Shared vs. exclusive leads: do the math per deal

Investors argue about shared versus exclusive leads like it's a matter of principle. It isn't. It's arithmetic, and the answer changes depending on your team, your market and how fast you call.

The two models

A shared lead goes to more than one buyer. Some sources cap it at a small number, others don't. An exclusive lead is sold once. Exclusive leads cost more, sometimes a lot more.

The argument for shared leads is price. The argument for exclusive leads is that you're not racing anyone. Both are true, which is why you have to run numbers.

Cost per lead is the wrong number

What matters is cost per closed deal. That depends on three things: what you pay per lead, how often a lead turns into a contract, and how many leads you have to buy to get there.

Here's a simple example with made-up but realistic numbers. Say a shared lead costs $80 and an exclusive lead costs $240. With shared leads, your team closes one deal out of every 40 leads. With exclusive leads, one out of every 15.

• Shared: 40 leads at $80 is $3,200 per deal.
• Exclusive: 15 leads at $240 is $3,600 per deal.

In that example, shared wins, barely. Now change one thing. Your team is slow, usually calling the next morning. Your shared close rate drops to one in 70 because someone else always got there first. Shared now costs $5,600 per deal and exclusive looks like a bargain.

The lesson: shared leads reward speed. If you can't call within the hour, the lower price is an illusion.

What changes the answer

How many buyers share it. A lead shared with two others is a very different product from one shared with ten. Ask the source what the cap is and whether you can see how many buyers already have it before you buy.

The motivation type. A preforeclosure lead with an auction date has a short window, and the first credible buyer often wins. An estate lead moves slowly, so being second or third matters less.

Your deal size. In a county where your average profit is $40,000, paying more per deal still leaves plenty. In a county where it's $12,000, cost per deal decides whether the channel works at all.

Refund terms. A guarantee that credits back leads that turn out not to be real sellers lowers your effective cost. Read the terms closely, because credits back to a balance are not the same as refunds to a card.

Why county changes the price

Lead prices vary by county for the same reason profits do. A preforeclosure in a county where houses sell for $900,000 can produce a much bigger deal than one where they sell for $300,000, so it costs more. When you compare sources, compare like with like: same county, same motivation type, same sharing cap.

It's also worth knowing which way prices are moving where you buy. The FHFA House Price Index tracks metro areas over time, and a market where prices are flat or falling squeezes the spread between your purchase price and your resale. In that market, you need a better close rate or a cheaper lead to keep the same cost per deal.

That's another reason to track your own numbers by county rather than using one blended figure for everything you buy.

How to test it

Buy a small batch of each kind in the same market over the same few weeks. Call them all the same way. Track contacts, appointments, offers and contracts. After a couple of months you'll have your own close rates, which are the only ones that matter.

Some marketplaces make this easy by letting you choose per lead. CalOffers, for example, sells both, with shared leads capped at three buyers and the price on each card, which you can see on CalOffers pricing. Whatever source you use, the point is to buy both and compare.

For a broader view of how sellers and buyers find each other in the current market, the NAR research and statistics page publishes annual profiles of home sellers that are useful context. And if you want to know whether a lead source is a registered business you can hold to its terms, a quick search on the California Secretary of State's bizfile site is free.

My rule of thumb

If you can reliably call within the hour, shared leads with a low buyer cap usually win on cost per deal. If you can't, buy exclusive or fix your response time first. And track the numbers by motivation type, because the six motivation types a good source sells don't behave the same way.

These figures are illustrations, not benchmarks. Run your own numbers before you change your budget.