Selling Leads to Brokers?

[Homesurfer]

There is a difference between lead generation and a referral. With referrals, one would expect that the referring agent has developed an actual relationship with the client and that the relationship has gone past "just" prospecting to AT LEAST "qualifying the prospect" AND establishing a relationship.

Otherwise it is "just" a lead.

What I do object to is licensed agents or brokers who develop "anonymous" sites and start "referring" clients to other agents for a percentage. If they are doing that AS A BUSINESS MODEL, then the site should disclose who they are, what they are doing AND their business should be licensed as a brokerage in each state they are doing business. Under those conditions, I can live with referral fees - though I still don't agree with them.

I really have a bias against anonymous sites.

If a real estate agent has a genuine client or former client relocating to another state and they "refer" that client to another agent for a percentage fee, I don't really have a problem with that, really -- provided there is a prior relationship. But if you have a prospecting web site and someone says they are buying across the country and you say, "I'll have an agent call you!" -- then I don't really think that is worth a referral fee.

Basically, I believe you should refer people because you know someone who will take care of them and do a good job - not because you will get paid for the referral.

[mattheaton2]

Here's my two cents on the subject. This coming from someone who runs a company that provides lead management solutions to brokers and has worked with several companies operating on the business model you described.

To get the model to work either on referals or a flat fee per lead is MUCH harder in practice than it looks on paper. The only way I've seen it work is if the broker (and their agents) are committed to making it work and have the appropriate follow up systems and training in place. If you simply throw a bunch of leads at a broker and they hand them to their agents, don't expect closing rates over a couple of tenth of a percent, even on GOOD leads, not the crap that the big lead sellers generate. So the math, assuming no training or systems, I'll touch on this later...

.5% very generous closing ratio * $250,000 house * 3% commission for agent * 20% referal for you = $7.50 per lead (in value to you)

Plus it's a complete pain in the ass to collect those referal fees.

The big lead generators have made lots of money simply because no one does the math (and huge volume), but it's already clear that agents and brokers are catching on and their business will collapse long term if they don't change.

Agents that do their own lead generation get much higher closing ratios (1%-5%) but that's because they personally have an investment in it, and are committed to make it work.

Now getting back to one of my first points, lead generation works if the systems and training are in place. A typical agent won't know what do with a "lead" if you give it to them, they're trained to sell houses, not screen leads. A broker has to make sure the agents are trained in what to do with generated leads and track and follow-up the leads to assure a positive outcome. Trust me this is not an easy thing to implement.

The other way I'm seeing the lead generation model work is where the leads are pre-qualified before being referred out to agents (notice I said referred, that's the key). In this model its much more like the agent getting a referal than a lead and the outcome will be MUCH more successful. We work with a company Most Home which does this for brokers, they have a call center that pre-screens the leads, refers them to the brokers agents and does all the tracking and follow-up to make sure there is a positive outcome. Obviously a small lead generation shop has no way of doing this, in fact setting this up can cost in the millions. Even some of the large brokers that have spent the money to do it in-house have done a pretty poor job of implementing it.

That's my 2 cents...

[Micheal Pannell Realtor]

I have a guy that gives me 5 to 6 leads a day and i give him $300 a closed lead.

[Homesurfer]

Getting back into this old topic...

Of course, Realtor-to-Realtor referral fees will never be outlawed. That's just a pipe dream of mine. Fantasy, and nothing more.

Back to the topic:

California, for example, allows referral fees to be paid to non-licensed individuals only when they are not actively soliciting for leads and only if the number of referrals is below a specific (relatively small) level. Once they go above that minimum or start actively solictiing leads to refer to California agents for income purposes, they have to be licensed in the state of California.

Basically, someone in New Hampshire cannot be soliciting Californians to earn referral fees unless they have an active real estate license in California -- and have that license hung with a California broker. If they meet someone in New Hampshire buying in California, that's a totally different deal.

For those who have been on the web long enough, HomeGain didn't originally solicit for clients in all 50 states. They gradually expanded as they satisfied the laws in all the states. According to information I received at one time, they can enforce the referral fees because they track the public records to see if their referrals have bought property in the area. If so, then they backtrack to see who the agent was, and so on. They have a large enough staff and adequate technology to make this work. Most do not.

I haven't read the regulations in a long time and there are certainly other limiting factors (like RESPA guidelines) that come into play, also -- so someone should look up the actual regulations or consult with an attorney. This is not to be be considered legal advice in any way, shape, or form.

[sdhomes]

In California it is illegal to pay a referral fee to anyone other than a broker. Getting an agent license wont do you any good.

As for the value of leads, the further downstream you are from the source, the lower the conversion rate. People dont like to get handed off from one entity/person to another and treated like a commodity. That is what the lead generators dont get.

While many agents may not be skilled at scrubbing a lead, if they know how to follow up quickly and qualify them as if they hadmet them at an open house, they'll do better than with bought leads.

[JWFlorida]

Its all about the quality of the lead, some leads are actually worth 30% (if the client is ready, willing, able and buying something in a higher price range), many agents are more reluctant to pay 30% on a $75k or $100k lead

[JohnWoodward]

I think training and finding someone who will follow up with the leads is key to success. I find that many of the leads that come in are real early in the process. You just need to have been in their mind long enough that when they are ready to buy, you are the logical choice. Maybe it's just my market but that is what I see. I can also see where your site will generate more and more leads as your site ranks higher. The best choice would be to bring other agents in who get this process and want to develop a pipeline of business. I think that if one believes internet leads will produce 5 sales in the second month of operation are sorely misled.

On the topic of paying for leads. I would never pay one thin dime for a lead up front. If the leads were that good, why would any company sell them so cheap? Referrals are bigger money but it does but some of the responsibility to get decent leads through the gate.

One man's opinion.