There is an incompatibility, a mismatch between the Web and the traditional real estate and mortgage business today. Simply put, Internet leads are junk. They convert in the low single digits, with just 1, 2 or 3 percent of the leads turning into transactions.

But the real estate sector is built for leads that convert in the double digits — in the teens. In “first life,” as one might call the real world, eight inbound calls to a real estate office on a Saturday morning might turn into one deal. In “second life” (the Web) it may take 30 Web leads to generate one home transaction. Ask any Realtor about leads from HomeGain, HouseValues or LendingTree. Ask any mortgage lender about leads from LowerMyBills, LendingTree and others. They’ll say they’re crummy

Internet leads burn out Realtors and lenders because none of them have the resources, systems or the patience to incubate 30 or 40 leads to get one mortgage or one home sale. That should be no surprise. It takes 90 seconds for consumers to fill out a Web lead capture form and hit the submit button. That’s not a statement of commitment to a transaction. We estimate that some 20 percent of leads are near-term buyers. That makes 80 percent that aren’t. How do you discern which ones are hot and which ones are not? Today the real estate agent does all the work of touching each prospect. That’s a formula for burn out.

Bridging the Gap. Or Not!

We have here a mismatch, a gap between the Web and the “real” world that nobody is filling. Neither new Internet entrants nor traditional firms are investing enough to bridge this gap. Internet leads are good only if there is a call center, e-mail incubation and filtering to process those leads. The old and the new sectors have not adapted to each other. So today Web leads burn out agents and loan officers.

Today, there is a standoff between traditional real estate firms, traditional mortgage lenders and the aggregators or Web lead generators. LendingTree sells leads that convert at 2 percent to firms that have not installed auto dialers, CRM software or incubation tools for call-center filtering. This frustrates the lead aggregators, because they can’t collect top dollar for their leads. Neither traditional players nor innovators have been willing to invest to bridge this gap.

Web entrepreneurs invest in technology and are scared of labor. “Servers good, people bad” might be their slogan. Technology is easier to manage, has lower costs and better P/E ratio in the stock market. Traditional brokers do not have access to capital, and they are not savvy at evaluating, buying or managing technology.

One solution is for Internet firms to integrate forward such as when LendingTree bought Home Loan Center, or in its purchase or development of real estate brokerages. Few real estate brokers have the e-business departments or e-agents, which means there are a lot of half-baked leads being sold to traditional firms. (See my past article, “Let them eat dough.”) Those few traditional firms with agents who HAVE adapted to the Web ARE building volume from the same leads that burn out other agents.

Brokers’ Ascent with the Web

I believe the Internet will restore power and profitability to real estate brokerages. Real estate agents can’t afford the CRM, the analytics or the filtering technology to take advantage of Internet leads. This plus the need for Web savvy and investment capital will benefit brokers. Agents won’t buy keywords, brokers will. Agents won’t operate call centers, brokers will. Agents won’t buy analytics to filter out tire kickers, brokers will.

Carving off Agents’ Customer Acquisition Role

Today, agents are in charge. When one-to-one and face-to-face marketing rules, agents are on top. I call it the PTA, mall, backyard, parade and funeral marketing strategy. As the Web grows and face-to-face marketing becomes less important, brokers will own the leads. As Web traffic grows, brokers will invest on behalf of agents, buying ads, technology, filtering software and so on.

Migration to the Web means less work for agents and a need for a much smaller agent population. Will those who remain need to have higher skills? Will they enjoy higher pay? Technology will filter out junk leads before sending them to agents. Technology will manage transaction details, not agents, and most important, the agent’s customer acquisition function will be taken up by media.

Migration to Media

Media will find customers. Customers will look at 100 homes on the Web, and then call an agent to see a dozen of them. Agents who remain will move up the skill ladder, and sales skills will become paramount. Driving the relo taxi to show homes to prospects and knowing local information will become less important as consumers get the facts from the Web. To make all this happen, technology needs to be funded, and media needs to be bought. Will these do-it-yourself consumers want a discount?

Maybe I’m Wrong!

