LendingTree's Tom Reddin recently announced that the company is entering the real estate brokerage business in select Northwest markets. The question is why? Why would a third-party mortgage broker/referral fee-based lead generation company want to be in the real estate business?

Because they got exactly what they asked for.

The competitive landscape has changed, and it's all going to be on the Internet, not on brick-and-mortar corners.

To understand that, you'd have to review recent events in the real estate industry to see what LendingTree wanted and what they got.

LendingTree has wanted listings ever since it decided to go into the referral fee-based lead management/generation business. At the time, this business plan seemed like a good idea because real estate agents had taken to the Web, but many brokers hadn't. But rising costs, particularly in labor, with brokers paying an increasingly expensive number of agents higher commission splits, suggested to brokers that they ought to get off their duffs and start generating leads for their agents so they could regain control of their bottom line.

That was the right time to partner with LendingTree, which would supply leads to the broker which the broker could turn around and sell to their agents.

But things change, and sometimes quickly.

LendingTree has had trouble getting listings, which was evidenced by the kind of deals it struck early in its quest, which included limited listings from sources such as The Real Estate Book.

Listings are essential to attracting eyeballs in order to capture them as leads. Leads can then be monetized. Some sell leads in packages like HouseValues, and others like LendingTree incubate the lead to make sure it closes so it can collect a referral fee.

So LendingTree's leaders began lobbying the NAR, the Department of Justice and anyone else who would listen, that it's time to make MLS listings easier to broadcast using the Internet.

Thanks to LendingTree's efforts along with others, the DOJ is negotiating with the National Association of Realtors to modify the NAR's virtual data-sharing policy. The reason this is necessary is that all brokers belong to MLSs, and MLSs have technologies that enable them to publish the MLS database online. The question is should they, and if so, with what restrictions?

The MLS is a shared storage room, where brokers find out what homes are for sale and what their compensation will be to sell the homes. It is not created for the public. Listings for the public are dressed up, enhanced, and romanticized through advertising.

Some brokers, including LendingTree, would like to see the MLS turned into a public advertising utility, but there are some extremely risky consequences to that, namely the marginalization of the broker. So it's understandable that brokers would like to put listings in front of the public, but not in a way that cuts their own throats. However, that wouldn't be such an issue for a virtual broker.

State brokerage/salesperson licensing rules say the broker owns the listing and has the right to decide where the listings will be shown, including whether or not they will be shared with other broker's websites. Some brokers don't want their listings to be used as advertisements for competitors, which is a legitimate concern.

So there's the conflict. Should the MLS be treated as a public advertising utility or not?

Consumers usually pay utilities for service, but consumers seem to want to use the MLS contents for free, even though they did not pay for the MLS cooperative services, of which listings are only a part. There's also rules and monetary cooperation to manage between participating brokers and agents.

So there is the fear that this could have disastrous consequences for the real estate industry and particularly for housing values.

The fear is that there are many who are lobbying for a public MLS that aren't homebuyers, but persons with another agenda. Who really needs to look at the "whole MLS"? Are they looking at homes to buy, or are they looking at homes to cut Realtors out of the loop?

Data can also be used for lead generation and a source of revenues by third-party aggregators to make money. A perfect example of this was back in 2003, where Realestate.com took The Real Estate Book's listings and gave them to LendingTree in a scheme to collect money for leads. Lawsuits were threatened, and LendingTree wound up owning Realestate.com at a settlement-suspicious bargain price.

Of course, this doesn't even cover the dangers to sellers such as burglars looking for houses to break into or vagrants looking for a vacant house to spend the night.

Understandably, some brokers are afraid of what will happen to the value of their services if:

1. they are paying for data to be virtualized that is used by buyers who want to cut them out of the deal, or

2. that the data doesn't present the home to the public the way the seller wants and puts the seller at risk of dealing with unwanted solicitations from low-ball buyers, or physical danger.

So the NAR is just and fair in determining that the amount of data has to be controlled, as well as access to who gets it, hence the NAR rule. But what's fair might not necessarily be good for LendingTree's existing business model. So LendingTree has to create revenues around what it can control, and what it can control is the Internet environment.

IAC specializes in Internet-based businesses, and LendingTree/Realestate.com are virtual, too. They want the listings to attract consumers, but they also have a cross-pollination network of sister sites that can bring a lot of traffic. Like others in the thick of the NAR/DOJ debate, they already know what the NAR is going to do -- compromise with the DOJ so that brokers will share their listings with less data fields and without having to register consumers as clients.

That's why you've already seen announcements from Homestore (now adding lead generation revenues to its listings which it was prohibited to do before) and RE/MAX, which is going to create a national IDX clearinghouse for its brokers. Cendant is doing the same thing with its Router programs.

But Cendant and RE/MAX are doing something LendingTree didn't count on -- they are giving the leads away for free to their own brokers and agents, respectively.

So that changes the picture.

Everyone will have listings, and the listings will be used to deliver free leads to family members. That means that RE/MAX agents, and Cendant brand brokers have a lot more incentive to support their brands than a third-party like LendingTree. If LendingTree was used for incremental leads before, they will really be reduced once the advertising campaigns of RE/MAX and Cendant kick in.

So LendingTree has added another business model as a hedge.

If LT can get all the listings, and operate virtually, there's no reason not to be a broker. Why make a referral fee when you can make all the money? LendingTree is already licensed, so it can share in referral fees, but it can also do business virtually, and provide sellers with minimum services, if it chooses. It has already been practicing with lead incubation for a long time -- and the company knows that incentives work with consumers -- like lower interest rates on loans, or gift cards from HomeDepot.

That the brokerage is going to be virtual is a certainty. LendingTree has to be looking ahead and anticipate that the referral fee model will lose steam because of the free leads provided by the brand broker's own brand, but if LendingTree is the broker, they get the referral fee plus the commission.

That's why they are going into the brokerage business.

Published: September 6, 2005

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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. For more articles by Blanche, click here.