of incremental business. Some are realizing that these companies may evolve into a business model that will change the real estate industry landscape and the way the whole game is played in the future. But few know that it is possible for you to be a player in this game and not just a spectator.
These new companies, backed by millions of dollars in funding, have the mission of aggregating leads which are then sold for a fee to agents. Common denominators of these businesses are that they use the Internet to generate their leads by offering something of value to the consumer, such as a free home market valuation, a cash rebate on the commission, or assistance in finding an agent at a lower commission. What worries some industry leaders is that these "interlopers" are scalping off a healthy chunk of the commission and thus reducing profitability. That might be bad enough, but scarier to many is that they work to build customer loyalty to themselves rather than to the agent. When the consumer returns again to the lead aggregator, to take advantage of the financial incentive offered (and refers friends and family there too), the agent needs to pay again get back a customer that traditionally would have been his without another fee.
The argument on whether this trend is good or bad shall be reserved for another day. I wish to study the process which these companies are employing, which has been proven to be successful, and ask how an individual agent or broker can emulate their model to accomplish the same results, at a lower cost and increased long-term profitability..
Let's take a closer look at what common elements these companies are employing in their business. They use the Internet to gather their prospect’s contact information and to qualify their level of interest. Consumers are drawn to these Internet sites with an offer of something of value. This offer is promoted with an advertising campaign in various media including television and magazines. These leads are then scrubbed to varying degrees before being passed on to the agent for a fee, which may be either a fixed fee for a territory or a “referral” fee to be paid upon a successful transaction, to follow up and convert into business. Some companies then share this fee with the consumer as a "discount" on their purchase.
Offer something of perceived value to consumers over the Internet in exchange for their contact information. The premium must have value, preferably financial, to your prospects.
Many agents populate their websites with community information, lists of local vendors, or offer subscriptions to their newsletter. Offering a free CMA to potential sellers is one of the oldest promotions. One of the most successful promotions, because it is of immediate interest to home buyers, is the real-time transmission of new properties which match their interest. However, if these promotions were truly effective then the third-party lead aggregators would not be as successful as they have been. What is the difference?
While the offers made by the average agent or broker involve little or no cost to them they are not sufficiently unique or of high enough value to stand out and attract the consumer’s interest when compared to the offers of the aggregators, whose premiums put dollars in the consumer’s pocket or give them information that they cannot easily find anywhere else.
Lesson: To be effective the premium must be of real financial value to the consumer and not another common “me-too” promotion. Community statistics are on every other site, and after a prospect has subscribed to two or three newsletters, does he really need another one from you? Find a premium that will differentiate your offer from the competition and be of real value and interest to the consumer, such as a home inventory program. This isn’t the place for self-serving promotional advertising. Put yourself in the shoes of the customer – what would attract you?
Promote your offer at every opportunity. A great offer is useless if it is kept a secret. You must promote it – heavily – to your target audience for it to be successful.
This need not be as difficult or expensive as you may at first believe. They must use a shotgun approach utilizing radio and national television and print to find their customers, but you have the advantage of a smaller geographic region and is more targeted than that of the national companies. Still, you need to promote your offer every chance you get, but not necessarily at great expense. The best way is to include mention of your offer in the advertising which you are already doing – in your listing advertising, in your newsletters and on your postcards, and even on your business card. If your offer has any potential for PR as a community benefit (home inventory is an example) communicate this to your local paper and benefit from the free exposure and goodwill which can be generated.
Lesson: A premium is only as good as its promotion, but you need not spend a fortune to advertise it if you make it a part of your current advertising or take advantage of free exposure.
Price competitively; deliver superb service and value. Like it or not, the price of real estate services are negotiable. But it is an error to compete solely on price and ignore other factors that are also important to the customer.
The new business models will affect the consumer's expectations and will have to be a factor in your pricing model, if not today then probably in the future. This is true even if you are not associated with one of these companies. The old rules of giving excellent service which justifies the value of your services will always remain. But the game will get more complicated. Just as with the wave of commission discounters a few years back you will need to deal with the commission rebaters in the future.
Lesson: The more things change, the more they stay the same. Average commissions have been dropping at a steady pace to a national average of about 5.7% due to the pressures of discounters, the Internet, and consumerism. Pay more attention to explaining what you bring to the table in market knowledge and negotiating skills. Don't assume that your client knows what value an excellent real estate agent can add to the deal. They buy or sell a home only once every five to ten years and have probably forgotten the assistance their agent provided – unless it was poor service!
With some creativity you can play in the third-party lead aggregator’s sand box and even beat them at their own game, with lower costs, higher commissions, and more profit. There are new sources for content and premiums which are of value to consumers and economical, such as the HomeHubConnect Internet portal, which can be used in your own Internet Lead Generation system. If you’ve been looking at the incremental volume represented by the Internet lead aggregators then you should at least consider the option of setting up your own in-house system.
Finally, you can make the Internet work for you, not against you!
