deal with the question of what agents are likely to steer you into when it comes to those ever-present advertising charges and requirements. Charging exorbitant fees for VPA is not just the domain of supersized agencies.
The internet has been the dominant real estate platform for more than a decade, yet millions of property consumers have not yet sold using online methods. It is these consumers who are more likely to ask real estate agents if they should advertise in the newspaper. Why? Because generally they have more understanding of newspaper marketing (even though it is now redundant) than they do of modern online marketing.
Unfortunately, many real estate agents lead clients to believe that spending large sums on online advertising is beneficial and commensurate to the cost of newspaper advertisements. Agents advise sellers to transition to real estate portal advertising – where the agent benefits from rebates and/or brand exposure.
Given the power and reach of Google and other search engines, the sophistication of modern web-based databases and the amount consumers pay agents in sales commissions, inflated website advertising has now become just one of many different marketing tools available to consumers. But you need to assess whether your money is actually helping to sell your home or merely assisting the agent's lead generation and self-promotion.
Pay to advertise your home – don't inadvertently pay to advertise your agent's brand.
3 Will real estate agents have their Uber moment?
Let's face it: fairly or unfairly, many consumers would be happy to see the demise of real estate agencies. And there is no shortage of people trying to make that happen. There are some options available these days. Look at how Uber has decimated the taxi industry on a global scale. As a result, every industry is looking over its shoulder in fear of the one concept or idea that could ‘Uber-ise' it. Digital disruption will further impact on the real estate industry in the near future. Whether it is a total game changer that renders the agent's role superfluous remains to be seen.
Respected real estate journalist Robert Harley wrote in December 2015, ‘In New York, technology experts agreed the global property industry will soon see a rush of fixed-price, no commission and highly automated peer-to-peer websites.' Harley was reporting on a real estate technology conference where digital disruption was high on the agenda.
The stakes are high, but so are the rewards for those who get it right. In the mid 1990s realestate.com.au did not exist. Today it is a $7 billion company. In recent years, when the Fairfax results are released to the market, it is Domain, their real estate website, that is revealed to be essentially propping up the parent company. Our attachment to owning property remains as strong as ever, while new platforms to buy and sell it continue to evolve.
Redefining the agent's role
Given the crucial role real estate agents play in generating the revenue for these platforms from consumers, it is likely that media companies will continue to support agents – unless they can devise a way of diverting the agents' commission to themselves, which is entirely plausible.
The internet has made it easier than ever before for buyers and sellers to engage with each other directly. Most attempts to ‘Uber-ise' real estate have been made by companies that encourage and coach vendors to go on the market as private sellers, thus avoiding agent's commission. Buy My Place is a good example of a large company in this space. Its slogan of ‘No Commission, Lots of Help!' pretty well sums up the offering. Buy My Place has listed on the ASX and it's fair to say it is not going away. Good news for consumers, but maybe not for agents.
Airbnb has taken a huge slice of the hotel market. The company encourages homeowners to lease their dwellings for a short term to travellers at a fraction of the cost of a hotel room.
Airbnb launched an assault on the rental market in May 2016 through its vehicle Hey Tom. Given what Airbnb has done in the hotel sector, its intrusion into the real estate industry cannot be underestimated. Co-founder Tom Baker is reported as stating, ‘We're planning to eat into the real estate market. We plan to bridge the gap between the sharing economy and the real estate economy.'
Many of the people featured in video testimonials on the Buy My Place website are classed as ‘successful sellers'. This is an interesting designation given that what constitutes a ‘successful seller' remains undefined. The company is classing everyone who ‘sells' as having made a ‘successful sale', in much the same way as agents who spruik the importance of ‘clearance rates' without any regard for the quality of the price achieved.
Teena and Andrew Hubbard sold their home using Buy My Place. Interviewed by Su-Lin Tan for the Australian Financial Review, they were quoted as saying, ‘We have no idea why people would sell with an agent.' The Hubbards have sold twice without using an agent, so their assessment of estate agents will be confronting for an industry that has for so long felt itself to be indispensable.
Real estate agents have had people believe that high clearance rates are the key to a good agent. Now the disrupters threaten to put sellers and buyers in direct contact with each other, allowing sellers to achieve their own high clearance rates without paying an agent's hefty commission.
To avoid being ‘Uber-ised', real estate agents will have to focus on getting high prices for their clients, rather than high clearance rates for themselves.
Stock brokerages underwent a similar transformation at the beginning of the internet. The need for a stockbroker to conduct a trade vanished with the emergence of companies such as eTrade. Stockbrokers needed to redefine themselves not as facilitating the trade, but as adding value to it. Their research notes and performance in the market became their ‘street cred'. The consumer took the ability to do the trade as a commodity with minimal value.
Twenty years later real estate agents are on the same path.
Real estate is a results-oriented business
In order to make the right decision among these emergent options in the real estate industry, be clear about what the end result should be. People will inevitably be keen to wipe out the expense of an agent's $20 000 sales commission. Cutting the agent out for the sake of it might be costly, or it might be the best saving you could make. It is crucial that you judge each offering on its commercial merit. The real estate industry, both in Australia and abroad, has seen off literally hundreds of outsiders who have entered with a low-cost structure, yet there is not one sustainable success story that depended on a low-cost model.
Agents know they ultimately fail or prosper based on results. The same is true of every startup business that enters the industry intent on cutting the agent out of the process.
Real estate firms range from small to very big businesses, but up to 90 per cent of the residential real estate industry could be counted as small business. Given their connections to media-owned websites and newspapers, much of the revenue that runs through these small businesses flows straight to large media companies as advertising fees. At a Melbourne real estate conference in December 2015, it was estimated that $800 million was spent on real estate advertising in Australia each year.
Media companies are unlikely to offer any lasting support to startup businesses that wipe out estate agents unless their revenue stream is maintained. Agents are a media company's best salespeople when it comes to real estate advertising. Startup businesses will therefore probably need to find support and build a strategy outside of media companies.
Many private sales companies have started in Australia, but to date all have failed. Eventually someone will break through and take a sizeable share of the market. The company that does that will need to be addicted to data and cost-effective marketing to enable it. The key for these companies is ‘automated connections', with buyers and sellers connected directly through technology. The moment they insert a human to negotiate between seller and buyer, they become no more than a cheap real estate agent.
Can the seller and the buyer arrive at a mutually satisfactory transaction? With the right advice and temperament there is a good chance, although many mistakes will be made and money lost when commercial and savvy negotiators find themselves negotiating directly with non-commercial consumers.
As real estate agents, private sale companies and media conglomerates