How Agent Referal sites Actually Work

Real Estate Agent | Tower Property Advisory

The real estate industry is quickly turning against “free” agent recommendation websites, describing these services as “misleading”.

Some agents are boycotting the sites and real estate institutes up and down the east coast are busy alerting authorities, claiming sellers don’t understand that their information is being sold to a select few agents.

In recent years two main players have emerged in this space; LocalAgentFinder and OpenAgent.

These two businesses have very different models to choose the most suitable agent for consumers, but they both aim to take a clip of the $5 billion annual agent commission pool by charging agents for the details of potential home sellers.

“[These sites] are contingent on the agents who choose to participate and the very good agents don’t necessarily need to be engaged with these sites – simply, they don’t need them,” said Geoff White, chief executive of the Real Estate Institute of Victoria. The head of the NSW Institute, John Cunningham, has directed his own agents to stop using these sites.

“It’s so cheeky. They don’t do anything and they get thousands of dollars.” Simone De Pettri, LocalAgentFinder customer

One of the more vocal opponents of these services is Antony Catalano, chief executive of Fairfax-owned Domain Group – publisher of this site.

“I question in some cases whether these referral sites bring any value to the transaction,” Mr Catalano said.

 

If it’s not free, who pays?

When Simone De Petri, 46, decided to sell her home she had three agents in mind for the job. Unsure of how much each agent charged she went online to research.

She stumbled upon LocalAgentFinder – one of the top sites on Google when you search “agent commissions” – and decided to use the service to find out how much these agents charge.

What she didn’t realise was that this kicked off a series of events that would result in her agent losing a large chunk of his commission to the website.

But she claims her choice of agent, in Melbourne’s Blackburn, wasn’t based on the site’s suggestions at all.

“It’s so cheeky. They don’t do anything and they get thousands of dollars,” she said.

“I chose them myself, I didn’t even know [the agent] was on the site. There were lots on there I’d never heard of.”

 

How these sites work

The first player in what is known as the “vendor lead” business was founded eight years ago under the name SellMyCastle.

After a rebrand, it’s known today as LocalAgentFinder, which chief executive Matt McCann claims is the leader in this space. Now more of these sites are emerging, all promising to take the task of finding a good agent off consumers’ hands.

“Our job is to help consumers find the best agent for their needs,” Mr McCann said.

“What we’re trying to do is ensure that they [sellers] see all the opportunities in their area where a consumer is really looking for comparative information about what’s available.”

LocalAgentFinder has more than 5000 agents registered on its site and within minutes of putting in your details, you are given a list of possible real estate agents.

A test of a Sydney address generated a list of 15 agents – one of whom operated 20 kilometres away.

Despite marketing themselves as a free and independent service, the agent profiles on LocalAgentFinder are made up of information given by agents themselves, and the site does not provide any assurance about their accuracy.

 

How are the agents chosen?

“Call requests” – opportunities for agents to get on the phone with a potential seller – are not provided based on an agent’s sales performance but rather, their “history of replying to opportunities, and listing properties with registered LocalAgentFinder homeowners”.

The more an agent uses the site, the more business it will deliver them.

The terms and conditions encourage consumers “to exercise a high standard of care and independently verify” the details they are provided with.

The co-founder of competitor OpenAgent, Marta Higuera, was more careful around her wording, stating its goal was finding consumers the “right” agent, not the “best” agent.

Ms Higuera said it had 4000 active agents on its site, and, as sellers have different needs, it calls to pre-qualify them and find out what they are looking for in an agent. The firm also speaks to the individual agents to ensure a suitable match.

For both models, the agent typically has to agree to pay a referral fee to be paired with a home seller.

LocalAgentFinder charges 0.375 percent of the sale price plus GST. OpenAgent takes 20 percent of the agent’s commission.

If the “right” agent isn’t willing to pay, sellers would be paired with a different agent by default.

Ms Higuera said this was the case unless someone asked for an agent with the most sales, or another specific measurable criterion, in which case they would provide the name of the agent even if they weren’t listed with them.

Both sites claim they have many of Australia’s top real estate agents listed.

 

How much do agent comparison sites charge?

agent comparison

How the industry has reacted

Earlier in 2016, REINSW chief executive Tim McKibbin wrote a submission to the Australian Consumer Law review calling for new legislation to cover these websites.

As these sites predominantly only give leads to agents willing to pay, “the consumer doesn’t receive a service whatsoever”, Mr McKibbin said.

Six months ago, Cunninghams director and REINSW president John Cunningham told agents in his office to stop taking these referrals.

He believes these sites don’t add value and was concerned about being charged for contacts he already had.

Top Melbourne agent and multiple award-winner, Buxton Bentleigh director Chris Hassall, recently made a “commercial decision” not to use any referral sites due to poor experiences with some providers.

An agent who uses LocalAgentFinder, Harcourts JP Elite Group director Jay Peters, said he struggles to get business through the site.

He said the type of vendor who used them were usually shopping for agents with low commissions and cut-price marketing packages – both of which could be “devastating to the vendor’s potential selling price”.

“If you pay peanuts you get monkeys,” he said.

Other agents have embraced the site, happy to pay a fee for new business.

First National Real Estate Hall & Partners director Leigh Hall receives a lead every day from referral sites and preferred this method to door knocking or using other traditional means to find sellers.

“I like it. I get a lot of leads from LocalAgentFinder – I’m very happy with them,” he said.

Ms Higuera said this was the strength of these types of services – “empowering great agents to provide great service” – allowing them to focus on the sales process rather than searching for new business through time-consuming and more traditional approaches.

“We only charge agents when we actually deliver business,” she said.

 

Legal stoushes over commissions

Increasingly agents are being slapped with fees for sellers being referred to them when they believe those sellers would have chosen them regardless of the sites’ referral.

In September, Ash Marton Realty principal Ash Marton was taken to Victorian Civil and Administrative Tribunal by LocalAgentFinder for refusing to pay referral fees.

Mr Marton claims one of the vendors the website was insisting he pay a referral fee for, was, in fact, his hairdresser of a decade.

But because the terms and conditions state that an agent will be charged unless they appraised the property within the last 60 days, he was chased for payment.

Mr McCann said LocalAgentFinder was currently reviewing its policies.

OpenAgent’s policy, on the other hand, was to “simply get out of the way” if there was a prior relationship, Ms Higuera said.

 

What does the future hold?

Despite the concerns raised by the industry, NSW Fair Trading detected no breaches of the Property, Stock and Business Agents Act 2002 or Australian Consumer Law when assessing OpenAgent.

 

Its inquiry into LocalAgentFinder is continuing.

Currently, Mr McCann said agent comparison sites were involved in 7 percent of sales. Their aim is to provide referrals for one in five home sales in Australia by 2021.

“You can either accept that consumers are driving this shift in behaviour and participate in it … or you can sit on the outside of it,” he said.

Mr Catalano said if these sites continued to grow consumers would inevitably bear the costs.

“If you take 20 percent out of the commission structure there is no outcome where consumers aren’t worse off,” he said.

“They either lose 20 percent of the service or pay 20 percent more.”

Endnote

Now that you know how these agent referral work. For more details regarding agents or even how you can rate your real estate agent, you can always contact your local Property Advisor.