To help our agents here at Relevate to be as efficiently successful as possible, we’ve scientifically studied all the ways residential real estate agents have ever tried to get clients. There are five ways of getting clients that our research revealed as the BEST ways to generate leads. This article is not about those methods. You can click the link here to read more about that topic.
This article is about the five WORST possible ways to get clients as a real estate agent, but lots of agents still use these methods. I don’t know why. So, if you want to know which ways to avoid getting clients and being really inefficient, you are in the right place. Let’s go…
Before we start, I’ll tell you two things:
First, I have personally tried every one of the five worst and five best methods on my way to selling over 750 homes in my 17 year career, so I’m sharing real life experience here, and…
Second, my background before real estate was in operations research and process improvement, applying math and science to business, and in fact I wrote two books on the subject. Our analysis of the worst five and best five ways to generate leads in real estate was not based on opinion, it was based on calculating the return-on-investment of each method … in other words we compared the time and money agents must invest, versus the take-home income the agents receive, using each method.
Let’s jump in. The least horrible of the five WORST ways to generate leads in residential real estate is to:
5. Specialize in a Niche
Many agents feel that specializing will make them more attractive to clients in that niche market. Common examples are divorce (because usually it involves a sale and two purchases and there is some common legal knowledge an educated agent can bring), or luxury homes (because they sell for high prices). Other niches are downtown condos, police, teachers and firefighters, seniors, certain ethnic groups or languages.
The upside of this strategy is that the agent is building their own lead generation pipeline. The downside is that in general we’ve observed that almost all niches in residential real estate are too narrow: this strategy will tend to push more clients away (the majority who aren’t in your chosen niche and think you don’t want to help them) than it attracts.
In our experience, residential real estate in a certain fairly broad geographical area is as tight of a niche as you need to or want to be in. We definitely recommend writing blogs or making videos showing off your knowledge about any specific niche, but it probably doesn’t make sense to tell the market you are limited to only helping a certain narrow group of clients.
The second least-worst method of getting clients in real estate can actually be a great way to start – but ONLY if you do it right. If so, this method actually could move over to being in the top five best methods to generate leads. Unfortunately two-thirds of agents do it wrong, which is why it’s here on this list. And that is…
4. Buying Leads Generated By Someone Else
There are three types of leads agents commonly buy from someone else. In these cases you don’t own the source of the leads and you could be cut off, or the deal could be changed, at any time. And that does happen, usually by surprise. The other factor is that almost all of these leads are buyer leads, not seller leads.
The first type of buying leads from someone else is…
A. Buying Leads from Zillow or Realtor.com or OpCity
Or any one of 50 different websites that capture leads and sell them to real estate agents. The big benefit of these services is instant leads. You just pay for the lead and you get it instantly. These leads cost anywhere from $60 to $500 each, so that’s a little expensive, and that wouldn’t be so bad if they converted to clients and closings at a higher rate. That’s the difficult part.
Allow me to share some numbers with you. Last year these sites combined sold a total of 50 million leads to agents… but there were only a little over five million homes actually sold. So 10 leads get one sale, right? WRONG. Because 80% of those sold homes, or four million out of five million, were sold to buyers who either got their agent by referral or who bought with an onsite new construction agent.
So actually only one million homes were sold from the 50 million leads given to agents, so for all leads sold to agents, only 1 in 50 actually closed. So the low conversion rate is the challenging part of buying these leads. Every year more leads are sold to agents, but the total number of homes sold doesn’t increase at nearly the same rate.
As a result, you could spend a lot of time and money on leads and work really hard on each of them, but not close enough to make financial sense.
We did a detailed financial study of Zillow leads in particular that you can check out HERE.
The second type of buying lead generated by someone else is a result of…
B. Working as Buyer’s Agent for a Busy Team Leader
In this case, you are buying leads from the team leader by promising to serve them in exchange for giving up about half the commission. These clients belong to the team leader, so you won’t be able to build your own business based on the relationships you build with them.
Being a buyer’s agent is a way to get busy in real estate, but you’ll be working very hard for the money you earn, and becoming more dependent on the team leader instead of building a business of your own.
