On paper, HomeLight seems to have a great idea – to provide its users with a list of the "most effective" real estate agents that are scrutinized across the board to systematically facilitate better offers for sellers and better terms for buyers.
HomeLight states that "our service is 100% free, with no catch. Agents don't pay us to be listed, so you get the best match." Digging deeper into Terms of Service the actual model turns out to be much less effective - HomeLight is a California licensed real estate broker that collects a 25% referral fee from all real estate agents that participate.
This fee makes it hardly a free service for anyone since referral fees are inevitably passed down to consumers.
More importantly, HomeLight applies this pay-to-play bias towards all matching results, meaning, only real estate agents that have agreed to pay a referral fee are displayed in match results for consumers.
HomeLight audits all transactions because it needs to find out how much money real estate agents receive in commissions, inevitably collecting private details of consumer's agreement for home purchase or sale.
HomeLight further claims to produce higher returns to consumers when selling, but there is absolutely no third-party evidence for this. HomeLight algorithm is self-proclaimed and is based on the data derived from MLS past transactions. There are any number of factors that affect the actual home value with no proven correlation to agent representation. In order to select a proper real estate agent, consumers need an open and a transparent information process that HomeLight is unable to provide.
HomeLight plays fees down to consumers - it states directly that the service is 100% free, but at the same time, it rigidly locks every participating real estate agent into 25% referral fee attached to the back-end of every contract. As a licensed real estate agent that doesn't perform any real estate services or takes any responsibility for the transaction, it is not entirely clear how this process works under the Business and Professions Code and RESPA.
Clearly, real estate agents only sign-up with HomeLight because the price of the referral fee can be easily incorporated into their client’s agreement with excessive commissions.
HomeLight receives the second lowest score because this service is clearly biased and it claims to provide the complete opposite of what it actually does. HomeLight has presented the following facts prior to the review getting published, but did not respond with any comments. HomeLight must be well aware of this issue but continues to operate on pay-to-play methodology in order to collect fees that needlessly make home buying and selling more expensive.
HomeLight Simple Sale™ Product
HomeLight further offers consumers a connection to local real estate developers that buy and flip homes for profit. According to the company, the majority of Simple Sale developers are only interested in purchasing off-market homes. HomeLight itself admits that 91 percent of sellers choose a real estate agent to list their home on the open market, but that does not stop it from an attempt to offer your information to developers as well.
HomeLight states it will show the seller their best iBuyer offer against an estimation for what they can sell a home in an open market with the help of an agent. The reality is HomeLight doesn’t care how your home is sold, as long as it receives a fee for directing you one way or another. It costs absolutely nothing to HomeLight to offer you a bad deal on selling your home to a real estate developer because this company is a referral fee network that is primarily interested in connecting consumers to anything that pays them a fee.
HomeLight does not state how much developers and iBuyers pay them for each successful lead, but according to third-party sources, HomeLight receives a 4% commission from the total value of your home. Remember, this fee comes from the real estate developer, so HomeLight for all practical reasons, works for that developer, not you. A developer will know that your home is off-market and it costs them absolutely nothing to give you a severely underpriced offer.
Typically, iBuyers cost consumers about 15%-20% of net equity from the home sale, when accounting for all fees and reduced cash offer against your home’s true value. Most developers will not take anything less of a 30% margin below market. The reason is developers experience high risks and double transaction costs when making an offer on your home, and HomeLight’s 4% commission on the sale is a very real closing fee to account for. The bank, on the other hand, does not care how you sell your home or for how much. Your mortgage company receives the same amount from the sale of your home, so these all excessive costs work directly against your net equity as a seller. If you are seriously considering Simple Sale offer made to you using HomeLight, the best way to approach it is with your own real estate agent who does not pay any referral fees to HomeLight.
Of course, matching you with a competitive agent to list your home on the open market is something HomeLight is not built for. Remember, HomeLight is a broker that is interested in receiving a referral fee for any match. If HomeLight does not receive payment of some sort from a broker, you will never see them on their platform. When you use a broker sent to you by HomeLight, you are paying for two brokers.
