Internet Lead Generation

February 1, 2004

“I get 70 percent of my business from some form of Internet lead. People at the office used to think I was wasting my time, but not anymore.”
—Bridget Sturm, associate, Realty Executives, REALTORS®, Vista, Calif.

“As far I can tell, these Internet lead companies just want me to pay a lot of money for referring my clients to me. I’ve tried several, and I still get several pitches every day. But now I treat them like the spam they are.”
—Ken DuVall, broker-owner, Ken DuVall & Associates, Chico, Calif.

How real is that lead?

Love ’em or hate ’em, companies that connect Internet consumers with sales associates are now a part of your business reality. Whether their business model is selling leads or providing a conduit for practitioners to pitch their services to consumers, these companies have leveraged the power of the Internet to create new forms of real estate marketing. Typically, the companies obtain consumer leads through some combination of advertising and buying high placement in search engines.

Although Internet lead generation is a relatively new concept, it’s not unique to the real estate business. “It’s being used in other industries—from banks to the medical profession,” says Scott Hileman, national director of real estate business transformation for Ernst & Young in New York City. In addition, relocation and practitioner-to-practitioner referrals are already commonplace in real estate.

How you feel about Internet lead generation will depend a lot on your own strategies for finding new customers and your comfort level with technology. If some practitioners see Internet leads as the next big thing, others voice opposition to what they see as the appropriation of their hard-won customers.

“Internet lead companies use our listings and market information, then sell them back to us as leads. It’s abusive to have to pay out referral fees in a day when our expenses have gone up,” says Bill Hoyle, Realty Executives West Coast in Punta Gorda, Fla.

Although he received some viable residential customers using HomeGain, he’s generally frustrated by the “bad phone numbers and unqualified buyers” he’s received from Buyers USA and ServiceMagic. Now he’s decided the best business strategy is to compete directly with Internet lead sources. Hoyle is developing five different sites, including www.accordingtohoyle.com where prospects can obtain home valuations, sell household items, and get area news. Then, he says, he can personally nurture his contacts and build the loyalty that’s more difficult to secure with referral leads.

The lead’s the thing

For practitioners who’ve tried and rejected Internet referrals, there’s no doubt that the most critical issue is the quality of the leads. Dana Sabonjian, a sales associate with Century 21 United II in Grayslake, Ill., decided to try both HouseValues and ServiceMagic. “I love the computer, and I’m not afraid of it, so when I changed offices, I wanted to try a new approach,” she recalls. But after submitting “nearly 1,000 proposals” to Internet leads in six months, Sabonjian has made only one sale. “Most of the leads just wanted a free CMA to decide if they should refinance,” she says. Even worse were clearly bogus leads that weren’t culled before she paid for them. “I got leads who told me they wanted a $1 million home but wouldn’t give a phone number.”

Screening out buyers who aren’t serious is the “biggest challenge for us,” acknowledges Bradley Inman, founder and CEO of HomeGain in Emeryville, Calif. The 15 data fields on the company’s registration form eliminate a lot of Internet Looky Lous, says Inman. “But does that mean that everyone is a real buyer? No, no more than all the traffic walking into an open house does.”

All the Internet companies REALTOR® Magazine talked to said they made some efforts to screen their leads. LendingTree uses “proprietary filtering software” to rout out unqualified Internet customers, says Senior Vice President and Manager of Realty Services Eric Cunliffe. AgentConnect uses a combination of filtering software and manual verifications of phone numbers to screen its leads, says Payam Zamani, CEO of AgentConnect’s parent company, Next Phase Media Inc.

Even those who regularly use Internet leads estimate that only one in 10 is a winner. “Either the lead is really good, or the person never calls you back,” says Kurt Thompson, broker-owner of Argyle Real Estate Group LLC in Fitchburg, Mass. Still, in the last two months, he’s received two buyer clients from among 10 leads he’s accepted from ServiceMagic.

“There’s a misconception about the quality of leads from the Internet,” says Anthony Marguleas, broker-owner of A.M. Realty Inc. in Pacific Palisades and Pasadena, Calif. “People get five leads and think that if two of them aren’t good, there’s something wrong. You have to take a proactive approach and work the leads.” To ensure an initial response in 10 minutes to the 10,000 Internet leads a year he gets from HomeGain.com, HouseHunt.com, and his own Web site, (homebuyersonly.com), he and his 10 sales associates use two virtual assistants to enter each prospect into a biweekly e-mail marketing campaign. The e-campaign also directs prospects to the company’s virtual office Web site so that they can preview homes and learn more about the area.

