Real estate agents and brokers who are eager to use popular "group buy" platforms like Groupon to land new clients are finding that some of the bigger names in the business aren’t nearly as enthusiastic about working with them.
After approving the first "real estate Groupon" in April — an offer by Chicago-based Dream Town Realty of $1,000 cash back at closing that was snatched up by more than 200 buyers — Groupon put the brakes on plans by a Manhattan-based brokerage to offer a similar deal in May, and has yet to green-light another.
Groupon would say little on the record about the prospect for future real estate-related group buys, except that the company wants to make sure they benefit both consumers and the parties making the offer.
Agents and brokers who have tried to work with Groupon say they’ve been given the cold shoulder, and that they’ve also been turned away by the second-biggest name in the business, Living Social. A spokeswoman for Living Social declined to comment.
Even real estate broker and ActiveRain Corp. co-founder Jon Washburn — who has started his own franchise-based group buy service, DailyTicket.com — says he’s turned down "a fair amount" of business from brokerages that were interested in making offers through the site.
Meanwhile, there’s HouseTipper.com, a new service that’s focused on handling group buy offers from real estate agents, mortgage brokers, homebuilders, and others providing services to homebuyers and homeowners.
But HouseTipper’s founders say that while they have plenty of agents, brokers and other companies seeking to make offers through the site, they haven’t yet built up the massive subscriber database needed to blast offers to consumers on the scale that Groupon and other big competitors do.
Agents and brokers who want to make offers to consumers through HouseTipper.com are being asked to help by doing their own promotion. Like Groupon, HouseTipper also expects them to do their own homework in order to ensure they are complying with federal, state and local laws governing not only real estate licensees and transactions, but marketing and advertising.
Although Google and Facebook are both getting into the group buy business — the search engine giant is launching Google Offers, and the social network has Facebook Deals — neither company responded to inquiries about whether they plan to handle offers from real estate professionals.
The bottom line is that while there’s no shortage of companies offering to be the middleman in group buy offers — Groupon estimated in December that the company had 500 competitors — no clear leader has yet emerged offering a turnkey solution for real estate agents and brokers nationwide.
And while HouseTipper’s founders are optimistic that their business will take off, others wonder how good a fit the group buy model is with the commission-based services provided by real estate agents and brokers.
"Maybe it’s my experience of being an agent on the street, but something about it doesn’t ring genuine to me," said Washburn, who before starting DailyTicket founded two real estate brokerage firms, WhyNotOwn and BrioRealty.
Group buy offers can be a good deal for consumers when retailers have extra inventory to unload, Washburn said, or when businesses like restaurants are willing to provide services at a deep discount or even at a loss on a one-time basis in order to attract new customers.
But in real estate, the cost of services is always negotiable, he noted, and capacity is not limited in the same way as most other local businesses.
"With the group buy stuff, there is always the potential for some businesses to inflate prices, and then go down from there," Washburn said.
"However, if agents and brokers can convince the group buying sites to run their offers, they are not going to lose. I think many agents would be happy with the massive free exposure and the potential influx of buyers for a slightly reduced commission."
Washburn said that DailyTicket.com will continue to look at proposals by brokerages on a case-by-case basis, but that deals put together by the company’s franchisees will have to be approved at the corporate headquarters level.
Group buy services like Groupon have been a boon for local businesses — particularly retailers, restaurants, and providers of consumer services — because it costs them nothing up front to put an offer in front of consumers.
Although they may rack up expenses honoring a group buy offer, they also beat traditional coupon-based advertising because they allow merchants to set the minimum and maximum number of offers they wish to fulfill.
A clothing retailer that wanted to boost foot traffic by offering 100 sweaters usually priced at $50 for 20 percent off, for example, would offer consumers a $40 voucher, and might split half of the $4,000 in proceeds with Groupon or another company facilitating the deal.
Group buys can have minimum "tipping points," allowing businesses to treat an offer as not just a promotional tool but as a quantity discount.
Real estate agents and brokers also want to boost their visibility with consumers, and some brokerages employ business models that rely on serving a greater number of clients at lower profit margins.
But the real estate business differs from the retail, restaurant and consumer services trades in several important ways that can complicate the process of making group offers.
For one, real estate is a big ticket item, and home prices and brokerage commissions are, by definition, already negotiable. Instead of offering a $20 dinner for two at half price, real estate agents may offer rebates or discounts of $1,000 or more. And the stakes are much higher if something goes wrong with a real estate deal.
Also, while consumers may always be on the lookout for a bargain lunch or a new pair of shoes, they typically buy or sell a home only once every few years — if ever. That makes it harder for companies facilitating group buys to put offers in front of consumers who are actually in the market to buy or sell a home.
Lastly, real estate is more heavily regulated than many other segments, meaning group buy offers that aren’t carefully crafted could create legal headaches. While federal regulators are all for commission rebates — on the theory that they lead to greater competition between brokerages — state laws vary.
Legal issues
At last count, 10 states prohibit brokers from offering rebates to buyers, and eight others require sellers "to buy more services … than they may want, with no option to waive the extra items," according to a Justice Department description of those states’ real estate laws.
