CBS MarketWatch editor Steve Kerch raises interesting questions about the commoditization of consumers via the new lead generation and referral fee-based companies that are collecting modest to hefty fees for leads from real estate agents and brokers.

He's only begun to scratch the surface.

In his article, "Consumers As Commodity", published 8-7-2003 on CBSMarketwatch.com, Kerch makes the point that Internet services make good money "matching" consumers to real estate agents, but that the services have "little incentive to strenuously police those on whom they depend for revenue."

In other words, as the headline suggests, consumers are on their own.

HomeGain president John Baker told Kerch, "HomeGain is not advocating picking the first Realtor to come along. You have to investigate, ask questions. In the end, it's not about us protecting the consumer, it's about the consumer protecting the consumer."

Questioning the enforcement mechanism over agents who are allegedly screened by their marketing partners, Kerch wonders whether consumers understand the business model behind these companies and the value attached to the consumer's information.

Lending Tree, illustrates Kerch, matches borrowers who want to be prequalified to buy a home with real estate agents. Agents are willing to pay big money for these qualified leads as they are more likely to close a home. LendingTree expects to bring in $180 million in revenue this year, with $14 million to $15 million of that coming from real estate lead-generation, writes Kerch. Lending Tree forecasts its real estate business growing "three or four times bigger in three years."

There are plenty more questions that could be raised from the topic of the commoditization of real estate consumers.

1. Does the consumer save money if the fees charged to the transaction are based on full retail fees? Could the consumer get a better deal by going directly to a broker and skipping the referral company?

2. Is the consumer aware when they give their information to certain companies that their information is for sale as a lead generation tool for brokers and agents?

3. How are the company's agents qualified, certified, screened or otherwise stamped with approval? What criteria do they have to meet?

4. How does the company perform quality assurance?

5. Who accepts responsibility if something goes wrong? Is the referring company legally liable in the transaction if the referred agent does something disfavorable to the consumer?

6. How much revenue does the company make from selling the consumer's name to an agent or from the transaction? Who else gets the consumer's information?

7. How clear is it on the company's Website that the company is a licensed real estate broker? Is the consumer aware that s/he is dealing with a real estate broker who is then going to refer the consumer to another real estate broker?

8. Do consumers know to look for disclosures on these companies' Websites so they will understand that the broker will collect referral fees for referring other brokers? Are they even aware that this information must be disclosed?

9. Is the referral fee negotiable? In other words, if a company takes half and rebates the other half to the consumer, can the consumer negotiate for a larger portion?

10. Are consumers aware that they are, in fact, paying the referral fee?

11. Do they realize that they give up the right to further commission negotiations because the agent is paying a substantial referral fee to the company?

12. Do they realize that if they are working with a relocation company and engage a broker from one of these companies that they may nullify their employee relocation benefits?

There's an incredible irony attached to this whole issue - that none of these lead generation or referral companies could exist if real estate brokers were more forthcoming to consumers on one simple little fact - that commissions are negotiable.

It's not that consumers don't know how to find agents. Consumers use these lead generation and referral companies because they believe they just might get something special - a better agent or a better commission rate or both. What they don't know is that they are getting the same agents they would have found any number of other ways, only now there is a referral fee to be paid which is covered by a larger commission because that is the only way brokers can afford to pay such high referral fees.

So who really benefits? The matchmakers.

Published: August 8, 2003

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