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CompensationMaster Newsletter Article, October 2004 LendingTree has recently introduced a new wrinkle into the
ever-changing world of real estate, one that has the potential to substantially
reduce your profitability.
The company promises consumers that they can "fill out one
simple form and get bankers and realtors competing for your business."
In exchange for referring pre-qualified buyers (or sellers) to
you, LendingTree receives a referral fee of up to 35% of the commission.
LendingTree has already signed up more than 700 real estate
companies, representing 9000 real estate professionals in 3000 offices, and
claims to cover all 50 states.
No one is going to turn away referrals—if you don't take them,
a competitor sure will. But let's look at what LendingTree's cut does to your
margins.
On a $500,000 sale with a 6% commission split equally between
listing and buying brokers, the commission on either side is $15,000.
LendingTree takes $5,250, leaving your company with $9,750. If your agent is on
a high split, say 80%, the agent gets $7,800 while you keep $1,950. So after
LendingTree's cut, you now have $1,050 less to pay your bills.
If you start doing a substantial amount of business with
LendingTree, those numbers add up. On 1000 units, you're looking at a decrease
in operating profit of over a million dollars.
We're seeing brokers deal with this by adding service fees or
monthly fees to try to regain that profit. But these charges are highly
unpopular with agents.
A better solution is to structure your commissions correctly.
CompensationMaster's approach allows agents to go up to a higher split only
after the company has obtained its fair share of the revenue. Ensuring that you
have the money you need to cover expenses and achieve the desired level of
profitability shelters the firm and makes it more stable.
As you know, LendingTree's referral fees are just the tip of the
iceberg. It's only a matter of time before banks find a way to participate in
real estate. If you fix your commission plans now, your company will be more
secure financially and you'll be better prepared to face the increased
competition.
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