How do HomeGain, Realtor.com, Service Magic and other companies like this make money? These companies are called lead generation companies. They spend vast amounts of money advertising on TV, the Internet, radio, and in print so that you’ll go to their website to find information about real estate. When you click on a property and request information the company then either sells the lead at a fee ranging from $20-$50 for an unqualified lead or up to a 35% referral fee for leads that are more valuable.
What does the company do for the fee charged? The answer might be pretty surprising. They don’t do anything, but forward the lead to a service provider. Yep, that’s right. You can search the MLS on any number of free websites so the website they provide is little more than a mechanism to get your information. Some people think agents, contractors, or other service providers are overpaid for what they do. Take a look at these companies and ask yourself if forwarding an email is worth $1500 (That’s the commission split they would receive on the sale of a $150,000 home.).
Who pays the fees that these companies charge? For the most part, the Realtor, mortgage broker or other service provider pays for these leads. The laws of business provide that you can’t get something for nothing. This is very true. So by adding no value to the transaction and taking up to 35% of the payment for service, the middle-man is taking value from both the consumer and the service provider.
Why is this bad for consumers? In real estate like many other service industries, the best Realtors obtain their business through referrals. The weaker, newer, less experienced agents typically buy leads from sources such as these. The next time you visit a site like these lead generators, think twice about giving them your information and go directly to the source. You’ll cut out the middle-man and get a better agent for your hard earned dollar.