HouseValues flawed business model results in massive layoffs.

The SeattlePI reported today that HouseValues lost $1.5 million last quarter and in addition is laying off 60 employees as well as key executives leaving for other ventures.

For those who haven’t followed HouseValues.  HouseValues sells leads back to agents by harvesting them through the search engines and Television and Radio advertising.  That being said their margins have erroded significantly over the last two years and agents have not been renewing their contracts for leads. 

In my opinion (It’s a blog so its all my opinion) Housevalues has not had a defensible business model from day one.  Other then a few domain names which provide some branding the consumer experience is horrible and inconsistent which ultimately kills the ability for the company to create the necessary viral buzz to expand without continually doing Pay-per-click, Television, and other offline media to try and drive consumers to their website.

Because the company is simply a lead generation company without the ability to enforce a service paradigm the company is without the big stick necessary to develop a Wow experience by the consumer.  Also because consumers are even more wary of allowing others to know what their true real estate investment intentions are, the data that the agent gets is discouraging.

I also believe that consumers when they find out that their information has been essentially sold to a third party that they had no former relationship with and without choice as to who ultimately follows up with them the consumer ultimately pulls out of the equation and will also tell other consumers of the challenges of working with such a flawed business design.

Housevalues is parasitic by design.  It’s an unnecessary middle man taking a significant piece of the real estate commission in the form of leads being sold to agents.

Without knowing exactly what percentage of leads that convert into closed transactions, using the industry average of about 2%, that means that the average agent will need to contact 50 HouseValues leads in order to close one transaction.  Assuming $50/lead the cost per closed transaction would be $2500.  If the average transaction side is say $300,000 or $9000 Gross commission at 3% (less at 2.5%) the agent is paying in excess of a 25% referral in advance.  The economics just don’t make sense.

The economics of lead generation is break even at best.  Given PPC (Pay-per-click) and the fact that HouseValues is competing head to head against actual agents on the ground in the same venue (sponsored advertising) on probably similar economic terms, the fact is that HouseValues is going to get squeezed.  The only markets where they won’t get totally squeezed is in smaller specialty markets which are as far as the web is concerned lead generation is less efficient (meaning that many agents create a more efficient market then only a few agents).

I like many agents have learned the hard way the difficulty of converting HouseValues leads.  It’s much easier to work with a client who has visited our website and requests information or sets up a search there then it is when the client comes via a third party.  As much as the third party might think the leads are good, they really aren’t, at least not compared to leads we generate on our own websites.

1 Comment

  1. Brian Brady
    Jan 26, 2007

    Good riddance. They’ve been preying on the industry for the past 6-7 years.

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