Home : Blogs : Matt Heaton : The ActiveRain Addiction (Matt Heaton)

Why lead aggregation is a dead business model in real estate

One of my first posts on ActiveRain was title, The downfall of the "Lead Generators" and I wanted to revisit the topic. Over the last several months I've heard lots of people question whether companies like Zillow, Trulia, Move and Google will switch to a lead generation model as opposed to advertising once they "corner the online market". The simple answer is, they won't. The people managing these companies are smart enough to realize the model is not viable or sustainable.

And you say, but, but... HouseValues, HomeGain, etc. made a ton of money doing this. Actually they did back when there was little competition for eyeballs in the online space. Several years ago, they could cheaply generate decent quality leads that provided an ROI for their customers (agents/brokers). Guess what happened, the online space become competitive, much more competative. The cost of attracting visitors began to climb, at the same time these companies tried to grow and needed massive numbers of leads to satisify their customers.

Brokers and agents started to become aware that they needed to have an online presense themselves and the increased competition put the squeeze on the lead aggregators. The consumer started to become much more savy, as free information became more available there was less of a need to fill out a form to get to it. The only response these companies had to do one of several things to maintain revenues, be more aggressive in lead capture which reduced lead quality, raise prices of leads, sell the leads to more people (non exclusive).

One thing people don't often factor into to the whole equation is the cost of converting a lead to a closed deal. All of the above significantly reduced the ROI for the lead buyers. As the agents/brokers realized how bad their ROI was they let their contracts expire and these lead aggregators now needed to put massive amounts of money into recruiting new customers. This started a further downward spiral leading to shrinking revenues and profit margins. The lead aggregators are now frantically searching for a new business model and if they don't find one will face extinction.

If anything Zillow, and Trulia have been the final nail in the coffin of the lead aggregation companies by setting the expection with the consumer information should be freely available, not behind a form.

Posted by Matt Heaton on 12/12/2006 02:27 AM

Comments (45)

lead generation, real estate industry, zillow, trulia

45 Comments on Why lead aggregation is a dead business model in real estate

DEC

2006

Well said, Matt !

Interesting perspective, and good news. I seem to be getting lots more calls these days, and don't take the time to listen.

Matt,

In the begining of launching a Real Estate career, many Realtors will use whatever sources they feel will benefit them. Good,bad or indifferent, they grasp for ideas. Hence, companies like homegain will always have a niche market..

Matt, you're right, the real key in all of this is the cost associated with lead conversion into a closed "paying" transaction. That is where these lead generators have failed. The one who can devise a holistic approach, and streamline the entire process start to finish will succeed.

Matt... I agree, well said. Even on the mortgage side of things, that so many buy leads. Here, this company is better than that company...etc etc... BS>... they are just leads. It depends on a few things. Luck..... having luck, how good you are with clients and your products, and sometimes just being a salesperson. The 3rd one here is where these clients get a bad rap, because that salesperson is sometimes trying to convert that lead so bad.... that they will mislead... or take a lead that they shouldn't have, while trying to convert it. Or their current company is pushing the staff to convert.

On the other hand.. many realtors use these services themselves. And you hit the nail on the head when you mentioned that competition was scarce then. More crawling out of the wood work.... and either less leads or less quality of those leads. So..as house values did, they just went after every client (as in the general public) and got them to these realtors and loan officers....just to get them leads.

good topic to bring up again and for the fact, as business slows down, this will pop up even more.

Like your view point, something to consider. People are starting to do more on line and you know more about the workings of internet marketing than I probably do.

Simply put the lead aggregation companies added to much overhead, economics don't support the model of having anything middle man there in the long term.

The best lead generation strategies will always be viral/organic ones initiated by the best of the people in our profession.

Ask any Realtor how important referrals (database, keeping in touch, etc) are to a successful business and they will all say yes.

Then ask them "On a scale of 1-10 how are you doing in the area of referrals (database, keeping in touch, etc)?" And you're likely to get a 5 or lower.

The universe rewards those who take action differently than those who do not.

