Last week I posted on how HomeLight creates the illusion that they find consumers the "best" real estate agent. I went into their site as someone interested in selling their home and spoke with one of their representatives. It was clear that, at least from the consumer's perspective, all they cared about was an agent's sales volume in the area and their average price point. It was apparent that their sales reps have been totally indoctrinated with the myth that real estate agents can be fully evaluated by these two easily obtainable data points .
So, after testing their consumer interface, I went into their Web site as a real estate agent to find out what is going on behind the curtain. The first thing I noticed, plain as day, is that in order to appear on their site a realtor needs to sign their referral agreement, which commits to paying them 25% of the commission. So, clearly they are in the paid referral business, which should not really be a surprise.
But if you will recall from my last blog post on this subject HomeLight claims that they offer unbiased matches because "Agents cannot buy their way into HomeLight". But agents DO buy their way into the program by signing the referral agreement so this is not a true statement (should we use the L word here?).
I actually called in and got one of the agent rep supervisors on the phone and asked him about this discrepancy. I gather they are prepared for this very question because he quickly explained to me that agents don't pay up front to get into the program. Yeah. Whatever.
Now, if you will recall, I posted a few weeks ago about how Zillow and Realtor.com keep real estate commissions high. Well, so does HomeLight. And you will also note that they use that same magic 25% referral fee that I told you about. Basically, they try to siphon off consumers during their decision process to collect that referral fee, which increases the cost for realtors. Therefore, discount brokerages like us can't afford to both discount our commission and pay their referral fee. Consequently, I will probably sign their referral agreement but either eliminate or drastically reduce the discount that I would otherwise give someone that comes in through this channel.
Also note that anyone who signs their referral agreement is automatically part of their program, which means there is no further screening process. So why should we believe that "their agents" sell homes for 3.5% more than other agents? Unless we naively believe that it's the better agents that sign their referral agreement.
So, I asked the agent rep supervisor what process they used to recommend real estate agents to consumers who signed up for the service. As expected from my interaction on the consumer side, he confirmed that they initially focus on which agents have done a lot of deals in a particular price point. Of course I pointed out that, in addition to providing no insight into an agent's real capabilities, reliance on these metrics pretty much was going to direct all the leads to the same handful of agents over and over again. He then revealed that they also look at how aggressively the agents worked the leads they received. Since HomeLight gets a referral fee they only get paid if the deal closes, which means that they need agents to really work their leads hard. If they find that an agent is not successfully engaging the leads they get HomeLight will stop sending them leads. In other words, the third criteria used to select a real estate agent for a consumer is how aggressively they work leads, which, again, has nothing to do with how good a real estate agent is for the consumer. Does this really sound to you like a system that will find the best real estate agent for a consumer?
This may be a single data point but one very good, high volume real estate agent that I know has been registered with HomeLight for several years and has never received a single lead from them. Frankly, I wonder how much business HomeLight is doing. They just raised another $40 MM - $55.5 MM total since they started in 2012. However, so far in 2017, through August, they had only been tied into the listing of about $1 B worth of homes, which is extremely small for a national player. To put it in perspective that would be less than a 2% share of the Chicago metro area market for one year.
Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.