Online Contractor Referrals: Scam or Honest? Here's How They Work.

Question: Online Contractor Referrals: Scam or Honest? Here's How They Work.

Searching for contractors online can be an exercise in frustration. While you sometimes find local contractors and can contact them directly, more often you are directed to contractors via a middleman referral service like ServiceMagic. Is this a scam? How do these online contractor referrals work from the homeowners' angle? Can this be good?

Answer: It's good and bad.

I can offer an insider's view on this find-a-contractor business, because I own a number of home improvement-related sites and blogs (not About Home Renovations) which do this very thing: connect homeowners with contractors.

The problem is that two layers separate you, the homeowner, from the contractor. The first layer is the private site owner who hosts links that go to the find-a-contractor service. The second layer is the find-a-contractor service itself.

Each layer--each middleman--takes a cut. As you well know, middlemen drive up the eventual cost of your remodeling work. While these figures are small (we will discuss in detail later), they still do become part of the eventual cost--one way or another.

How Online Contractor Referrals Work

1. Search: You search for information about replacement windows.
2. Find: You find a private website that appears to have objective information about replacement windows. Let's just call it Replacement Window Mania.
3. See a Link or Form: There might be a link like this: "Find a Replacement Window Contractor in Your Area." That link takes you off-site. Or you may find a form within Replacement Window Mania that asks for your contact information and about your basic window needs.
4. Hit "Send": In either instance above, your request goes straight to the contractor referral service. Contractors sign up for this service in order to buy sales leads from people like you.
5. Get Connected: This service connects you with suitable contractors in your area.
6. Contractor Buys Lead: When a contractor buys a sales lead. Most services have criteria for bad sales leads, and it's not always easy for the contractor to recoup his/her cost of buying that sales lead.
7. Site Owner Gets Cut: Replacement Window Mania gets hard, cold cash at the end of the month for referring that sales lead. Referral payment amounts vary according to the type of work done. Windows, siding, and roofing usually pay out around $20 to $60 per lead.
8. Referral Service Get Cut: The referral service also gets a cut, but I do not know what that amount may be. Presumably it's more than the site owner.

What's the Good and Bad of This Referral Process?

Good:

The good side is that you do get connected to a contractor. The site owner caught your attention in the first place from all of those Google results. The contractor referral service did the work of connecting you to the contractor.

Also, these services do have filters which make it easier to find a contractor who actually does the work you need. You're not making blind calls to general contractors who really don't deal with replacement windows.

Finally, these referral services have minimal screens in place to make sure that contractors are licensed and in good standing.

Bad:

The bad side is the aforementioned middleman cost. To a roofing contractor, it's absolutely worthwhile to pay $115 for a good sales lead for a $18,000 job (though free is always better). But many bad sales leads come their way. The process of getting refunds for bad sales leads is the very definition of "jumping through hoops." Many contractors let those bad sales leads go. Additional cost that may eventually get wrapped up into your project.