Brokers and agents in those states may be able to offer clients credits toward their closing costs, gift cards, or discounts for housing-related services like moving, pest control, or appraisals, but those deals may not be as attractive as the cold, hard cash offered by Dream Town.
Noah Freedman, principal broker for Manhattan-based brokerage Bond New York, said he was never given a clear explanation why the group buy offer his firm had in development was nixed by Groupon.
"They didn’t give me a clear reason except to say it was pulled by legal," Freedman said.
Bond New York had planned to offer a $25 Groupon good for $1,000 toward closing costs on the purchase or sale of a home.
New York licensing regulators have allowed cash commission rebates for years, and while the state has also laid down guidelines governing advertising, there’s no reason a group buy offer couldn’t be written to comply, said Anthony Gatto, legal counsel for the New York State Association of Realtors.
"My counsel concurs there is no inherent problem with the promotion," Freedman said.
A spokeswoman for Groupon declined to discuss the specific issues the company had with Bond New York’s proposed group buy.
"We didn’t feel it was the best possible deal for our customers, and the merchant, and decided it wasn’t a fit for us at this time," said Groupon spokeswoman Julie Mossler.
"We didn’t pull the deal," Mossler said. "We were still in negotiations and shaping the deal when they decided on their run date."
Some agents and brokers who want to work with Groupon said they’ve been unable to get the company to respond to their queries. Others said they’ve been told that Groupon isn’t doing real estate deals.
Asked why Groupon hasn’t approved any group buy offers since Dream Town sold 219 group buy offers in April, Mossler said "real estate deals are definitely on our radar."
"Because it’s a new deal category for us, we have to be sure we nail it," she said. "If there’s a lot of interest on the merchant side, it’s up to us to find a way" to make sure group buy offers by real estate brokerages are "a fantastic deal that benefits both sides" in the transaction.
It’s not just real estate agents and brokers who have had difficulty getting Groupon to sign off on their offers. In December, Groupon CEO Andre Mason told the Wall Street Journal that the company has so many requests from businesses, it was turning down seven out of eight merchants who contacted the company.
Mossler suggested that anyone who wants to work with Groupon start out at the website the company has created to help businesses understand the group buying process, GrouponWorks.com.
While Groupon will presumably use universal standards in deciding what constitutes a "fantastic deal that benefits both sides," laws governing real estate licensees and transactions can vary significantly from state to state.
"What may be legal in one place may not be legal in another," said Steve Bochenek, chief legal counsel for the Illinois Association of Realtors.
Although Illinois allows brokerages to provide cash rebates to clients or provide discounts, prizes, merchandise or services, it’s one of several states that limits who can collect fees from consumers in real estate transactions.
In Illinois, only brokerages can provide certain "licensed activities," including "procuring or referring of leads or prospects, intended to result in the sale, exchange, lease, or rental of real estate."
In general, Bochenek said, referral fees are not likely to be an issue if it’s left up to those purchasing group buy offers to decide whether or not to contact the brokerage making the offer.
But if the names of those purchasing a group buy offer are furnished to the brokerage by Groupon or another unlicensed company, that would probably be viewed as payment of a referral fee to an unlicensed party, Bochenek said.
Both state and federal laws governing marketing and advertising also apply, he said, advising that brokerages making group buy offers craft their language carefully so that they are "accurate and truthful."
Groupon employs in-house ad copywriters who are known for their catchy, often whimsical prose.
Dream Town’s Groupon, for example, asserted that "People buy houses when they’re ready to settle down and tired of impermanent living arrangements, such as living with parents in log cabins made of butter."
The Dream Town Groupon promised to help buyers "quickly zero in on dwellings that are in their price range and have built-in cheetah cages," and said the brokerage’s agents could be reached "24/7 in case clients have urgent questions about Babe Ruth’s batting average or the pronunciation of the word ‘pusillanimous.’ "
The Groupon ad also included other details — displayed prominently in a paragraph labeled, "The Fine Print" — that were obviously intended to be taken more seriously, including the fact that past and current clients were not eligible, and that the minimum transaction was $150,000.
To claim their "$1,000 cash gift," buyers were required to close by April 9, 2012, and sellers had to list with Dream Town by that date.
"Not intended to solicit listings currently under contract with other real estate professionals," Dream Town concluded in a disclaimer.
Dream Town’s president and co-founder, Yuval Degani, did not respond to repeated requests for comment about whether the firm’s Groupon went smoothly, or whether any issues have arised since the offer closed on April 17.
At the time the offer was launched, Degani told Inman News that being in Chicago — also Groupon’s headquarters — helped him because he was able to meet face to face with company officials to develop the first "real estate Groupon."
Although Illinois licensing regulators haven’t flagged Dream Town’s group buy, they haven’t staked out a position on the practice, either.
"We’ve not had any complaints or questions yet about Groupon and rebates (by) brokerages," said Sue Hofer, a spokeswoman for the Illinois Department of Financial and Professional Regulation, which oversees real estate licensing laws.