You are right - the whole landscape of real estate and the internet is changing. So many people cant wrap their minds around the massive changes that are happening...

Just today, I taught an Internet Lead Generation class - Some "get it" whereas other are still of the thought "Eh - I dont need a website."

With Realtors as well as ANY service provider connected to real estate - we all need to be on our toes and be ready to be challenged. I happen to think that it is all a GOOD thing.

we have lead generators in oiur biz too.

i rank them down there with the credit repair guys....

Lead Generators are jokes. HouseValues has got to be the worst. $500 a month for 20 crappy leads....LOL

Well said Matt, I think users expect more content to be freely available. Site that hide valuable information behind lead gen tools are finding that more and more visitors are seeking alternate sources of the same information. Once the full power of Google Base can be harnessed, even listing data will be more available.

Hey Matt,

I agree. I've seen some great changes in the way that the internet has been used as a marketing tool over the years. I wouldn't even consider filling out a form now unless I couldn't find the information anywhere else online first that was ponied up for free...

Good post :)

Scott

Grat post Matt, I'm always looking for a good reason to stop sending a check to someone. G

The unfortunate thing in my market is that the lead generators still have top SERP in many key terms. In some cases they represent half of the links on page 1. This is also an issue for Realtors who require registration on their site to access the data. They should face the same kind of backlash will face.

With all of the new agents over the last few years (me included), and the newness, relatively speaking, of the web, the lead aggregators' had a great group to market and sell to. Heck, pay-per-click used to be a lot cheaper too. These guys were aggressive and most folks did not know how to produce their own leads whether online or off. Nothing like a self-produced lead!

Maureen is right. The lead generators have a lot of spots in SERP in my area too. But, I probably have just as many. Yep ! ! I'm a lead machine. But, my leads are for my agents and me. Most real estate folks have an Internet site. What they need is an Internet strategy.

As far as I can tell, when Z opened listings and adjusted listings and suggested listing prices, etc. to the public, they ceased to be taken seriously. This is nothing more or less than "Let's play real estate".

Matt: Very True! So, I guess the real question is: How will your sister site be different?

I hope this means I'll stop getting the cold calls soon from Housevalues and the like.

Maybe I missed it, but what is your revenue model for AR, Matt?

True, in many markets the lead aggregators/generators have some of the top SERP positions. They get those positions, though, by default --- through the laziness or ineptitude of local companies to capture those top spots. Agents often think that just by simply putting up an internet site, they'll magically rise to the top of the Google Search results and business will flow in. Being in those top positions takes a lot of work. I'm a very little company, but in my market I've maintained the #1 or #2 position of key Google search terms for close to 2 years. It takes work and it takes money. But I can assure you that the money I spend is a lot less than paying out 20% referral fees to lead generators.

Great post Matt, I have always thought for years that these companies only wanted to cash in on the real estate boom and dig deep into our pockets. It's the fault of the agents for signing up and falling for it.

Thanks Jay

I found that lead aggregators did not produce leads that were truly leads. It is far more productive to generate them your self.

Matt, I liked your post and I am so glad I found active rain and didn't sign up to homegain for $150.00 last month like I almost did. Heck if I want to wast money, I might as well start a farm in a rich neighborhood.

And may they RIP Something good the new technologies have done for us lol

DEC

2006

Hi Matt

It's very well said. When I was working as a Realtor I fell in the trap and subscribed to housevalues. It really doesn't work. Good old prospecting works!

Cheers,

Cindy
I stage to sell, live & work in San Francisco Bay Area!
www.staged4more.com
hello@staged4more.com
www.stagingtipsandmore.blog.com

Businesses that don't change with the times will simply fade with them. -Charles

Glad you revisited this topic MATT. I agree that Paying for leads is dead end road. You raise great points on this passe business model. The public is savvy. Having to fill out a form to get information has long since passed. GREAT POST!

What a difference between their leads and my own leads. Dreamers and liars vs. real buyers. I agree with Maureen and Lenn why does google rank them so high when they have absolutely no local content but local key words only.

On my own site keywords only seem to work when I have actual content to back up those words. The lead generators have no local content but they are filling google local search pages with clutter.

