Is HouseValues really gaining traction or are they just churning agents?

I don’t know how many of you on this site have dealt with HouseValues as one of their subscribers but I saw some recent postings on the RE/MAX International message board (RE/MAX agents only) where they were getting hammered by agents for what they saw as predatory practices, lies, and now combative collections processes. Having written them off some time ago I am curious what others in the industry think of them and their business plan. I get their concept but I think their execution is heavily flawed – particularly when they hire lots of folks without training them on what life as an agent is like – particularly as it applies to how an agent is compensated.

[photopress:684401_buy_a_house.jpg,full,alignright]I’ll give you an example of a pitch I was given a couple of years ago, I’ll paraphrase it for brevity:

(salesperson) We don’t have the territory that you’re interested in available at this time but the whole Eastside has recently opened up.

(me) Oh, really, how many areas?

(salesperson) There are about 9 areas that one person had but he’s dropped all of them as of a few days ago.

(me) Hmm. That’s interesting. Do you know why he dropped them all? Oh, and how much were you charging him per zip code?

(salesperson) [she gives me the numbers but I’ll tell you they added up to over $5000 per month] I don’t know WHY he dropped them all because he made around $100,000 in commissions on these territories in the past year. However, he was using about 15 credit cards to pay for them all.

(me) Do you know what firm he was with and how long he’d been an agent?

(salesperson) Yes. [she tells me the firm] He was a new agent, maybe one or two years in the business.

(me) Ok. I can probably tell you why he dropped them all. He’s likely gone bankrupt.

(salesperson laughs)

(me) No. It’s not funny – if the guy owns a house he’s probably being foreclosed on now.

(salesperson is now very quiet and listening intently)

(me) The firm this guy works for likely has him on a split commission schedule. For our purposes let’s say he’s on the high side of a new agent split and he’s got a 60/40 going on. You say he’s made $100k on his leads from HV so if he is giving $40k to his broker and he’s only got $60k and he’s got to pay your firm for roughly $60k in lead generation he’s not got $0. And we haven’t even accounted for his quarterly taxes that need paying, his other out of pocket expenses or the cost of interest on those credit cards he’s using to pay for all of this. That poor SOB has probably lost everything or is about to.

(salesperson) Wow. I didn’t realize that’s how agent pay works.

(me) Well, it’s not the same in all cases but it’s common with new agents. Your firm should be training you on the various models so you guys (meaning salespeople) understand what you’re dealing with when you talk to agents and so you can have an intelligent conversation with them about what the long term contracts mean to them. I also HIGHLY recommend you never tell that story again – this poor guy is not a success story for using your program.

This was a REAL CALL I had with a HV salesperson in summer of 2003 before they went public. I had an investment firm contact me several times asking me what it was like to work with HV (I did use the service briefly and dropped it after realizing it was still too early to adopt the program because of kinks in it and the service/leads wasn’t great for what you pay), I told them what I thought about the service and I told them this story. I don’t believe in complaining for the sake of complaining. When me and the VC guy talked I gave him feedback that was clear and had good business basics behind it and how I related that to HV’s model. Basically, I told him that they’ll just churn through agents as long as there are lots of newbies in the industry that aren’t told to steer clear of them and there are plenty of those. With over 1,000,000 REALTORS(R) alone you’ve got a big pool to go after.

[photopress:leach.jpg,thumb,alignleft]Most stockholders (meaning the public) don’t know much about the inner workings of real estate compensation either so they’ll think there’s plenty of blood to suck so they’ll buy into it regardless of market highs or lows. Heck, they’ll likely get sold on the idea of HV because they’ll think that in a hot market we’ll need leads to compete and in a slow market we’ll need leads to survive. Whatever. While a few have done okay with the HV program (and good for them!) overall I consider it a less than adequate lead provider to agents on whom whose back they ride on and depend since the service is free to the public who uses it.