Shack Prices announced an upgrade to their website the other day, offering home buyers the opportunity to search through a complete real estate listing using a simple text search box.

I’ve enjoyed the comments that are attached via 43Places, and a couple of times I’ve seen reference to a new shop or restaurant that I hadn’t noticed before, so I visit just to see what’s new there.

It’s my understanding that they’re still trying to decide how all this brilliance is going to make them any money. Sell ads? Sell leads? Or just collect a referral fee?

But some folks don’t just don’t like those referral fees. Ardell DellaLoggia had a post last week entitled “Is your agent spending your money without asking permission?” The point of the post was to show that some agents can/do collect a fee for placing an outgoing or incoming referral, without discussing this with the referred.

Often, an agent will pay a courtesy “referral fee” to another agent or agency who gives them a lead that results in a sale.

This is not against the law to pay another agent a referral fee. In Washington State, it’s against the law to pay anyone OTHER than an agent a referral fee!

Many companies use this concept as the basis for their entire business plan.

HomeGain, for instance, collects a 30% referral fee for a closed sale from any buyer or seller it refers to an agent. (I believe they also charge some agents a monthly subscription fee on top of that.)

Others, such as HouseValues, Number1Agent.com , AgentConnect and RealEstate.com charge a monthly subscription fee, with no guarantee of any closed sales. But they don’t take a percentage either.

These companies have a miserable track record and leave many unhappy agents in their wake. They make a hard sales pitch and lure many a desperate real estate agent in, but I doubt many find much success with these lead generating companies.

The post seems to take issue with the individual agent taking a fee for making a referral, without discussing the amount of the referral ahead of time. The subject of real estate lead companies and corporations taking a referral fee is not addressed.

On the surface, it does seem obvious. Why should an agent get a 20% referral fee for just making a phone call?

And why should a company like HomeGain get 20 or 30%? For an even more extreme example why should Cendant, a national relocation company get up to 45% for a referral?

If Shack Prices decides to collect referral fees of 20 or 30% or even 40% as their business model, would that be wrong? Galen Ward and his partner Doug Cole have spent months developing a plan, writing code and building the website, spent their own money getting it up and going, and spent their own time and money on search engine optimization and publicity. They’re doing this to weave an attractive web to lure in buyers. What should they do with these leads? Well, sell them, of course!

I think we can all agree that they would probably deserve a referral fee. But what about the individual agent who has worked hard on creating original content, working on SEO, done their best to make their website interesting and sticky? They’ve done the work, exchanged links, worked on SEO, they’ve taken the risks, why shouldn’t they receive a referral from the leads generated from their website? Or a lead generated from carefully nurturing social contacts and connections?

Dustin and Anna conceived and built Rain City Guide and have kept it going, hoping for leads that they can refer out to agents, in exchange for a referral fee. They built the website, they’ve built the content, they took the risk, why shouldn’t they reap the rewards? They have a tab at the top of their site “Seattle Agent Recommendations“. When you click on the tab, it offers a reader a referral. Says Anna, “Every agent I’ve worked with so far has been more than happy to pay me a referral fee that comes directly out of the commission they are paid for representing you during your purchase of a home.” No mention of an amount for “selling people’s names” and no mention that it’s “the Buyer’s money.”

Placing the phone call to make the referral only takes 5 minutes. But perhaps getting to that point where one is in a position to make that referral could have taken years.

If Shack Prices does decide to charge for referrals, I’m sure that Galen and Doug believe that they were entitled to receive a large referral fee, even if all they did was just make a phone call. And companies such as Homegain, who have large expenses and who advertise heavily using PPC, I’m sure they can also justify their fees. And even the individual agent who has worked years in the business building up their clientele, their reputation, their website, their name and their brand can also justify a referral fee. If someone thinks enough of the agent to accept their referral, then they must be doing something right.

As an analogy, I may pay $500 for a dress that consists of only $50 worth of cloth. But it’s what the designer does with the cloth that gives it value. I’m also paying for the seamstress to sew the dress, I’m paying for the upkeep of the sewing machines, for the warehouse where the machines are located, for the marketing of the finished product, the delivery to the store and the store’s overhead. It’s not necessary for me to know that the cloth is only worth $50. I’m not stupid, I know that. But I also know the value of a terrific-looking new dress that fits me just right ….. Does everything have to be spelled out and transparent? When I go to Safeway to buy a pound of cherries for $4.99 a pound, it doesn’t say on the label that the farmer got 75 cents a pound after paying for the water, farm equipment and labor, and that the farmworker who picked the cherries got 50 cents a pound and that the guy in the packing plant got his cut and that the truck driver who delivered it to the story got his cut too. Really, we already know that, we know that there is ‘value added’ by having the cherries delivered to the store so I don’t have to drive to Eastern Washington to pick them myself. This is trade, this is commerce, and this is Capitalism at its finest.

It’s not wrong not to put on the dress label that the Nordstrom’s sales clerk gets an extra bonus for selling me the dress. And it’s not dishonest not to disclose on the cherry box that the truck driver got a special cash incentive to deliver the cherries to the store on time.

It’s just business.