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Online Leads: Gold Mine or Waste of Time?

Signing up to receive online leads is all the rage. So, why is it working for some but not for others? We’ve got some answers.

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Allan and Carrie Trust know that paying for online buyer and seller leads can be an effective strategy for building a real estate business. For the past four years, the husband-and-wife sales team, at RE/MAX Direct in Boynton Beach, contracted with four companies that provide them with leads throughout Palm Beach County and beyond. In 2005, they paid about $80,000 in fees, received 11,000 leads, sold $23 million in properties (much of that directly from the online lead generation) and earned referral fees from other associates.

“From our personal experience, it’s been a wonderful tool,” says Allan Trust. “But we’ve had good and bad experiences with these companies. You have to work very hard when you rely heavily on Internet leads, and it’s not for everyone. Many associates are better served by spending their marketing money and efforts in more traditional ways.”

In today’s sales environment, Florida real estate professionals are using every tool at their disposal to attract prospective buyers and gain new listings. According to the National Association of Realtors® (NAR), 74 percent of consumers now start their real estate search online—typically using a search engine like Google or a portal such as AOL, Yahoo or MSN to see what’s available in a local market.

National companies like Home Gain and Lending Tree try to capture an online visitor’s name, e-mail address, phone number and geographic area of interest. These aggregators turn around and sell that contact information in one form or another to participating real estate professionals. These services might charge a per-lead fee, a monthly subscription fee or a referral fee on the closed transaction.

While 100 million U.S. consumers go online to search for real estate information each year, according to Mike Long, CEO of MOVE Inc. in California, only a fraction of them are active buyers and sellers. Some are planning to move in a few years, while others are just having fun with their searches.

As a result, only a small percentage of online leads turn into immediate transactions—and a real estate professional can waste a lot of time trying to find a real buyer or seller. Therefore, some companies attempt to filter those raw leads by contacting potential buyers and sellers before selling the information about them to sales professionals. As a result, those screened leads carry a higher cost.

Denver consultant Steve Murray, editor of industry newsletter “REAL Trends,” says recent data indicate that raw Internet leads close at a rate of 0.5 to 1 percent. Qualifying those leads via e-mail or phone contact can lead to a 3 to 5 percent capture rate.  And, services that essentially screen all leads with confirmation and personal contact to confirm customer interest can lead to capture rates as high as 12 to 15 percent.

“It’s evident that sales professionals are using online lead-generation systems and providers more frequently each year, seeking and testing new ways to hook up with housing consumers earlier in the transaction,” says Murray.  “What isn’t clear is what changes in the sales professional’s business methods or in the qualification of leads by the companies that generate online leads will be necessary to build a more enduring relationship.”

Rather than pay for online leads, many Florida sales professionals rely on their own marketing efforts—and those of their brokerage company—to drive visitors to their Web sites. Others depend on referrals from their customer base or use direct mail and newspaper and magazine advertising to build their business.

“The old style of marketing and sending out thousands of cards still works,” says Duke Kimhan, a sales associate with Markham Realty in Destin. “But you have to go after the 75 percent of buyers who are looking online. I’ve used several services in the past two years that have more than paid for themselves.”

On the other hand, many Florida sales associates have complained about problems with online lead services, ranging from expensive contracts and overbilling issues to the quality of the leads provided.

Chris Cordle, a sales associate with ERA Blue Ribbon Properties Inc. in Ocala, tried an online service and canceled it after less than one month. “I got 15 seller leads in two weeks, but when we called, the people just didn’t respond. They just wanted to know the value of their home and weren’t interest in selling. This translated into $300 for a dozen tire kickers. Luckily, I was still in my trial period and canceled as soon as possible.”

Building a New Business
When Joanie Heighes, a sales associate with Watson Realty’s Mandarin South Office in Jacksonville, moved to Florida three years ago, she didn’t have any local contacts. So, she turned to online lead services Justlisted.com, Housevalues.com and Homegain.com to start building her business. In her first year, she achieved $2.9 million in sales volume (more than half she credits to the lead generation services) rising to $9.3 million in her second year.

“This is the only way to build a new business today,” she says, noting she pays about $500 to $1,000 per month in subscription fees. “With these services, you can manage your costs—and it only takes one deal to pay for all those fees, and then some.”

