“Real estate leads for referral fees? Like for real estate agents?” I asked my friend, Allie.

“No, for investors,” she insisted. “There are tons of services available now.”

She pulled up a website and showed me.

“They’ll email leads directly to you, for no cost. And then, if you purchase the property, you pay them a finder’s fee.”

In my experience, anything that sounds too good to be true usually is. But I was curious, and I had to find out more about getting real estate leads for referral fees.

So, What Are Real Estate Leads for Referral Fees?

These services aren’t new.

Real estate leads for referral fees have been traditionally targeted toward real estate agents. A company would pass on a lead, and—once the lead closed—they would get a referral fee. The agent would get their commission, but the referral would frequently be a big chunk (30% to 50%).

But recently and increasingly, real estate leads for referral fees have been aimed at investors, too. They are commonly referred to as a finder’s fee. Now, they’re generally a flat fee ranging from a few hundred to a few thousand dollars.

With more investors getting into the market, services providing real estate leads for referral fees seem to be a great deal. Some companies even promise to manage the entire transaction from start to finish and simply take their cut off the top.

As I dug deeper into the services available now, I discovered the following advantages and disadvantages.

Advantages:

• You don’t pay for the referral fee until the deal has closed.
• You can frequently get deals that aren’t on the market.

Disadvantages:

• The deals are few and far between.
• The deals themselves usually aren’t that great.
• The referral could cut into your profit.

Still, I’m always up for a good lead, and so I looked into the business of referrals a little deeper. Here’s what I gathered.

The Benefits of Working With a Referral Company

Many investors, especially newer ones, just don’t want to chase down their own leads. It’s understandable; finding leads can be exceptionally time-consuming.

But whether you’re flipping real estate or looking for long-term rentals, paying a referral company cuts your profit margin. The question is whether it’s worth it for you.

If you find a good referral company that sends great deals, paying a few thousand dollars every time you close may be worth it. But for various reasons, you’re likely not going to find great deals on a referral list.

The Downside of Working With a Referral Company

Companies that pass on referrals to investors are doing so to make a profit as middlemen. Referrals are usually quite expensive, so when companies pass them on, there’s a lot of overhead involved. They have to do the legwork to find those referrals, and each one that closes has to cover the cost of those that don’t.

You may also have to wait a while for a company to pass along a suitable referral. First, they’re working with many investors. You might even find yourself competing with other investors because they’re all getting the same lists—and those listings could be expired. Second, many of these companies are investment companies, too; they may pick up the best deals for themselves.

You have to remember that these companies make money by passing on as many referrals as possible and hoping some stick. But that doesn’t necessarily mean they’re the best referrals out there. And one way or another, you’ll pay for all the legwork they did. You’ll also need to vet the property yourself regardless, which means more time spent trying to get a deal that will close.

And note that not all referral companies are free until close; some will charge you a fee to be on their mailing list.

Get All the Leads You Need with HomeVestors®

Here’s the bottom line about lead referral companies:

• You can get referrals delivered at no cost until they close (sometimes there will be a small access fee).
• But you’re not likely to get many deals—and you could find yourself competing with other investors.
• Finally, even if you do get a deal, you’re probably going to pay a hefty fee that will dig into your profits.

I found that the best referral service of all is HomeVestors®. Once you become an independently owned and operated franchise owner with HomeVestors®, you become a part of its vast network of nationwide investors. More importantly, you get referrals and high-quality leads delivered to you.

If you’re anything like me, you don’t want to knock on doors, attend foreclosure auctions, or chase down leads from other investors. You want those leads to come directly to you instead so you can make a deal.

By joining HomeVestors®, you become part of a nationwide network of highly experienced investors and can utilize the nationally-recognized “We Buy Ugly Houses®” brand to find high-quality leads without the tacked-on fees. You can also participate in 1-on-1 mentoring programs and use highly effective lead-generation tools if you ever feel like mixing up your strategy. And that’s better than any paid-for referrals.

Before you invest in real estate leads for referral fees, request more information about becoming a HomeVestors® franchise owner today. 

Each franchise office is independently owned and operated.