of data between salespeople operating within the same firm. You may list your $3 million home with a supersized agency that has sold a number of similar homes in recent times. You are unaware, however, that one particular sales agent at the firm sold those homes and that you have unknowingly listed with one of their colleagues, believing the same service will be provided.
As an uninformed consumer, you have just jumped to the unfortunate conclusion that the salesperson you hired will be contacting everyone on the agency's list, including the underbidders left over from those other $3 million sales. It is reasonable to believe this would provide an important pool of genuine buyers to market your home to.
To your astonishment, however, a month into the campaign it becomes clear that these underbidders have not been contacted. On questioning the agent, you learn that those potential buyers are on their colleague's database and your agent does not have access to them. It's a shock to learn that agents in the same firm will not share their buyer databases with each other.
It then dawns on you that you have listed, not with a super-brand, but with a fledgling ‘one-man band' trading under the super-brand's name. This now common business structure means many real estate agents are in fiercer competition with their colleague at the next desk than they are with rival agents down the road.
Given this structure, let's 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