I like to be critical of my own forecasts. So there may be two fatal flaws in my forecast. First, real estate commissions and sharing of revenues between the broker and agent need to rebalance in favor of the broker to pay for these investments. Every real estate brokerage finds rebalancing is slow, painful and risky. Done wrong, agents walk across the street and work for a competitor. Done right, it frees cash for investment and may provide higher salaries for a smaller number of agents.

The second possible flaw in my forecast is the recent track record of the industry. Even many larger brokers have not made significant investments in CRM, and don’t really have the scale for economical call-center operations. So far, the industry has not made the required investments and this has made openings for all the new entrants coming into the real estate business.

Rules and the MLS

A key area of regulation in real estate surrounds the MLS, the multiple listing services. Much of today’s concerns and debate about the MLS will be mooted and made irrelevant by technology.

The real estate community remains divided on whether to hide or to leverage home listing data — the industry’s bait, the MLS. The MLS is why Realtors find buyers first and, for example, control some 70 percent of mortgage loan referrals.

I was in Atlanta in 1995 when the National Association of Realtors launched the predecessor to At that time, I believe most agents felt that their control over the MLS was all that kept them from the unemployment line. They feared that public access to listing data spelled doom for them.

Low and behold we have found that Realtors’ sales skills have enduring value. Software and outsourcing seem not to be replacements. I could argue that listing data is ubiquitous today, and that control over that data is incidental to their survival. Dozens of new real estate and mortgage ventures have entered this market naively and failed. Microsoft’s HomeAdvisor and IBM’s investment in HomeView are just two examples. There are many more of these firms trying independently to leverage listing data that are not cooperating with the traditional real estate business. Listing data is great “bait,” but so far, moving it to the Web has not yet caused fundamental changes in the business.

Technology Causes Leaks

I mentioned that technology may shift control over the MLS. For example, look at Daniel Ellsberg. Put Daniel Ellsberg, the Pentagon papers and a copy machine in the same room and leaks were inevitable. Likewise, once MLS data was accessible to agents via dial-up modems, it was a slippery slope. Public access was inevitable. I recommend that Realtors aggressively find ways to deploy listing data, and guide the inevitable. Otherwise, new entrants will do it for them. Bank on Real Estate, for example, touches listing data to the benefit of larger brokerages in the country.

Regulatory Barriers

There are two regulatory barriers that hamper solutions to Internet real estate. First, RESPA (the Real Estate Settlement Procedures Act) says “no” to success-based referral fees for third parties who warm up or generate leads. Second, real estate brokers and agents can’t share their commissions with innovators who generate and warm up leads. They can share commissions only with brokers, or a new breed of ‘faux’ brokers who are licensed but never sell a home. Since it is difficult on the front end to assess the value of a lead, this industry would grow faster if lead generators could be paid on the back end once the value of a lead is known (and a transaction has occurred).

RESPA and state license rules hamper investments that could bridge the traditional real estate to Web gap. Upfront payments for leads are risky, as value is hard to measure. So today lead prices are discounted from their actual value. Back-end pricing, or a share of commission or the referral fee, makes the risk much lower for the real estate sector.

Today my test on whether a deal is RESPA-compliant is when both parties feel anxious or uncertain on the value of the deal. When they feel there is risk in the pricing, then the deal is RESPA-compliant. This is a formula that hampers innovation.

Specialization, Media and Customer Acquisition

Earlier, I mentioned the carving off of Realtors’ customer acquisition function to media. Real estate is unusual because real estate agents generate leads AND sell homes. Most sectors split customer acquisition from transactions. Real estate is a cottage industry generating leads from weddings, funerals, parades, the mall and PTA meetings — all small-town, one-to-one marketing. Media, whether online or not, is lowering the cost of customer acquisition and will take an increasing share of real estate marketing costs. All industries tend towards specialization, and the Web is accelerating this in real estate. In the future, agents will sell, and media will find the customer.

Steve Kropper is president of Bank on Real Estate, which develops customer acquisition and retention infrastructure for mortgage lenders and real estate brokers. He can be reached at

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