Pay for leads? What you need to know...

Capturing online business costs money too, in the form of hosting fees, time spent uploading properties, paying for virtual tours, buying the newest gadget for virtual tours, responding via your cell phone to inquiries - your time cost plus the cost of the cell service, search engine optimization, assistants, taxes, and a myriad of overhead costs, whether you buy leads from these companies or promote your own web site and put your money into search engine optimization (SEO) either way, there is a cost. The bad news is that 3rd party lead generators espouse the fact that their agents are 'elite, experienced, etc' when in fact anyone who gives them a credit card can join their club. What the public doesn't know is that once you get a middle man involved in the process, that low fee, best price they hoped for goes out the window, because someone has to pay these fees to them.

Unfortunately SEO has shown to have greatly diminishing returns over the last few years as the big third-party companies with the deep pockets, compete directly against individual agents for the online consumer. That directly affects the consumer as they are led to believe if they pick a certain company to hire an agent that it costs them nothing, they get the cream of the crop, and they don't have to do the interviewing process. Nothing could be further from the truth.

So, as much as I wish we could go back to the good old days of promoting our own online presence where the consumer could go directly to the real estate professional (who could actually help them - imagine that!), the reality is that these third party companies are probably here to stay, in one form or another because they have the big bucks to reach out to the consumer and make them falsely think they need them to help in the real estate process when all much of them do is just get in the middle and add fees to the agent and the consumers pocketbooks.

The biggest concern I have, and the message I would like to impart to these lead companies and the consumer is this: Be truthful to both parties and make sure you are offering a real added value, otherwise, new players such as the rising real estate blogosphere, will ensure the eventual demise of any "middle-man" entities that don't add value to the transaction, whether it's lead generating companies, or real estate agents that perform strictly functionary activities that are increasingly being replaced by technology. ie: MLS-only companies that for a fee will list your property, but not help you negotiate against the agent who does it for a living - more on that sore topic later!

So, let's do a little real estate 101 for the consumer and the 3rd party lead generators:

AS REGARDS THE AGENT:

Give The Agent The Whole Cost. This article made a financial argument using the figure of $50 per lead to justify why it made financial sense for the agent to buy leads. Of course, when you go to their site you see that it is, in fact, $50 PLUS $50 per month membership fee. So, why not be truthful in the beginning? This "not telling the whole story" is one of the reasons that agents are so resistant to the pitch of third party companies. It's bad business, nobody likes being mislead for the 'sake of the sale'.

Don't Kill the Goose That Lays The Golden Egg. When these companies started a few years back, they were charging 15-20% of the agent's commission on average. (Some like the aforementioned company do a membership fee and per fee charge). Then, they went up. And up. Some, are now charging as much as 30% PLUS a $30 per month charge. In an environment where commissions are going down, housing prices are dropping, agent expenses are increasing these third party companies have to realize that every time they raise their costs, they lose the better agents who have more ability to generate their own business and will back out of buying leads if the cost is too high. Companies are then left with the "newbie's" who have a difficult time closing a deal. And what is 30% of 0? Does that benefit the consumer? I don't know about you, but I don't want to trust the biggest asset I own to the hands of a novice who paid $50 for my information.

AS REGARDS THE CONSUMER:

The Quality of the Agent: When I hear these ads touting to the consumer that when they use one of "their" agents, they get a high quality, seasoned professional, I roll my eyes. In fact, what the consumer is getting in the vast majority of cases, is anyone with a real estate license who can fog up a mirror and is willing to give them a credit card.

Stop the Bait and Switch: Many of these sites hook consumers by offering a free market analysis (CMA). Often consumers think that this CMA is computer generated and that is what they think they are signing up for. Companies then sell these "leads" to agents and then consumers are genuinely taken aback when they are contacted by an agent (or agents). If the CMA's are coming from agents that are doing them for free in hopes of getting the consumer's real estate business, level with the consumer on the site. Don't make the agent pay for the privilege of being treated poorly by a consumer who didn't know they would be contacted. Oh, and when you run those ads on the internet and on TV, don't be afraid to tell them an agent is going to help them, don't put it in microscopic print so they don't notice. That serves no purpose at all because the consumer is mad, the agent is mislead, and in the end YOU lose both of our business.

Don't make the agent into a commodity to be shopped by price: A certain online lending company has the slogan "When lenders compete, you win", sending the message that in shopping for lenders, cheaper is better. I know a lot about mortgages, closing costs, junk fees and I could shop for you, but the majority of consumers don't know enough about how the lending institution really works to do a good job on their own.

Many online lead companies send out the same message about real estate agents. Many in fact, give the lead to several agents; have them take time to do a proposal, with the consumer in the mind-set to pick the cheapest commission. In fact, because the agent is already handing out 25-30% of their commission to the lead company, the consumer has lost any ability to negotiate commissions with the agent - the agent is tapped out. Most consumers have no idea that by using the agent through an online lead generator that the agent is paying for them as a "lead". Additionally, most consumers don't understand that agents usually make them more even after paying a fee than they can make on their own, plus agents do the work they do best, market, negotiate, advocate and get your house sold. Now who do you want to use to do that for you? The agent who can't even negotiate their own fee? The newbie who will charge so little they have no margin to market your property? What is most important? What you pay the agent, or what you end up with at closing in your pocket?

As technology continues its march, lead generation companies need to provide a true benefit to both consumer and real estate professional, and add real value if they are to be profitable and survive.