"Until and unless we do get a question about it, we haven’t taken a position and probably won’t until we see the actual offer and see how it’s handled," she said.
Illinois’ economy is heavily dependent on manufacturing, agriculture and financial services, and Groupon has become something of a poster child in the state’s efforts attract companies in emerging industries of the future, like information technology, clean energy, and biotech. An "Innovation Council" formed by Gov. Pat Quinn is chaired by Groupon co-founder Brad Keywell.
The American Society of Plastic Surgeons (ASPS) has looked into whether group buy offers by its members would violate federal or state laws that prohibit fee splitting, kickbacks and referral fees between doctors.
Although real estate professionals and doctors are governed by different regulations, Groupon’s response to an inquiry from ASPS illustrates the legal complexities involved as the company branches out from its core clientele of restaurants and retailers.
According to attorney Mike Reed and Amy Wandel, the chairwoman of the ASPS ethics committee, Groupon advised the ASPS through its legal counsel that "there may be an argument that the amount paid to Groupon is an advertising fee for promoting the service provider rather than a referral fee or fee-splitting arrangement." But Groupon "has pointed to no authority supporting that position."
"It is important to stress that Groupon is taking a ‘buyer beware’ position and assumes no responsibility for determining whether the program raises legal implications for the service providers," Reed and Wandel noted in an article they co-authored for Plastic Surgery News.
HouseTipper.com
That’s the approach taken by HouseTipper.com, the brainchild of Baton Rouge, La.-based real estate agent Tigue Bonneval, and his cousin, David, who said he did not want his last name used because he works in financial sales.
"We tell the agent or broker to check with their local real estate board or commission" to ensure the deal they are going to run complies with all applicable laws, Bonneval said. "We have a merchant agreement we make them sign that says we are an advertising platform."
Louisiana law prohibits real estate brokers from paying rebates to homebuyers, so firms could offer a gift card to a home improvement store, or discounts on services like pet inspections or house cleaning at a discount, Bonneval said.
Those kinds of offers will bring homeowners and prospective homeowners to the site, Bonneval hopes, helping it build up the kind of subscriber base that makes Groupon and other big names in the business so attractive to merchants.
"We feel like we’re the pioneers with the first and only real estate and home and garden group buying platform," Bonneval said. By limiting the focus to real estate and goods and services provided to homeowners, he said, "You’re not going to see (an offer from a real estate agent) one week, and a Brazilian Blowout or cheeseburger the next."
Because the site is so new, "We don’t have the database (needed to) blast out the emails in certain markets right now — that will come with time," Bonneval said.
Despite that drawback, there’s considerable interest in HouseTipper.com among agents and brokers, he said.
"They’re coming to us because they’re getting no response from those sites," Bonneval said of Groupon and Living Social. "I think they’re doing well enough with the restaurants and other stuff that they may not want to fool with (real estate)."
Paul Gorney, a Chicago-based real estate agent who used HouseTipper to offer buyers and sellers a $50 voucher good for $2,500 at closing, deemed the outcome a success. Although Gorney was prepared to honor up to 25 vouchers, he sold only seven.
Gorney said he’s already spoken to most of those who purchased vouchers, and most of them expect to act on it in the next two to six months.
"I’ve never discounted, ever, in over 20 years — that’s not my angle," he said of the experiment. "This won’t be something that I do every month."
Gorney said his business is largely referral-based, and his roster of past clients includes professional athletes.
"I gave the biggest discount I possible could while still serving the clients," Gorney said. "Each client I take on I see as a relationship … that will generate referrals for years to come."
Greenwood Village, Colo.-based agent Vickie Hall said there were no takers on her first HouseTipper.com offer — a $22 voucher good for a home inspection and home warranty, together valued at more than $700.
Hall said it was "not particularly surprising" that she sold no vouchers, since HouseTipper has a small subscriber database in her market and the company made it clear she’d have to help promote the deal.
Inspired by another agent’s HouseTipper voucher offering $1,000 worth of housecleaning, Hall said she was planning another group buy offer and would promote it on a hyperlocal news site.
"I like that idea a lot — it seems like a prize," Hall said.
Bonneval said the HouseTipper subscriber database is strongest in New Orleans and Baton Rouge, and will pick up users in those and other markets as the site attracts more offers from businesses providing services to homeowners, citing a recent offer by a Baton Rouge termite inspector, Advantage Pest Services LLC, as an example.
"We know where we want HouseTipper to go, and once we get there we will be the premier site for agents, mortgage brokers and developers," Bonneval said. "Then nobody is going to need Living Social for that."
Bonneval and David said an infusion of venture capital wouldn’t hurt, either. Although they are concentrating on smaller, high-volume deals at the moment, both have lots of ideas for using the site to promote bigger ticket deals, including redevelopment and bulk real estate sales.
A developer who wanted to act as a general partner to renovate a vacant building in a prime location could use HouseTipper to market the project to potential investors, for example — as there are plenty of developers with stagnant inventory who are seeking to unload condos from their balance sheets and move on to new projects.
