LendingTree: The Tip of the Iceberg

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.