As mortgage brokers gear up to compete for a shrinking originations market, sales leads could become an increasingly valuable commodity.
That’s the thinking behind ROOT Exchange, which bills itself as a place where people who have leads to sell can auction them off to the highest bidder.
ROOT Exchange claims to be a neutral third party, charging both buyers and sellers for the convenience of doing business in an online setting that allows the market to determine a fair price.
“We’re not buying (leads) cheap and selling to another — just connecting buyers and sellers,” said ROOT Exchange founder and CEO Seth Goldstein.
On ROOT Exchange, “everybody has access to the same information,” he said. “You can place bids and (asking prices) and, over time, as more buyers and sellers come on the platform, you get better and better pricing data.”
Without an exchange where pricing information is transparent, buying and selling sales leads can be a game of hustle and bluff.
ROOT Exchange “hollows out the middle” Goldstein said. “It’s a more cost-effective platform, so you don’t have 50 brokers calling Wells Fargo pretending they have better leads than their competitors.”
But while ROOT Exchange pitches itself as a sort of new New York Stock Exchange or Chicago Board of Trade for leads, leads are mere parcels of information that have little in common with stocks, bonds and commodities.
For one thing, leads lose value each time they are bought and sold. The goal of the buyer is to convert a lead into a sale. Once a lead has been converted, it isn’t worth much to anyone selling the same product. And if a buyer can’t convert a lead into a sale, it could mean the lead is not a solid one.
Consultant Steve Kropper said Web-generated leads are often harder to convert than traditional leads. But sites that get applicants to fill out long forms or use analytics running in the background do better at determining who is a good lead.
“Traditional leads usually convert at double-digit rates, and Web leads typically convert at single-digit rates,” said Kropper, the president of Bank on Real Estate. “Most lenders consider Web leads to be crummy.”
Kropper said the key to converting leads is “incubation” — staying in contact with leads until they are ready to make a deal, while keeping them “leaking” to competing lenders.
“Incubation is important because only 20 percent of leads are ready to transact in the next 30 days,” Kropper said.
To help buyers assess the quality of a lead, ROOT Exchange tracks how long a lead has been in the system and how many times its been sold. The company doesn’t allow leads that are more than 24 hours old, and limits the number of times a lead can be sold to four, Goldstein said. ROOT Exchange also contracts with a third party, TARGUSinfo, to validate and verify leads, and is in the process of establishing a quality index for leads that’s similar to bond ratings, he said.
Buyers can shop by region, and also get information that is self-reported by loan applicants — including credit rating, current mortgage balance, and type of loan desired — that can affect the value of the lead. Although the chance a lead will convert is a big factor in determining its price, leads with the potential for higher profits, such as customer seeking a variable interest refinance loan, can also sell for a premium.
Another way that ROOT Exchange differs from a stock exchange is that its owner, ROOT Markets Inc., is already helping “publishers” — media companies like the New York Times, Forbes and USA Today — turn Web site visitors into sales leads. Consumers are invited to enter personal information into forms that publishers can sell on ROOT Exchange.
The New York Times is an investor in ROOT Markets. But any company that generates mortgage leads can use ROOT Exchange, Goldstein said, including aggregators like Bankrate, LowerMyBills, Adteractive and LendingTree. All buyers and sellers are required to sign terms intended to protect all users from misuse of data.
Goldstein wouldn’t say how many companies are using ROOT Exchange or how many trades are conducted, but said the company bought a similar established venture, Lead Filter, last year and have “significantly scaled” the volume of business.
Although the mortgage industry is the first “vertical” ROOT Exchange has taken on, it’s already moving into trades of sales leads for car loans and consumer credit, Goldstein said.