When Heighes started in 2004, it was hard to get listings—so she focused on getting leads from prospective sellers. With the changing market in the past year, she’s switched her emphasis to finding prospective buyers.

Other Florida professionals have found that online lead services can help them gain new listings.  John Billera, an associate with Coldwell Banker Residential Real Estate in Seminole, spends about $380 a month for Homegain.com. The service provides him with exclusive seller leads in two ZIP codes of Pinellas Park. “I netted a condo listing in my first month of receiving leads,” he says. “And the buyer lead service has been a good avenue for me to get more exposure on my Web site. I’m creating a good pipeline of prospects. ”

Billera has tried other services, but canceled them due to the poor quality of the leads.  “It took me a year until I found a combination of things that work for me,” he says. “Now I’m in my third year in real estate and will do $3 million to $3.5 million in business. Things are definitely on the upswing for me.”

When Daniel J. Hunter, a sales associate with Fruits Real Estate Services Inc. in Hudson, entered the field two years ago, he turned to his firm’s top producer for advice. “She recommended an online service [realestatepromoter.com] that’s really helped me build my business,” he says. “The majority of my sales are from Internet leads driven to my Web site. As of July 30, I’ve done as much business as I did all of last year, despite the slowdown in the market. In one year, this service has paid me back five years’ worth of fees.”

Hunter notes that some of the leads he receives have bogus phone numbers or e-mail addresses. “But as long as you’re willing to play the numbers game, the cost is returned in spades,” he adds. “With some of the leads, I’ve been able to show properties within a couple of days. And I’m currently sending listings to a lady in Ireland who plans to purchase in early 2007. So, I’m building my pipeline as well as getting near-term sales.”
 
It’s Not All Good
Terri Johnson, a sales associate with Keller Williams Classic Realty in Orlando, is one of many Florida professionals who say online lead services cost them money and time, without producing results.

“I invested $2,400 to get 109 leads, with zero return on my investment,” she says. “Most of the leads I received were people messing with us, and the company just passed them along. I had to pay for a lead from a ‘Billy Bobbie’ with a phone number of 123-4567.  I will not do business with these companies in the future, but will stick to more traditional methods.”

Other Florida sales associates report problems with overbilling, expensive long-term contracts or disputes over the payment of referral fees on closed transactions. But the No. 1 complaint is clearly the uneven quality of the leads.

Aileen Kane, a sales associate with Charles Rutenberg Realty in Clearwater, says she used one service for six months and had nothing but problems. “I received leads sent from areas outside my market and leads that were not adequately screened,” she says. “In short, the service ended up costing me more in time and aggravation than it netted me in sales—which to this date amounts to zip.”

Roman Pavlik, a broker-associate with RE/MAX Beach Properties in Miami Beach, says the growing number of companies entering the online lead marketplace is also diluting the quality of leads. “Many companies want to sell you an exclusive territory,” he says. “But, if there are a dozen online companies all competing in the same market, then exclusivity doesn’t mean very much.”

After talking with sales associates around the country, Pavlik estimates the closing ratio on buyer leads at one in 100. “So the big question is how much effort do you put into the other 99 in order to capture that one sale,” he says. “You really need to calculate your dollar cost per lead to see if it makes sense. I think you’re better off marketing your own Web site, providing helpful information and building your online sphere of influence.”

Turning Leads into Sales
Although Florida sales associates are split on the issue of paying for online leads, there’s no question about the need for a carefully planned follow-up program to handle all types of Internet prospects. “Getting the lead is just the start of the process—what happens next is what counts,” says Billera. “You have to show your responsiveness. People want information right away—not wait a day or two.”

To respond to their online leads, Florida sales professionals are using automated e-mail responses, personalized e-mail messages and telephone calls—or all of these techniques. The goal is simple: Begin a dialogue with the prospect and build a relationship that ultimately will lead to a closed sale. For more ways to convert leads to sales, see “Boost Your Capture Rate” on page 52.

“I’ve found that without a phone number, these online lead services just don’t work,” says Heighes. “You need to contact someone on the phone and have a conversation. As soon as they talk with you and sense that you’re really interested in helping them, it becomes a warm call—not a cold call. And once you have that type of personal contact, you’re halfway there.”

Richard Westlund is a Miami-based freelance writer.