A 50% Referral Fee for Online Leads? No Thank You.
A large online lead mortgage provider is rolling out a leads program that involves charging a 50% referral fee to their broker partners for their ‘scrubbed’ leads. Several thoughts ran through my head when I heard this.
The first is that clearly this organization is not invested in whether its broker partners and agents are compensated fairly for all of their time, effort, risk, and expense that is involved in listing and selling properties.
The second thought was, what does this organization consider a ‘high-quality scrubbed lead’? Because no matter how well-scrubbed they are, a seller still needs a listing presentation, marketing, and open houses. And working with buyers and sellers involves complex negotiations and contract review, legal liability, tech resources, etc. It means schlepping buyers around to endless properties and neighborhoods at a time when inventory is low and buyers are cautious. Sellers are stuck in the past and think their homes are worth more than they are, so it means creative negotiations and patient buyers with agents who understand the current market dynamics. As we know, we have to kiss a lot of frogs to find the prince leads. While technology and automation can handle some of the nurturing, a human still needs to manage the process and build relationships and trust until the prospects are ready to buy or sell. It is not an easy breezy market right now.
Who will say yes?
Most brokers I have spoken with say their conversion from this source hovers between 5%-8%, which is not horrible for internet leads. But I am also aware that online leads are down between 50%-70% due to market changes, so there is far less business to distribute. Their actions reek of desperation. Look, I get it. It is really hard to turn away business, but broker-owners and agents deserve to be paid fairly and at skyrocketing referral fee rates, it leaves very little wiggle room. Also, realize that last year’s volume will pale in comparison to what they can deliver in this market, so there is much less to lose if you sever ties.
These sources are also making revenue on the actual mortgage and other associated services they are pushing. Mortgage companies are down millions in revenue in the last six months and are laying people off daily. But we can’t lose sight of the fact that 2021 and most of 2022 were an unexpected bonanza not only for the mortgage industry but for all real estate-related services. It was a Covid-related surprise that people wanted a change of scenery spurred on by the remote work situation. But as we struggle with inflation and rising interest rates, everyone has had to rethink and retool their business practices, so it is not only the mortgage industry that was affected by the changing market.
Broker-owners are at a crossroads.
You and your lead management staff have some decisions to make. But be prepared that when you say no to these referrals at the company level, they will cut you off and they will move to other brokers or even worse to local teams that are within your real estate company who will pay the 50%. Teams have buyer and listing agents who work for high-performing team leads who are not as experienced and are paid at lower splits. Since they aren’t actually doing the work, the team lead will often take on these referrals for their less experienced team members. Sadly, they will find agents and brokers who will pay anything to have ‘business’ handed to them. And it appears that they are not concerned about how much the quality of the providers might be diminished.
If brokers say no to these partnerships it probably isn’t going to make them change their minds about this misguided decision. But sometimes we have to stand up for what is right because brokers know the value they and their agents bring to the transaction. We can’t look at it as being defeated, it means we have to find a new strategy to capture the client first and offer them a better alternative. They aren’t creating a client, they have just figured out a way to capture them first.
What can you do?
Remember, these are local buyers and sellers. They are not relocation clients who are bound by relocation benefits policies. Calculate how many deals you have done with the source over the last couple of years. Pay particular attention to your conversion rate with them. How much labor and time is it taking to nurture and convert those leads?
Once you have your revenue and estimate your profit margin based on staff and agent time, then set a budget. Take that budget and very specifically target local buyers and sellers with SEO targeting and social media advertising. While these huge mortgage entities have multi-million dollar budgets, it gets watered down when you spread the dollars throughout the US. You only need to focus on your key markets and ensure you can offer services and benefits similar to or hopefully better than their offerings.
Take back the customer
Why are brokers letting other entities get in between them and the real estate customer? Prospective buyers often seek out mortgage approval before they start looking at homes, which is a smart move. But they most definitely start online searches before looking for a mortgage, because they are curious if they can even afford to buy in this market and they want to see what is out there. They may start at least a full year before taking active steps to contact a mortgage provider or an agent.
This program, which is touted as providing ‘a potential savings of up to $7500’ for various qualifying buyers, equates to credits offered to the buyer upon closing. There seem to be a variety of qualifying elements that act as a rewards program and have some built-in tools that will be very appealing to the under-30 crowd in the way of budget and finance management. It is a great way to entice people into their program who are struggling to get into the market. But it is not like the consumer is getting that full referral fee. They receive a fraction of it.
There is no question that buyers are struggling in today’s market with rising interest rates and low inventory. I am all for helping people jump into the market, particularly first-timers. The problem with it is that a big chunk of this money is coming out of the fees brokers are paying. But the broker doesn’t get any credit from the buyer for being the entity to allow these benefits to be delivered. Brokers are just one cog in the wheel of services being offered even though they are a large financial contributor.
I want to give a special shout-out to those friends who are managing internet leads at a company level as part of their leadership role in overseeing company-generated leads which often includes corporate relocation and broker-to-broker referrals. Saying yes to an exorbitant referral fee from an outside source is setting a very dangerous precedent and could have far-reaching ramifications. These leads are not anywhere close to the quality of relocation leads that currently carry lower referral fees. You can be sure that relocation management companies and other lead sources are watching this very closely to see what the tolerance level is for referral fees for brokers who provide these types of services.
Control your own destiny
Why not create your own program where you are the star of the show? Your brokerage can be the one (where it is legal) to offer rebates or credits to the prospective homeowner or seller. You can engage your affiliated partners to create an end-to-end local service delivery, pay no external referral fees and capture your local clients first by cutting out the middle man. You can probably pay out a larger portion in credits to the consumer by managing the program and partnerships yourself.
I know that sometimes brokers are hesitant to offer rebates or discounts in their local market for fear they are giving away money when they don’t have to. Or they don’t want to step on their agent’s relationships by baking in benefits that will diminish the agent's compensation from existing clients. They and their agents often say they would have gotten the client anyway without the program’s offering. Well, if you don’t do it, some other entity will snag them which equates to a much higher rate paid out to a third party than you would deliver directly to the consumer. We are seeing more and more mortgage entities creating rebate programs through various third-party service providers that are funded by a portion of the broker’s commission. Ignoring it won’t make it go away.
Create a strategy to saturate your local market with your program offerings. It’s good business and offers a valuable benefit to the consumer. I can help you create a strategy and a program to deliver to ensure you keep the business in your local market where it belongs and not with a national provider.
Brokers and agents deserve to be compensated fairly for their time, expertise, and commitment to helping people realize the dream of homeownership.
