Clients often ask, “Is HomeLight legitimate? How does HomeLight Make Money?” These are fair questions, and they deserve honest answers.
HomeLight, Inc. (homelight.com) is a company that connects real estate agents with buyers and sellers of real estate. There are many companies that do the same thing. HomeLight was founded by Drew Uher (Texas AM/Stanford MBA) and the company has all the makings of a typical San Francisco startup. They advertise heavily and use innovative sales strategies. HomeLight is pulling in a lot of funding too.
HomeLight is really good at getting buyers and sellers to use their services. In fact, earlier this year a neighbor of mine called HomeLight to find an agent. Fortunately, they ended up using my group to sell their home, but we had to pay HomeLight a 25% referral fee, about six thousand dollars. You read that right, six thousand dollars for connecting my neighbor with myself. We’ll get more into that later.
I decided to write this article because there are so many fluffy reviews of HomeLight on the web. But, few of those evaluations have come from real estate agents. Many of the agents who have used HomeLight have more contentious things to say.
Is HomeLight Legitimate? How Does it Work?
HomeLight is a legitimate business. In my opinion, they are better than many other review sites, and way better than places that offer to pay you fast cash for your home. Unless you are desperate for money, and I mean REALLY desperate, never call a number on a billboard to sell your home.
Regardless, HomeLight is a connector. I often talk about connectors on pyvt because the concept of linking buyers and sellers to agents can be very lucrative.
In a nutshell, here is how the real estate deals I have been involved with on HomeLight have proceeded:
- A buyer or seller learns of HomeLight through an advertisement (Television, Online, etc.)
- The consumer contacts HomeLight
- HomeLight recommends a list of real estate agents to the consumer
- The consumer contacts said agents and interviews them
- The consumer picks an agent to work with
- A typical real estate transaction, which involves many steps, takes place (Note, HomeLight only takes a referral fee if a transaction takes place within 2 years of their referral)
- The real estate firm gets paid
- HomeLight receives a 25% referral fee (25% of the gross commission due to the real estate agent).
- The real estate firm takes their fee
- The real estate agent gets the remainder
The bolded sections above are the ones HomeLight is involved in.
Breaking Down Our Transaction
So, in the above referenced example that occurred earlier this year, our neighbor was looking for a real estate agent. Instead of calling us, he decided to contact HomeLight to find an agent.
Long before our neighbor contacted HomeLight, us real estate agents uploaded our past sales onto their website and provided them other information about our services. HomeLight connected the seller with a number of agents. After interviewing a few agents, the seller chose to work with us.
We ended up selling their home for a little over one million dollars, in less than one week on the market, no less. Our firm’s commission was just over twenty-five thousand dollars, of which HomeLight took 25%. Not too shabby.
Does HomeLight Have Their Own Agents?
Not in my area. Unlike Redfin, HomeLight does not act as a real estate brokerage. That means the agents they refer you to might work at Sotheby’s, Coldwell Banker, REMAX, or your local boutique brokerage. This is important because you should always compare agents from different brokerages, as agents from the same brokerage will often employ the same sales strategies.
How Does HomeLight Make Money?
HomeLight makes money by referring buyers and sellers to agents. YOU (the consumer) are the product and you being used as a commodity. In simple English, you will pay an agent money to buy or sell a home and HomeLight would like to take some of those funds to connect you with a real estate agent.
It is up to you, a person looking to buy or sell real estate, to determine whether being connected with an agent is worth 25% of the total real estate commission due to your agent. In other words, if your agent’s firm was due $10,000, are you ok with HomeLight taking $2,500 of it? Think very carefully about how the obligation of paying a referral fee will impact an agent’s work ethic. Also, to note, with conventional agent-to-agent referrals, I have heard of referral fees as low as 20% and as high as 50%.
On the flip side, landing clients is often a real estate agents’ hardest task on hand. I often say the difference between a good and bad agent has little to do with skill and passion, rather how often their phone rings. Many successful agents care little about actual real estate, but are expert marketers. In fact, many agents spend thousands of dollars a month in advertising (See Below). To hand out leads without upfront costs for agents is one reason why HomeLight is finding so much success within the real estate community.
Is HomeLight Changing How People Buy and Sell Real Estate?
In my opinion, not at all. Collecting a referral fee from a transaction is a very old business practice. Agents have been referring clients to other agents for years. For example, we recently had a client relocating to the Washington D.C. Metro area. We connected them with an agent there. If they end up buying a home, our team would get a referral fee. That’s not new, but it is highly contentious (See Below).
HomeLight does have some new services, such as Simple Sale (See Below), but I have yet to encounter it in use.
Is HomeLight Innovative?
Yes and No. HomeLight is innovative in that they convince many people who are more than capable of finding an agent themselves to use their services to find one.
However, there are many people who struggle to find a reputable agent. I know this is true because I have seen numerous shady deals in real estate, many of them easily avoided if a homeowner were to use a trusted agent.
HomeLight also has shaken up how real estate agents spend their advertising dollars. Remember, HomeLight only gets paid when a transaction takes place, just like many agents. Consequently, Many agents like this system. In the past, to get online leads agents would pay money based on pageviews. This is known as Pay-Per-Impression (PPI) advertising. This means that anytime an agent’s advertisement appeared on a webpage, the agent would pay the advertiser money. Sometimes an agent would only pay if a person clicked on the advertisement. This is known as Pay-Per-Click advertising (PPC). Either way, the agent was spending money with no guarantee of a return.