Since google's revenue source is from advertising even google has an inherent conflict of interest. True search or paid advertising? or paid Optimization?

The reason they rank high is two fold. One is Google has really likes large sites with thousands of pages of content (though less than before). The second is some of them spent a TON of money on SEO and getting thousands of high quality incoming links.

I think AR has actually passed pretty much all of them by traffic wise at this point because while they rank for major terms the lack of content means they don't hit the long tail very well.

I would challenge Realtors to beat them at their own game. A well designed website, with lots of local content can get the top spots for the organic searches that count and generate click through. The leads you get like this are generally high quality, they want to to talk to you because you have a local property for sale or because you are an expert in the area.

Andy Piper, Ann Arbor Michigan www.Piperpartners.com

DEC

2006

What about a model of lead management rather than lead aggregation? That may provide a service more friendly to the professionals as well as consumers.

Devon: I think particularly where larger brokers involved they may find there is a better ROI in lead qualification and management through providers such as MostHome. There aren't seen as competing with the brokers or agents for business leads they resell, but rather are just creating an additional efficiency.

DEC

2006

The lead generators are a blight on the industry. There shouldn't be barriers between agents and consumers. They add zero value.

Matt, you are 100% right on target. The model was doomed from the beginning. The Internet was not built to support their model.

Am I the only person on active rain that has good luck with lead generation companies? maybe it's because I am young and never knew any other way of obtaining leads. I know of a few others on here that have success as well, one being Donna Harris.

I'm thinking of just leads I have aquired just in the past 1 1/2 months.

Some examples. For reference, the average home price is 150k in Indianapolis, which gets you a new or newer 3 bedroom 2 bath 2,000 sq.ft. brand new home.

Lead from three months ago. From Housevalues. Sold them a home for 255k. Putting their old home on the market in two weeks for 225k
Lead from TWO years ago. Called me up and decided it was time to buy. Sold him a 100k home two months ago
Lead from 1 month ago . My wife is working with. Buying a 800k home from us in about 2 months. We are listing their 250k home, and also selling their commercial property they need to have listed
Client from out of state-housevalues lead. Buying a 275k home in about 3 weeks from us
client from out of state housevalues lead---Nashville moving here in 1 month, looking to buy a 300k home from us
client from out of state, making offer on 180k home this coming Thursday when she is back in town..

This is just examples off the top of my head.

I have found the biggest reason people don't succeed with online lead generation: They treat them old school. They want them to convert today not 6 months from now. I put people on marketing campaigns, both via email, print, as well as phone followup. There has been times I have left messages 10 times for people and a year later they call me out of the blue ready to make a move.

And the really sad fact is, most agents on here or not on here will not be in business long enough to REALLY see if lead generation pays off. What's the stats: Something like 75-80% of the people here on active rain or realtors in general will not be in business in 2 years. It's taken me at least 1 year of receiving leads for things to start paying off.

For housevalues, I spend $400/month for 12 leads. Just one of the 8 deals I closed this year from them paid for the entire year of service. Approx 50k in comissioms this year from the 400/month price. I think that's a pretty darn good return on investment.

Now, I agree that these lead geneartion companies are in serious trouble...Housevalues and all of them are. Matt is right on the money on that, it's harder and harder to convert, etc.

DEC

2006

We wish you a merry Christmas! We wish you a merry Christmas! We wish you a merry Christmas And a happy New Year! Glad tidings we bring To you and your kin! Glad tidings for Christmas And a happy New Year!

Broker Bryant and The Lovely Wife (pretend we are singing it works better like that) ROAR!

MAR

2007

Interesting post and thank you for writing it, I really enjoyed reading it and I would like to see what direction these companies go.

MAR

2007

Ah yes, the lead aggravators. One thing which actually impresses me is the seemingly high caliber of the HouseValues executives. From what I recall, a lot of Harvard MBA's there. Perhaps they are now jumping ship. . .

Matt, I can't wait to see how you are going to monetize the traffic to Active Rain.

