Like Most Home Corp., Service Magic wants Realtors to know that it isn't a referral fee company either.

Geoff Kulesa, director of marketing for Service Magic explains, "There are different kinds of Internet lead generation companies. The challenge we face if we look at our business is where do other models have competitive advantage? That is in the risk factor, especially for new agents who don't have money to spend up front. You get enough leads to get a commission, but with the referral model there is no risk up-front, you just pay out the nose on the back end."

Agents tell Service Magic that referral fees are like "free money." With Service Magic, agents pay for prequalified leads with no referral fees due at closing. The cost is lower, averaging about $300 per transaction as Service Magic figures it, based on paying for many leads that don't pan out, and a few that do.

"'I don't have to lay out any money, so if I close, then I pay,' agents say. They view our lead generation package as a cost. It doesn't make sense."

For agents willing to sift through some leads that won't close to get to a few that do, Service Magic says it's worth the lower cost, compared to referral fees as much as 35 percent.

"We have done follow-up research that shows that, on average, agents get a new client one out of ten leads that they purchase," says Kulesa. "The majority of leads are buyer leads, and we followed-up on 543 leads and contacted the consumers with questions like 'Did you hire an agent? Was he/she a Service Magic agent?' and that is how we got the 10 percent close rate."

Service Magic leads are $30 for buyer leads, $40 for seller leads and $60 for someone who wants to buy and sell.

"We look at those numbers, and it costs approximately $300 dollars to get a new client," suggests Kulesa, "and on a $200,000 transaction at three percent, on a 6,000 commission, you would pay $2,000 to a referral fee company. That's why we believe it is a better model for the agent. With ours, you pay up-front, and you may close three out of ten.

"It is not an egregious amount," says Kulesa, "and we don't have bribes for consumers which means that I bought some leads, closed a deal, and now the consumer wants to come back to us. There are no incentives for the consumer to come back to us when they want to buy or sell. It is the ROI, and that is our sales pitch. Would you rather pay $300 to earn $6,000?"

So what are agents not understanding about purchasing leads? "Real estate agents get bombarded by someone trying to sell them something all the time, so part of our issue is getting a chance to speak with someone," explains Kulesa. "I would say most agents get it -- there's no fee to enroll, no monthly fees, and we offer an incentive to get started: the first ten leads are at half price."

Maybe the issue lies in what the definition of a lead is.

"What is a lead?," answers Kulesa. "We get a lot of traffic -- three million unique visitors -- and we do a lot of filtering. People fill out a form, the location they want, price, square footage, are they working with another agent, and they submit a request. We manually filter these 100 percent. We call them all, and we filter out over half of them. Many of them aren't real, they might be another agent testing the system. The other half we pass on to the agents. We do not expect 100 percent of those to result in a sale."

Sometimes consumers say they want an agent, but then they won't return the call. Sometimes the agent won't get a meeting, and they might meet with three and get one of those, suggests Kulesa. "Everyone would rather call 10 leads and close four, but the reality is you will have a lot of people calling you and you need to weed through them. The nice thing about our system is the leads that come to us have already raised their hands, and the agent gets to review the details of the lead."

The most prolific complaint about lead-selling services is that the leads are often of poor quality. Buyers who want a beach house for under $100,000 are a good example.

"We realize now that the number one thing we can do is to help consumers understand realistic expectations so that agents don't get leads that are useless and bogus," says Kulesa. "We have some agents that love those leads and they take them. They know that other agents won't take them, so they talk to those consumers, and they are able to help them modify their expectations, and they add them to their database and get business down the road. They think, 'Even if I don't close them I can market to them,' but the prevailing view is not to use a lead like that."

Kulesa admits that Service Magic isn't steering consumers to more realistic expectations today, but the company is aware that it can improve the product by working toward that.

"It is the number one complaint we hear," says Kulesa. "We believe the model works strongly, but we have learned a lot. When we started, we passed on every lead, so we had to change."

Published: December 17, 2003

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.