Some consumers who receive a recommendation for the three local HomeLight partner agents will often proclaim that the process of selecting a Realtor is very simple and that they have experienced excellent results.
The question stands, why doesn’t the editor’s review for HomeLight extend a similar recommendation? The difference is that the editor’s review focuses directly on the quality of HomeLight brokerage as an information channel, while most consumers tend to combine HomeLight brokerage with an experience provided by HomeLight partner brokers into a single experience. From an editor’s perspective, these are not the same.
The way consumers find a real estate professional must be unbiased and free from pay-to-play incentives in order to be considered as a quality channel.
HomeLight brokerage offers an excellent channel that proactively steers consumers toward a highly selected pool of partner brokers who have a blanket referral agreement with them, in an exchange for a significant share of their commission.
This is a very different experience than having to genuinely rate local agents and offer an unbiased recommendation. HomeLight has a direct financial incentive to steer consumers toward brokers who charge higher commissions.
Moreover, HomeLight brokerage operates by excluding itself from the competition with partner agents. In the United States, it is unlawful for real estate professionals to allocate consumers or organize into broker referral networks by means of blanket referral agreements.
HomeLight is a brokerage and it must compete with other brokers, instead, the company organizes brokers into a network in order to receive a cut of their commission. Real estate professionals working with HomeLight no longer compete for consumers, but rather compete for HomeLight to steer their business.
HomeLight consistently applies a logical fallacy called “Appeal to Authority” where it states that their partner agents are the best simply because the company has done some sort of “black box” research without actionable reasoning to support the claim. HomeLight algorithm is biased by default, simply because it will only match consumers with partner agents, and not all local agents.
HomeLight cannot actually rate all local agents and publically disclose this data, simply because agents who are rated badly will argue that the system of rating is flawed – not all transactions are recorded in the MLS, it is impossible to truly determine the quality of agents based on data provided in the MLS, some agents will underprice homes to sell them quicker, etc. Consumers are legally allowed to rate their experience with services in the United States. Unbiased channels such as Yelp! freely offer unbiased medium with good information where brokers cannot buy their recommendations with referral fees, or offer consumers gift cards to write reviews.
HomeLight only offers three best choices, simply because these agents will not argue with that determination, in fact, they are willing to provide a kickback of their commission for the privilege.
All of these reasons combined are why the editor’s review rating is so much different from positive consumer reviews. The editor’s rating focuses on the fairness of the process, rather than the individual outcome. In order to promote fair practices in the industry, we place a very different value on pay-to-play steering vs. unbiased match results.
Is HomeLight Free?
HomeLight often proclaims that its “service is 100% free.” We find this statement to be false. HomeLight is not free, in fact, this “paper” brokerage adds unnecessary referral fees into transactions that make it more expensive to buy or sell any home.
Eventually, HomeLight is a brokerage and their fees are paid by consumers with higher commissions. HomeLight further claims that “agents don't pay us to be listed, so you get the best match.” This is a use of a “Modal Logical Fallacy” because it specifically concludes that because something is true, it is necessarily true, and there is no other situation that would cause the statement to be false. Simply because agents don’t pay HomeLight to be listed, doesn’t mean that agents don’t pay HomeLight at all. In fact, HomeLight actively steers consumers toward agents who pay them, just after the transaction.
As of 2019, HomeLight claims to have made a successful match for about 390,000 people with agents. The median home price of a home in the United States is about $230,000. Multiplying the two figures yields about $100 Billion in home sales. Assuming a 5-6% commission, this yields about $5 to $6 Billion in real estate commission business generated nationwide. In the recent Crunchbase article HomeLight claims to have “driven well over $17 billion of real estate business nationwide,” which indicates that HomeLight works with homes above the median price. Simply stated, HomeLight has collected a “standard” 25% referral fee on commissions valued anywhere from $5 to $17 Billion since its inception in 2012.
This yields a mind-blowing estimate set at $1.25 to $4.25 Billion in commission kickbacks paid to HomeLight from participating brokers across the United States. Almost all of it is profit since HomeLight doesn’t perform any services typically offered by real estate brokers.
HomeLight advertises a 100% free service, yet it subjects consumers to Billions in added fees in one of the most important transactions of their lives.