Marguleas, whose company spends about $75,000 a year on Internet marketing, says A.M. closed approximately $50 million in sales volume in 2003, about half of it from the Internet. His overall conversion rate for Internet leads is probably about 1 percent. HomeGain leads yield a higher conversion rate because of greater prescreening, he says. Of these serious buyers, approximately one-third want to hire a salesperson immediately and often buy a home in a few weeks, says Marguleas. Another third will be ready to act in the next six to 12 months.

The fact that Internet buyers visit multiple sites in their home searches (an average of 4.17 sites, according to the 2003 Internet Versus Traditional Buyers Study conducted by the CALIFORNIA ASSOCIATION OF REALTORS®) creates some confusion about whose lead it really is and who should be compensated. “I’ve bought a lead, then instantly recognized the name as someone who had just listed a house with another practitioner I know,” says Vicki Viers, ABR®, e-pro, of RE/MAX Properties of the Valley in Parkersburg, W. Va., who has used ServiceMagic and RealtyNow. “I’ve also received the same lead from more than one company.”

Although newer sales associates without a referral base might seem the best candidates for online lead referrals, 12-year real estate veteran and Century 21 Double Centurion Derek Kirk of Century 21 Haley & Associates in Elk Grove, Calif., says he saw “a huge benefit right away” when he started using HomeGain three years ago. “I’m not hampered with the need to cold call (now mostly prohibited by federal do-not-call regulations). Instead I get warm leads from the Internet.” He’s also found his marketing costs dropped by 10 percent to 15 percent.

Kirk, who focuses on seller leads, estimates that he receives responses on about 15 percent of the proposals he submits and attributes his high success rate to the amount of personalization he adds to every response. He asks about house condition, upgrades, and what the sellers’ situation is. He tries to increase the personal touch by calling prospects first, “unless the phone number is bad,” then sending an e-mail about his services.

“If I can get the phone number and a face-to-face meeting, I can usually get the listing,” agrees Kellie Jones, CRS®, GRI, a broker-associate with Century 21 Superstars in Rancho Santa Margarita, Calif. Jones does about half her business through Internet referrals from HouseValues; her ZIP code exclusive with HomeGain; and her own site, kelliejones.com.

But if there’s one consistent factor among practitioners who’ve tried Internet leads, it’s that there is no consistent factor. Take Cynthia Sweet, ABR®, GRI, a sales associate with RE/MAX Excalibur in Scottsdale, Ariz. As a former software consultant and manager, Sweet saw Internet-based prospecting as the ideal way to build a business when she entered real estate two-and-one-half years ago. Instead, she found that “you’re at the mercy of whatever information they give you. You create the proposal blind.”

For instance, says Sweet, when she tried to conduct a CMA for a lead she’d received from HomeGain, the location of the house was defined only within a one-half-mile radius. “In my market, that area can encompass homes worth $300,000 to $1 million. There was no way to provide meaningful information. And there was no feedback [from leads] to gauge why they didn’t respond.”

Although she has several Web sites and views the Internet as a great tool for serving clients, Sweet has had enough of Internet referral leads. Instead, she says, she’ll cultivate business through face-to-face contacts and personal referrals.

Sea change or ripple?

How, or whether, the current crop of Internet lead-generation sites will ultimately affect the way practitioners relate to clients is far from certain. Internet referrals are “part and parcel of the critical changes that technology has had on real estate as an information business,” says John Tuccillo of consulting company JTA Inc. in Arlington, Va. But the actual impact of Internet referrals on the real estate business probably won’t be dramatic. “At the end of the day, it’s relationships that drive real estate, and you don’t achieve that through a piece of technology,” says E&Y’s Hileman.

Caveat emptor

Keep these questions in mind before you sign on the dotted line.

  • Who owns the leads? Check on who keeps the leads if you cancel or whether you owe a referral fee on a second sale on the same lead made years later.
  • How long is your commitment? Can you cancel at any time, or do you have to sign a longer-term contract?
  • How many real estate practitioners receive each lead? If you’re scrambling against a sea of competitors, are you really achieving any marketing benefits?
  • What are your options if you have a problem? If you already had a lead or received it through another source as well, do you still have to pay?
  • What’s the average conversion rate? Ask about company ratios of leads to appointments and of appointments to sales.

