So a couple of weeks ago, we got news that Move (the parent of Realtor.com) agreed to acquire Opcity for $210 million. Since that means Realtor.com will be taking a percentage of the agent’s commission as referral payments, I figured it’s just a matter of time before Zillow walks through the doors that Move has opened. I was not disappointed.
A couple of days ago, Greg Schwartz of Zillow announced in a blog post that Zillow will be experimenting with taking a percentage of the commission as well:
Which is why we’ve decided to test a new payment model for our Premier Broker program called Flex Pricing.
The test, which is launching in Florida in October, will meet the need for more flexible payment options for our broker partners and introduce a “performance advertising expense” payment model.
As part of this model, participating brokers and their agents will receive a limited number of connections to home shoppers at no upfront cost. If you make a sale from a connection we deliver, a percentage of that – the performance advertising expense – is due only when the transaction closes.
Predictably, the paranoid zHaters crawled out of the woodworks. See the comments on this Inman article, for example.
But the entirely predictable Zaterade is uninteresting. What is interesting is this question:
What should Zillow and Realtor.com charge for these leads?
A recent conversation with the sage of the industry, Steve Murray of Real Trends, put that question in my head. Let’s get into it.
Data from Steve Murray
Our conversation was actually on a different topic, but what he told me got me thinking about this new age we’re entering with the two largest portals embarking on a referral-fee based model.
What Steve told me is that his company, the clear leader for decades in the industry on brokerage valuations, recently finished a study of top producing agent teams. What they found is that the average split for team members on these agent teams was 35%. Yeah, that means the team took 65% of the GCI, and the agent got 35%.
It surprised me as what Sunny and I knew from our talking to agent teams is that the typical split is 50/50, not 65/35. But you know what? When Steve Murray tells you what he found, you go with what he says unless you have rock solid data showing otherwise.
The interesting thing here is that brokerages across North America average 85/15 splits with their agents.
The primary difference, in Steve’s opinion, is that the agent teams produced leads for their team members while brokerages did not.
The inescapable conclusion, then, is that providing leads is worth 50% of the GCI: 65% for agent teams that generate leads vs. 15% for brokerages that do not.
You see where we’re going with this, right?
Realtor.com and Zillow
In theory, the leads from Realtor.com and Zillow are worth less than the leads from your agent team leader because “the leads are garbage” according to many a detractor of online leads. I don’t know how true that is, since I’m not in the trenches, but logically speaking, since many an agent team simply passes on a lead from a listing or from Zillow and Realtor.com or whomever to a team member… that just doesn’t make a lot of sense.
Where it might make sense is if the agent team does quite a bit more work in the initial contact, incubation, and qualification of a prospect before handing it off to a team member. Those aren’t leads; they’re appointments. Sure, the agent still has to close the prospect, do the work, drive them around, build trust, etc. etc. and so on, but the quality of those refined/incubated leads is far higher than just some d00d off the website asking whether a house is still available.
And the best agent teams do exactly that with ISAs (Inside Sales Agents) and specialized licensed assistants for dealing with inbound leads.
Thing is, that’s exactly what Opcity does (at least in theory and in their marketing spiel): refine, qualify, and incubate online leads until it is a ready-to-go appointment for the agent. It is also, in theory, what Zillow’s new lead management process does or could evolve to doing. From Housingwire:
Now, however, Zillow is changing the game. It will now have its own representatives screen incoming calls. They will make sure the caller is actively looking to buy or sell a home, not yet working with an agent and ready to speak to an agent. Once this screening process is complete, Zillow will connect the real estate agent to the caller.
However, if the agent doesn’t pick up, Zillow will automatically transfer the call to the next agent in line.
“We’ve implemented these changes to deliver higher quality leads to agents while also ensuring a great experience for consumers looking to connect with agents,” a Zillow spokesperson told HousingWire. “This will allow potential buyers to schedule time to speak to an agent when it’s convenient for them and the agent. And, when an agent misses a call for any reason, they don’t lose their place in the queue, they receive the next connection.”
I suppose much depends on how much work Zillow’s own representatives do before passing on a lead, but given the competitive challenge from Realtor.com + Opcity, I figure it’s just a matter of time before Zillow ramps up the pre-handoff game too.
Ergo… the future leads coming from Realtor.com and Zillow should, at least in theory, be no different in quality than the leads coming from your agent team with its ISAs and pre-screeners and drip marketing and incubation and so on. Those should all be appointments, not leads.
None of This is New, Right?
Before you gasp at the thought of 50% referral fees that Realtor.com or Zillow might charge, remember that these kinds of very high prices for high quality leads is not exactly an unknown thing in real estate. I speak of relocation, of course.
Multiple accounts of what relocation companies charge for one of their buyer leads suggest that the fee can be as high as 48.5% in some cases. This document from Coldwell Banker Arizona shows a 40% referral fee off the top for Cartus relocation. So I have to assume this isn’t some newfangled thing in the industry.
What Do You Say?
So, let’s assume for the sake of discussion that the leads from Realtor.com and Zillow will be qualified appointments. On this recent thread on Facebook, I asked a number of my friends what the brokerage would have to do for them to accept a 50/50 split. The overwhelming answer was “qualified appointments”.
Would you take a qualified appointment from Realtor.com and Zillow at a 50% referral fee? Why or why not?
If you said No, what do you see as the difference between that and joining an agent team at a 50/50 (or 65/35 according to Real Trends study) split?