Groupon-like deals can work for real estate, but not as a typical $10 for $20 worth of product purchase. Real estate can’t be sold as a 30% off purchase price item (although they certainly tried variations of this at California real estate investment clubs in 2005). Real estate marketing has generally relied on variations of online lead generation, like providing real estate listings, in order to capture contact information. A real estate Groupon would essentially have the same mission of driving the active client out of the woodwork by providing a saving incentive.
Real estate marketing and the need to draw active clients out of the woodwork
The real estate industry is a peculiar local business for couponing because real estate transactions are solitary, even once in a lifetime events, compared to every day activities like eating out. In a nutshell, real estate marketing has been based on community networking and leveraging referrals to build Realtor brand recognition. The big hurdle is building community visibility to achieve that branding. Marketing then became a shotgun numbers game that spawned the traditional pushy techniques that make consumers cringe. To avoid this spam stream, active home buyers and sellers now try to control who can contact them, and it makes them harder to find.
What will a Groupon for real estate look like?
One major coupon difference is that a consumer can’t assess the market value of a real estate service like a restaurant coupon. Couponing real estate services will likely require either pre-transaction interaction (“feel free to call me to discuss the details before you purchase the coupon”), and/or lead qualification processing.
I see two consumer models for real estate coupon services: 1) Nominal consumer payment upfront for redemption rights of a discounted service, and 2) No consumer payment upfront, but registered leads are qualified by the Realtor, chosen and purchased from the coupon provider. We’re using some examples below from Housetipper.com, one of the first coupon services for real estate.
1) Payment for discounted services model
At first blush, the $25 purchase fee in this ad acts like an option that locks the 4% commission offer for a specified window, say one year. However, no consumer would purchase this kind of offer without due diligence of both the Realty and their standard pricing policy (maybe they always charge 4% commission rate). The deal terms will add language to solicit the potential buyer to “contact” them with details, or to join an on-site discussion thread.
This offer works because it accomplishes two things a Realtor wants: 1) pulls a potential client into a conversation, and 2) qualified client commitment when they actually pay $25.
The business concept works because the Realtor receives leads with no out of pocket fees, and the deals provider receives the full fee revenue from the consumer. However, the business model will be inherently limited due to the small number of coupons that can be sold in a locality (more on this later).
2) Free but transparent lead generation model
The coupon purchase price may dissuade many potential clients from inquiry if they have to actually pay. One way to bring more leads to the table would be to create a free offer, say, a free home inspection if a client signs a listing agreement (note the fine print can cover the Realtor’s out of pocket risk by stipulating that the rebate for home inspection be paid at closing). More potential clients will sign up for the deal without financial commitment.
The transparent lead generation system is a new concept in delivering leads. Once a lead registers, their name, email address and phone #, and if applicable, their social media profiles like Linkedin are presented to the Realtor. The Realtor can choose to either green light or red light the lead, and will pay a specified green light fee, like $25, to activate contact.
The traditional intermediary based lead generation systems that harvest email addresses from website inquiries and sold blind in bulk, are generally stale and poor quality; a 3% hit rate is doing well. Transparent lead generation systems reveal potential clients to due diligence and assure qualification, even to the point of Realtor contact with the lead before green lighting. Coupon providers can work on an honor system because any Realtor who would try to side deal with a client to avoid paying a fee would make an immediate unethical impression.
Final hurdle – distribution and scale
The biggest hurdle with real estate couponing is building an effective subscriber base for deals.
1) In today’s economy, the number of people in the market for real estate is small
2) Subscribers only subscribe when they are in the market, a very short window. And how will they find the real estate coupon, when limited deal revenue won’t support supplemental marketing campaigns?
3) Real estate is inherently local, the coupon provider can’t market locally in every city (unless they are Groupon) so the marketing effort will fall on the Realtor and local media. This is a lot of resource coordination, and Realtor “sharing” the deal through Facebook won’t likely tip a deal into significant numbers.
Solution to Scale
Coupon providers will need to augment their distribution through affiliate relationships. For example, deal syndication networks can be developed with real estate listings sites like Trulia or Zillow, brokerages, and hyperlocal networks like Patch and the Breaking News Network that can distribute deals locally. Scaling will require a coupon provider to collect in aggregate enough small fees (much smaller than traditional Groupon yields) to cover centralized operating expenses. Building national client offerings from housing related retailers like Home Depot will also support scale.
Based on my work with the real estate industry, I see enthusiastic demand for real estate Groupons from Realtors, as well as mortgage brokers, insurance and other real estate related services. And why not? Realtors will try any free or cheap marketing opportunities that enhance their lead quality.