Making it work

Ready to give referral leads a try? Follow these tips from practitioners who’ve been successful.

  • Monitor your responses carefully. Track how many calls you get and the outcome of the calls. It’s all theory until the market responds.—Maureen Morell, RE/MAX 200 Realty, Winter Park, Fla.
  • Give them something before you call. I immediately push listing information via e-mail to my buyer prospects, then follow up an hour later with a phone call.—Kurt Thompson, Argyle Real Estate Group LLC, Fitchburg, Mass.
  • Get control of the [Internet] space, either by working with a site that gives you a geographic exclusive or by paying to come up high in search engines.—Anthony Marguleas, A.M. Realty Inc., Pacific Palisades and Pasadena, Calif.
  • Be the first into the deal. Unlike traditional listings where you want to be the last person the client talks to, there seems to be an advantage to being the first to make contact with an Internet prospect.—Bradley Inman, CEO, HomeGain, Emeryville, Calif.

Business models in brief

A few major players in online buyer and seller referrals

IN BUSINESS SINCE VISITORS REAL ESTATE PARTICIPANTS CONSUMERS SERVED EACH LEAD GOES TO REVENUE
MODEL
AGENTCONNECT.COM/REALTYNOW.COM
With RealtyNow, registered consumers’ contact information is sent to registered salespeople in the same geographic area. With AgentConnect, practitioners determine how many leads they want a month from a specific ZIP code. Practitioners can accept or reject leads.
2002 2 million users registered1 7,000 salespeople. Practitioners must be licensed for six months, have lived or worked in an area for three years, and have at least one or two verifiable transactions. Buyers or sellers Up to three practitioners Pay on receipt of lead—$29.95 per lead
HOMEGAIN ( www.homegain.com)
With Agent Evaluator, you submit anonymous proposals to buyers and sellers, who then can choose to contact you. Other options: Home Price Express, offering free mini-CMAs from salespeople, and BuyerLink, linking prospects’ online searches to an associate’s site in a specific geographic area. Participants provide consumers with information on experience, education, and business history of sales through Home Gain.
1999 More than 2 million unique visitors per month 68,000 registered salespeople; about 20,000 active in the system. Practitioners must be licensed. Buyers and sellers seeking real estate practitioners Up to six practitioners Agent Evaluator and Home Price Express: monthly fee, plus portion of commission (about 25 percent) due at close of sale; BuyerLink is pay-per-consumer/visitor.
HOUSEVALUES ( www.housevalues.com)
Listing lead sent to one practitioner, who has exclusively contracted for that geographic area. Market Leader lead-management software, coaching, and training included in subscription price.
1999 1 million consumers requested information in 2003 7,000 salespeople.

Practitioners must be licensed.

Sellers seeking value estimates for their homes Up to one practitioner per geographic area Flat subscription fee for each geographic area; varies according to size and population density
LENDINGTREE ( www.lendingtree.com)
Companies—usually relocation departments—receive lead information, which is then passed on to associates.
1998 More than

2.2 million unique visitors per month

660 brokerages representing 10,000 salespeople nationwide. Companies must be well-established and prominent in their market and use only REALTORS® to service leads. Buyers and sellers, who compare mortgages and real estate companies Up to four practitioners Portion of commission
(up to 30 percent)
due at close of sale
SERVICEMAGIC( www.servicemagic.com)
Registered consumers’ contact information is sent to registered practitioners in the closest ZIP codes.
19992 3 million visitors providing 100,000 leads a month3 22,000 salespeople and brokers. Practitioners must be licensed, have no record of judgments against them, and not have declared bankruptcy for seven years. Buyers seeking salesperson, lender, or home improvement provider Up to three practitioners for real estate leads Pay on receipt of lead—$30 for buyer lead, $40 for seller lead, $60 for combo buyer and seller lead, $75 for exclusive CMA lead (CMA leads sold to one salesperson only).

1 For both real estate and auto searches.

2 Real estate leads since 2002.

3 For both real estate and home improvement services.

Information was provided by the companies. NAR doesn’t evaluate or endorse these services and isn’t responsible for changes in company info.

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