And the third way to buy leads from someone else who generates them is…
C. Receiving Relocation Leads From Your Brokerage
When you accept relocation leads from your brokerage, you’ll be lucky to receive 30% of the commission. That’s because the relocation company normally keeps over 40% of the commission, and your firm will usually keep 30%+ for handing the lead to you. That adds up to a lot of commission you won’t be getting, in exchange for a TON of work by you. And relocation leads often keep you disproportionately busy on weekends because that’s when they are normally free to visit their new home town.
So why is this method ranked slightly better than being a buyer’s agent on a team? Because these clients normally belong to you after they close, so you have the opportunity to stay in touch with them and earn referrals and repeat business; and these relocation buyers tend to be at higher price ranges.
D. Concluding Thoughts About Buying Leads
Okay, now I’ll explain what I mean by one-third of agents doing this right and benefiting from buying leads, and two-thirds not. The agents who do it right build strong relationships with the clients who belong to them (in the case of relocation and leads purchased from websites), and those clients become their database from which to build their own independent referral lead flow.
One of our best and consistently highest-producing agents did just this. She started with Zillow leads and built solid relationships with every client, even if they weren’t ready to buy a home right away. Soon she had enough referral business from those leads to not pay for Zillow leads ever again, and she’s never looked back.
Unfortunately, the biggest problem I’ve consistently seen with two-thirds of agents who buy leads (whether they pay per lead up front or pay at closing by giving up a big part of the commission) is that they get addicted to the ease of these instant leads and completely stop doing anything else. They’ve got enough clients to take care of that they’re not desperate, and as a result, they aren’t willing to go through the pain of learning to generate their own leads.
So over time they get more and more dependent on someone else and they never grow their own business. Good enough substitutes for potentially great in their careers and in their lives, and I think that’s a bummer.
The next terrible way to generate leads is…
3. Short Sale and REO Specialization
In a slower market there are opportunities for agents to specialize in handling Short Sales, or selling REO (which stands for “Real Estate Owned”) properties for banks. These methods of getting business have four big disadvantages:
- No one involved is having a good time. It’s all very depressing.
- Banks don’t like paying commission to real estate agents and they will cut you coming and going.
- You have to deal with a ton of slow bank bureaucracy that you’ll swear makes no sense.
- These methods only work in down markets, so when the market is good, this method to get business is pretty useless.
So in our opinion, this method of getting business should only be a last resort. I’d quit real estate before doing this.
The almost most terrible way to generate leads is…
2. Direct Marketing
This comes in two forms: digital in the form of emails or texts, or regular mail, normally in the form of postcards. You would think email would be close to free, but to do it right, you need to buy lists and pay for a service to send them to avoid having your address automatically marked as SPAM by the receiving servers.
Normal mail is very expensive. You’ve got to cover the costs of copywriting, design, printing, and postage. These direct marketing methods usually deliver exactly zero results, and even when you get a few responses, when you compare the costs to the benefits, this method just doesn’t cut it.
And finally we’ve reached the very worst ever way to generate leads in real estate, and that is…
This includes both online advertising, which includes Search Engine Optimization (SEO) on your own website, banner ads, pay-per-click on google, and running ads on sites like Facebook and LinkedIn; and also traditional media such as billboards, radio, and print publications.
The bottom line regarding this type of lead generation is that it is very expensive, it generates very few leads, and the leads it generates are strangers with whom you have no basis of trust. In the end, it is almost impossible to not lose tons of money trying to use this method to generate buyer and seller leads.
Which Lead Generation Method is Best for YOUR Business?
So, between this article and this one about the five best ways to get clients as a real estate agent we’ve reviewed all ten lead generation methods commonly used by residential real estate agents.
Tell us in the comments, which of these methods have you tried, and which do you use regularly now? And did you have a better, worse, or different experience than our research revealed? Has this article made you think about stopping one method or starting another? We’d love to hear your thoughts.
And meanwhile, if you are an agent in the Triangle Area of North Carolina and you’d like to visit with us to learn more about Relevate Real Estate, click HERE to set up a time to talk with us.
See you soon!