Buying leads can give you a potential boost in certain markets, but is this a sustainable and profitable strategy?
By Michelle Huffman
With the decline in activity in some markets, agents are looking for new leads wherever they can find them.
“In our market, the number of closed transactions has decreased dramatically,” says Paul Rich, CRS, broker/owner of Achieve Real Estate and Management in Hendersen, Nevada. “That means more agents are finding themselves with a slowdown in their business, and those that may not currently buy leads may start considering it.”
But many agents caution that these vendors offer poor-quality leads, low conversation rates and limited return on investment. When should agents engage these services, how can they find success and what could they be doing instead?
Situations where buying leads might make sense
When you’re new to the industry. “I can justify buying leads to get a kick start for agents who have no sphere of influence,” says Thomas Johnson, CRS, owner of MyCoachTomJ, and managing broker of Unrealty Florida, LLC.
That was the situation Audrey Moore, broker/owner of TLC Real Estate in Alexander City, Alabama, faced when she started out. “Buying leads helped prime the pump for me,” she says. Now she sees it as good training for agents underneath her.
When you’re new to an area. Lucette Wallach, principal broker with eXp Realty in Brookings, Oregon, purchased leads when she moved from California to Oregon. “It’s great for getting your phone ringing,” she says.
When you’re willing to work less popular areas. When Moore purchased leads recently, the ZIP codes she wanted were all sold out, so she bought in outlying areas. While this meant more driving and working a lower-priced market, the investment did pay off, she says.
How to work these leads effectively
Spend enough to be a top agent. Part of the reason these leads are so expensive is that you must spend enough to not just appear on listing sites, but to be one of the top few agents on the page to get higher quality leads, Moore says.
Put them into your CRM. Ensure your leads are nurtured through a communication plan like marketing emails. This repeat exposure can pay off: Johnson recently met one of his cold leads, who showed up at an open house after receiving his emails for months.
Meet in person quickly. “If at all possible, I want to get face-to-face so we can have a conversation and start building a relationship,” Moore says. She finds this establishes trust faster than pre-qualification and gives her an opportunity to see more listings.
Finally, Johnson recommends setting up a plan to wean off paid leads and replace them with an active SOI and referral network.
What kind of ROI you can expect
Conversion rates are generally low. Rich says he averaged a 1%–3% conversion rate, typical of these programs.
“With certain systems, such as a dedicated inside sales agent, you may be able to double that conversion rate, but at a great expense,” he says.
Commission earned may not overtake dollars spent. When Wallach launched her business in Oregon, she spent almost $10,000 as a premier agent for a listing site, but she only made $3,600 in commission on those leads.
Johnson was spending $20,000 a month on paid leads, but when he started analyzing his ROI, “I was barely breaking even,” he says. “They were not the source of where my actual business was coming from.”
Cold leads take more work to win over. Prospects that come to you completely cold often require extra effort to build trust throughout the entire process.
“It may be more valuable to double down on your SOI and past clients rather than chase the ‘shiny object’ of paid leads,” Rich adds.
Other options instead of buying leads
Agent Lead Generation Strategies
REALTORS®’ top lead-generating tech tools
Social media — 46%
Local MLS — 30%
CRM — 26%
Digital ad campaign — 23%
Email marketing tool — 19%
Personal blog or business website – 17%
Listing aggregator site – 16%
What REALTORS® spend on lead generation in a year
Less than $50 — 24%
$50–$250 — 25%
$251–$500 — 15%
More than $500 — 18%
Not applicable — 17%
Source: 2022 NAR Technology Survey
Farm by mail. Wallach uses a free National Association of REALTORS® membership tool, Realtor Property Resource, to generate geo-farming lists to send a mailer every four to six weeks using her bulk mailing permit. She says for every 1,000 she mails, she gets one good lead. For $425 in costs, she makes $8,000 in commission.
Be a part of the community. Moore recommends engaging in the community, whether it’s joining a service organization, club or chamber of commerce. Wallach even generates leads by doing paperwork at a coffee shop with a stack of business cards in front of her.
Become the expert on social media. “We live in a world of creating impressions online,” Johnson says. “If you’re looking like you’re the only REALTOR® in town then people are going to think you are.”
Rich and Moore say that becoming the go-to expert in your community on social media is important. Promoting business owners and community leaders in videos and photos goes a long way.
Work your sphere systematically. “Learning how to work your sphere correctly will get you the best return,” Johnson says. He sees a 10% annual return doing this.
In his database, he keeps an A group of 50 people that actively refer business, a B group that keeps him top of mind and a C group that will either move up or off his list. The A group is where he spends most of his time building relationships.
Rich recommends making personal contact with your SOI four to six times a year. Break down the total touchpoints over time to determine how many you need to connect with each day and stick to it.
Moore recommends simply following up with past clients. “Don’t take a cold lead to a hot lead to getting them through the transaction and then let them go back to a cold lead.”
Regardless of how you generate leads, there is always cost involved, so paying attention to the ROI of that financial decision is essential.
“When it comes to the decision to buy leads versus generating organic leads, it’s important to remember that either lead type involves an investment of some kind,” Rich says. “We will either be investing our time, our money or a combination of both.”
Knolly Williams took more than 1,000 listings during his first 10 years in the business. Check out How to Get More Listings in the Market of the Moment at CRS.com/webinars to learn how to duplicate his success.
Photo: iStock.com/RuslanDashinsky/Avector/Kubkoo
