Analysis: Groupon offers a real estate deal

Groupon is now offering topic specific deals, and unveiled its first real estate deal last Friday with a $25 coupon redeemable for $1,000 cash at transaction closing.

With over 163 sold over four days of a one week deal, Groupon validated the concept that home buyers and sellers will pay a nominal fee of $25 for the option to receive $1,000 cash back. Assuming Groupon keeps the $25 fee, the brokerage wins by receiving 163 potential leads, perhaps for free.

Let’s do a rough calculation. In real estate, brokerages like Dream Town support their agents with branding, marketing, and clerical support in exchange for a fixed desk fee and/or split on their commissions. They also provide leads in exchange for, say, 25% of the final fee due the agent upon closing. The coupon specifies a minimum transaction amount of $150,000. At the minimum, and assuming a 3% commission (the full service 6% commission is often divided between the seller and buyers’ agent) of $4,500, the agent will receive their commission split minus 25% lead fee. If the agent’s commission split is 50%, the agent will receive $2,250 minus $606 lead fee for a final fee of $1,644. At higher transaction values, the lead fee is proportionally higher.

The key contractual term for the brokerage is its ability to charge the full 6% commission for representation in redeeming this coupon. Many brokerages and agents now work for lower percentages, so that this particular $1,000 discount may be no discount at all to the consumer if they can bargain for a lower fee.

The value of this kind of couponing strategy to the brokerage, or an individual real estate agent are:

– Real estate is a highly competitive numbers game. Finding and closing highly qualified clients is a major marketing hurdle (and the reason you receive so many postcards from Realtors), and campaigns that can generate these leads quickly, efficiently and at low cost are no-brainers.

– The brokerage gets first dibs to sell its services to a likely home buyer/seller who has committed $25 to receive a discount. Surveys have shown that consumers will often sign with the first brokerage or agent they talk with.

– The brokerage can recruit producing agents by supplying them with good leads that coupons attract

There’s no downside here to the brokerage or agent who uses a couponing strategy provided they make sure the deal they offer is compliant to the real estate regulations of their state.

Distribution is key, but needs to be discrete

Groupon was able to leverage its massive distribution capabilities to sell real estate coupons in Chicago… once. The problem is Groupon can’t continue offering real estate coupons in rotation on a weekly basis for new brokerages and agents in a city without losing its cachet and creating the impression that every Realtor can offer a discount. With high demand for coupons by real estate professionals, new distribution channels will be created. I suggested several potential channels in my April 1 post Groupon for Real Estate. In my next article, I will focus on the channels.

Related article: Groupon for Real Estate

About Pat Kitano

Patrick Kitano works with brands in developing hyperlocal engagement solutions and is administrator of the Breaking News Network, a national hyperlocal network devoted to community service. He is the author of The Local Network on Street Fight, and is reachable via Twitter @pkitano and email pkitano@gmail.com.