MAR

2007

Matt,

I tried them all, and am weaning myself off. For the money, I can get more prospects on my own.

SEP

2007

Matt,

I know its been a while since anyone has commented on this but i really dont know anyone that is buying buyer or seller leads at this point.

NOV

2007

Leads are not dead. We're just sick and tired of paying through the nose for most of them.

Over the past few years, I can always count on getting a phone call at least once a week from the clowns at Homegain. Its always a different person and I tell them to STOP calling me. I still get the calls.

The last broker I worked for was Coldwell Banker and their Lead Router lead management system truly bites. It down right sucks. Want to hear how stupid this program works? Here it is: I am with a client at closing. The firm I was with had more than 600 agents.

As fate would have it, my turn to get a LEAD from Lead Router was up and guess what, their system naturally CALLS my cell phone and because I am already busy with a client, it gets Voice mail and it skips me and then goes to the NEXT agent in line.

I wanted that lead, but it would have been RUDE to have taken the call during the closing, right?

Here's another issue I have with Lead Router.

I have a client rushing off to something. He goes to our main page, and fills out the general contact us form.

What he does not know, is that email he sends is actually our general contact form and it is liked to Lead Router.

So then I get a bill from my wonderful broker with 25% of the commission cost for getting the SAME lead I am already talking to. Then I have to call the accounting department and straighten that out. It's one headache after another and I can tell you whoever built Lead Router really needs to get their heads examined. Because it was not designed or built with the agent in mind.

These are just a FEW of the problems with leads and so called LEAD generation systems today. The broker wants inside my pocket for every one I get from Lead Router. Homegain has managed to get 30% of some of my leads (because I was starving and I had bills to pay) and now there's lots more sharks getting into the game of trying to get more money out of my commissions.

My solution is Kayyah.com Its a bit on the plain side, but I post my listings on Kayyah, I shoot my own virtual tours and I laugh when HouseValues calls me to try and sell me zip code for $300 a month. Kayyah generates a bit over one million page views monthly, and this is where I place my listings and out of the five I listed so far this year, not one sale came to me from Realtor.com or Trulia. Three came from Kayyah and the other two, one from the IDX and one from a referral.

NOV

2007

Great post and comments, thanks for sharing so much useful information.

AUG

2008

It depends how the leads are generated too. And how many people get a crack at them.

I'm a realtor that made 180k last year using leads I gererated myself, in much the same way that the leads for sale from lending tree and the like are generated, only slightly tweaked. I have a team with 3 buyer agents whom I supply as well. (I hired one because I got so many in an area I wasn't working...)These are good leads that I've relied on for 5 years and built my business on. My best buyer agent just did 100k in his first 6 months.

These are good solid leads and if anyone is interested in buying my out-of-market leads I'm happy to chat with them about it. I can also generate leads in your area on a per-lead basis. I'll even supply the script I use to book appointments and pre-qualify. I'm not a company specializing in lead generation, just a Realtor like yourselves looking to diversify my income.

Currently I book one appointment for every 5 new leads that come in. 1 in 10 close. My buyer agents do roughly the same, though closer to 1 in 20. I'll even throw in some free coaching if you're interested. email me if you want more information. Comments welcome!

DEC

I still like Homegain.

marcy Moyer Keller Williams Reallty Palo Alto Ca

JUL

My website, which is purely a lead generating one is doing exceptionally well.

let me explain.

I do most of the advertising, promoting people to place their property requirements on teh website.

those leads get send a databse or agents, who work in that respecti area.

The agetns email some of their stock to the client

Client sits back and has an entire view of property within his area =

Makes a phone call or two, and sees the property.

The clients are loving the indepenacne of having a look at all propierties immediatley, insteaf of trawling the internt, and teh agents, some receivin over 80 leads a week, are loving it.

Estate agent model needs a change...... agents wait for their clients to come to them...yet they make it so difficlult to find them, with 1000's of agent sites on the intert, who has the time for that these days.

One website. Only one form to fill in. Once only, and the agents come to you

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?

Why lead aggregation is a dead business model in real estate

Leave a response…

Twitter Updates