In this blog, I discuss the benefits and potential drawbacks of referral based leads to your real estate business. Throughout the years, I have found the need to suggest referral based real estate leads to certain real estate teams or agents that I have worked with as an additional source of business. I can confidently say that these leads may not be a good fit for all business models. However, they can be an excellent fit for other real estate organizations. I am sure you are wondering how they could be a good fit for some but not for others. I will cover that in this blog post but first let’s take a look at a complete list of all the referral based real estate lead sources that are being offered. Most of these have no up front costs and are basically free.
A Complete List of Referral Based Real Estate Leads
- RedFin Referral Program
- Mello Home
- Effective Agents
- Fast Experts
- Referral Exchange (small monthly fee)
- Agent Pronto
- Veterans United
- Zillow Flex (Location Dependent)
What are the benefits of referral leads?
Referral real estate leads are a great way to build a business faster. They have the ability to convert faster than other lead sources and generally convert higher. Although not all real estate referral lead sources are created equal, many times these leads are closer to the bottom of the sales funnel. In other words, the leads received from these sources typically are looking to buy or sell within 6 months after being sent to an agent to work.
Many of these referral lead service companies take the time to scrub the information and prequalify the lead before handing it off to a real estate agent. They also are FREE. Who doesn’t like free leads? Let me clarify, you do have to pay a referral fee once you close the lead, but there are no upfront costs. This definitely helps to keep your marketing spend under control. Now, let’s take a look at some of the cons now.
What are the unseen drawbacks?
Now that we covered some of the benefits. I want to be sure to disclose some of the drawbacks. The number one reason some real estate professionals don’t sign up for these leads is because they can be pretty expensive. Meaning, there is typically a 25-35% referral fee for any of these leads so depending on the price point of the lead, you may end up getting a small paycheck which drives down profit quickly. For example, if an agent on a team pays 50% to the house (team) and the team has to pay a 35% referral fee off the top back to the referring company then this will typically reduce an agent’s paycheck by 25% or more depending if there is also a cap. On a $300,000 priced house, an agent’s paycheck would be less than $3,000.
Paperwork & Backend Process
Another unseen drawback is the paperwork or the process in which these leads have to be claimed and then updated. Many times these leads have to be claimed immediately otherwise you lose the opportunity. This means there must be a system or person working around the clock. Pain in the butt, right? The backend updating process will cost time and more than you would think. On the flip side, those with a large team could assign a dedicated admin to ensure everything is filled out correctly and updated accordingly. Many of these companies will give you more & higher quality leads based on your customer satisfaction and ability to close but there isn’t any pardon for the lack of updating their backend. They aren’t going to continue to give you leads if you can’t follow their process.
Proven Track Record
The last thing that is a hurdle to jump through as an agent trying to get these leads would be having a proven track record. Many times these companies ask you to fill out a production report and look you up in the MLS to ensure you have done business before. This is great news for single agents and teams if production is under one person but bad news if you were on a team at one point and all the production rolled under one person. This is also bad news if you are a new agent starting out.
Although I have listed several drawbacks, I still believe that this could be a great lead source for some business models. I will discuss this next.
Are these leads right for your team?
When I start working with real estate organizations or real estate agents, I start to see trends in the culture and behaviors of their agents. Not all organizations are created equal and not all agents are created equal, therefore, your business model will most likely not work the exact way as someone else’s model either. To no surprise, some agents & team are more coachable than others, so therefore when it comes to the conversion of leads, sometimes agents are willing to take less money for a faster converting lead. Are you surprised? Or maybe you are thinking that is my agents! If this sounds like your team then referral based real estate leads can be a good source of business for you or your team.
On the flip side, if you are just starting a team and you don’t have enough leads to feed your agents outside of these lead sources then I wouldn’t suggest these leads. These leads also can create bad habits because they are easier to convert so the the long term follow habits will be left behind. This will create a problem for the profitability & retention.
Other thoughts to consider..
Sometimes real estate businesses have been built on the Realtor.com or Zillow lead source so their agents are used to getting “lower hanging fruit” or “instant gratification” leads. If this sounds like your team then these leads would be a good additional source as long as you have a plan in place to ensure all the paperwork and tracking is done correctly. Agents are not the best at this and this will need management. Also, if you are a team owner and handing these leads out to your team, you want to be sure that the customer is getting great service to ensure your service score stays high. The referring company will cut off your lead flow pretty quickly after a few bad experiences.
If you have a team that has been coached to convert Google PPC leads at a 2% or higher rate then you could add some referral based lead sources as a good gimme lead for your agents that are converting Google PPC leads over 3%. They already have good habits and a pipeline, so think of it as a reward to them and a breathe of fresh air since referral based lead sources will seem like a walk in the park compared to the follow up involved for a Google PPC lead. Therefore, if the paycheck is a little smaller, the agent is ok with it because it was easier to convert.
Lastly, there are teams that I work with and their agents just aren’t as coachable or willing to put the work in to convert other lead sources that are cheaper and more profitable, so at that point, I will recommend looking into referral based lead sources for your team. Keep in mind you won’t be as profitable.
Should I sign up for these leads for myself?
If you are a high producing agent or single agent where most of your business comes from past clients and referrals but want a few additional transaction a year then these are a good option for you.
If you already buy online leads and aren’t converting those, first focus on the ones you already purchased. I recommend an average producing agent can only handle about 25-30 leads per month.
I hope I gave clarity on whether or not real estate referral leads could be right for your business. One thing I want to throw out to my readers hoping you will read this before starting a team. I always recommend starting a team with Google PPC leads before any other lead source. Coaching them to build the right follow up habits before giving them other “easier” lead sources will create a healthier business model. Google ppc leads are cheap, profitable and a more loyal lead, but you must know how to convert them. Once agents learns how to convert PPC leads, they will have skills & habits that will carry them far into the future whether you add additional sources or not.