Although many agents still pay for PPI and PPC advertisements, some agents favor HomeLight because they only make money when the agent does. In other words, some agents prefer paying a company for leads on the backend instead of on the frontend.
HomeLight vs. Traditional Advertising Methods (For Agents)
Ultimately, it really comes down to which method is cheaper. For example, if a PPC campaign lands an agent one lead for every 50 webpage clicks, and each click costs $5, then for every $250 spent, an agent gets a lead. Assuming it takes an average of 10 leads to find a single buyer or seller who ultimately closes on a transaction, then it will cost an agent $2,500 for every home sold. If the average sale price of a home in an agent’s area is $500,000, and an agent’s firm commission is 3% (real estate commissions are always negotiable), then it would be cheaper to run a PPC campaign than to use HomeLight ($500,000*.03*.25) = $3,750. But, if the cost per lead doubled, then HomeLight would be cheaper.
Of course, some lead generation strategies only cost an agent their time. For example, cold calling is free, besides the cost of a phone plan. But, agent’s time is valuable too, and hours of cold calling can seriously damper the morale of any newer agent.
All seasoned real estate agents should carefully consider which lead-generation strategy is best for them.
Do Real Estate Agents Trust HomeLight?
As an agent, I like their service. They provide yet another way for us to get leads. I do have some issues with ways they advertise, but so far they have been very receptive to feedback.
I have yet to hear of an agent calling HomeLight a scam, unlike many of the companies you see on billboards. Additionally, many of the heavy-hitting agent’s in my area use the site; that alone should increase consumer confidence.
What is HomeLight’s Simple Sale?
HomeLight, like many other real estate companies has started a new venture, Simple Sale, where they determine the valuation of a homeowner’s home and then find a buyer to make them a direct offer. You can read more about it on their website.
So many companies have tried similar concepts in the last few years. The general idea is that selling your home is stressful (staging, open houses, etc.), so simply sell it to our company (or our pool of buyers) instead. Whatever offer they make you, I would always recommend talking to an experienced local agent before taking it. Make sure this is not an agent HomeLight recommends from their website too.
So far, HomeLight Simple Sale reviews are hard to come by. I will check back in a year or so to see if they have given more weight to the program.
What is HomeLight’s Cash Close? What is HomeLight’s Trade-In?
HomeLight loves to introduce new services. HomeLight’s Cash Close is pretty well-defined on their website, but the idea is that they will guarantee to buy your home. That sounds like a pretty good deal if you are a seller, especially if you have jumped the gun and already found a home you want to offer on somewhere else.
After all, removing a home sale contingency may make your offer more attractive. However, remember that HomeLight is out there to make money. In simple English, they are not buying your home because they like you. As always, it’s usually better to put your home on the market.
What is HomeLight’s Cash Offer?
The idea here is pretty easy to understand: HomeLight will guarantee your funds, so that you can make an all cash offer. That’s important because in a competitive bidding situation, an all cash offer will generally look far better than one that is contingent upon a mortgage.
This service could be a game changer. I have long believed that mortgages take far too long to receive and add an unnecessary amount of time to a transaction. After all, a mortgage is just a loan. Sometimes buyer simply pay all cash, knowing that the property will qualify for a mortgage that they could apply for later.
What is a HomeLight Elite Agent?
HomeLight has not offered much information in regards to what they will offer in their Elite Agent program. I plan to apply soon, but I’m not sure if I will qualify.
My assumption is that there will be added benefits accessible to Elite Agents in the future, such as the ability to use the above-mentioned Cash Close or Cash Offer.
Is HomeLight’s Estimate feature accurate?
HomeLight now has a home estimate feature on their website which they call Home Value Estimator. Other companies, like Zillow, Redfin and Homes.com have had an estimate feature for a while.
The problem with HomeLight’s estimate is that the form requires you to put in your phone number to receive an estimate. I expect that once I put in my number, I will receive calls from agents. Therefore, I am unwilling to test it out.
Regardless, I have yet to find any reliable data into the accuracy of this new service. If you are thinking of selling, I would ask an agent for their opinion of value or get an appraisal, long before I rely on an online algorithm to determine value. After all, I would always trust an actual person who has been in my home to give me the most accurate estimate of it’s worth.
Are Referral Fees in Buyer’s and Seller’s Best Interest?
25% referral fees are controversial, especially so because many consumers do not even know they exist. In fact, according to The Consumer Federation of America, only 40% of Americans said they were aware that most agents collect these types of referral fees. Many think an agent simply giving them a number of another agent is a courtesy, not a service.
As stressed throughout this article, it is up to you if you feel part of your payment for services should go to a referrer. Think carefully before you ask for a referral from anyone anywhere, either online or in-person.
Other Ways to Find Trusted Real Estate Agents
There are many other ways to find trusted real estate agents. Sites like Zillow and Yelp have reviews of agents from past clients.
One could also ask their friends, neighbors or acquaintances for a recommendation as well. I’ve wrote an article where I compare and contrast some of the common ways of finding a real estate agent. If you have any further questions, please leave them in a comment below.