A lead is contact information (the phone book is a source of low quality leads).

A referral is a contact provided with a recommendation from the referring source. A feature that distinguishes one referral from another is the quality of the relationship between the referring party and the party being referred. How well does the referred party know the party making the referral? If they have a high degree of trust and loyalty with the person making the referral, there is a good chance they will be loyal and have a high degree of trust in you.

Compensation for referrals

Compensation will vary based upon the type and quality of the referral. When a referral comes from a non licensee such as a past satisfied customer, no compensation is necessary, but a nice gift thanking them for sending the business your way is appropriate. Compensation to unlicensed persons is a violation of real estate license law in most states. A dinner gift certificate or a gift of nominal value is fine. It is good practice to keep the referring party informed of the status of any referral.

Referral Fees to other REALTORS who refer business to you are negotiable, but a range of 20% to 30% of the commission you receive (agent's split) is not at all out of the ordinary and you may, when structuring a formal referral program, ask if your broker is willing to participate. Speaking of your broker, referral fees are paid from your broker to the broker of the referring REALTOR, and not directly from you to the REALTOR who made the referral. It is good practice to keep the referring party informed of the status of any referral right up until the referral fee is paid, and sometimes beyond.

Online Lead Generation Companies

A company such as HouseValues does not provide referrals but typically leads of varying quality. Often people browsing the Internet looking at real estate are not in the immediate market to buy or sell, they are just browsing. Browsing for housing is not a new phenomenon and those of us who have spend any significant time in the business have had our fair share of "lookey Loos." Your success with leads from online lead generation companies will vary and your expectations as to the results should be realistic. Some REALTORS feel they get no value from Internet lead generation companies and other REALTORS have added significantly to their businesses with leads provided by online lead generators. HouseValues is a company that has been in business as long or longer than most, and has an advertising program that is national in scope.

The better lead generation companies have training information about the best ways to take advantage of their leads and if you are going to use one or more of these programs, take advantage of the training and materials offered. Learn how to work online leads if you are going to pay third parties for them and you have a better chance of your investment in these programs bearing results. It is also a good idea to ask for testimonials of other REALTORS who have used the service.

In the end, you decide what is in your own best interest and the best interest of your business. How you get and work leads is totally up to you.

Saul

Saul Klein
President/CEO, InternetCrusade