When Sir Tim Berners Lee gifted everyone his invention of the World Wide Web 25 years ago, he could not have imagined its profound impact. Cost effective, lightning fast digital communication shrank the world to a digital tablet that fit in your pocket. The web ushered in globalisation on an unimaginable scale. It became the ultimate disrupter of old businesses; spawning whole new industries, relegating others to the history books. It inspired new consumer behaviours. But has the digital revolution changed anything for high street real estate agents?
Has digital changed property marketing?
While the digital revolution has transformed high street retail, it hasn’t yet had much effect on the way in which people buy / sell property in the U.K.. Estate agents with a shop front on the high street still account for 95% of property transactions. Experts predict that will change. A new breed of online estate agents will replace the old model with virtual offices and cut price commissions. So will the high street real estate agent, like Blockbuster, be consigned to the dustbin of history? Or, like Netflix, will it adapt and survive?
Virtual estate agents
Selling property online is not a new idea. The first online agent launched in 2008 and now there are over 200 companies offering this service. Thus far online uptake has been slow. Five years ago online sales accounted for about 2% of all transactions; while last year it was just 5%. The argument goes that virtual estate agents, unfettered by high overheads can pass significant savings on to the consumer. That is obviously true: the average online agent’s fee is £500, a tenth of the average high street agency fee of £5,000. Savings are even bigger in London where capital values are much higher.
But given the massive savings available if you sell online, the real question is ‘why hasn’t the high street agent already become extinct?’
It clearly makes financial sense to use an online agent, but it hasn’t yet been widely adopted. Why?
Why has the move online been so slow?
I believe the answer lies in the nature of the transaction itself. Buying or selling a property is complex; in London notoriously so. The cast of characters involved is extensive: freeholders, managing agents, financial institutions, lawyers. There are lawyers representing all of these parties, and buyers, sellers and their families. In this sense property is unlike other businesses that have successfully moved online. Travel or banking services do not involve so many people with competing agendas. Selling property is a very high value and technical transaction that requires a skill and patience to manage. This is something at which high street agents excel. Online agents do offer sale progressing as part of their menu of services, but does the assigned member of staff have the technical ability to deliver a sale?
Property sales spring from the heart, not the wallet!
More than the legal complexities, I believe it is primarily the emotional nature of the transaction that doesn’t lend itself to off-site, call centre management. Buying / selling a property is almost always an emotional event. It is frequently stressful. It involves a lot of money. Oftentimes a property is on the market because of a painful change in circumstances: divorce, debt, downsizing or even death. Managing people’s emotions through a sale is an integral part of the agent’s job, a job made rather more difficult if you haven’t had any ‘face time’ with the parties involved.
The agent acts as peacekeeper, go-between and counsellor; a valuable buffer between buyer and seller while the inevitable paperwork issues are being ironed out.
Even with the high street real estate agent managing this process, roughly 30% of all agreed transactions fall through before exchange of contracts. I suspect this figure will be higher on sales agreed through an online agent, though there is no published data available on this yet. In short, people like dealing with people face to face when it comes to sensitive, important and high value transactions.
The high street agent vs. online agent
Crucially, the high street agent trumps the online agent when it comes to personal touch and local market knowledge. The high street agent works in your area, knows its amenities and knows the kind of people who will buy your home. They are visible, identifiable people you can build a rapport with and drop in to see in their office. This personal relationship is difficult to replicate with an online service.
In fact many online agencies were surprised by the degree of consumer loyalty to the high street agency model. Some companies, realising that they would have to develop a local dimension in order to entice sellers online, developed a hybrid service to bridge that gap. It means sellers can work with a local agent employed by the online provider, but they don’t operate out of an expensive shop front location. This hybrid model definitely has more potential to damage the pre-eminence of the high street estate agent.
More stumbling blocks to the move online
Of course, the biggest drawback to selling a property online is that it requires the seller to be more involved in the transaction.
One of the reasons high street agents charge higher fees is because selling property is ultimately a time wasting business: lots of people viewing aren’t in a position to purchase, lots don’t show up for viewings or cancel when you are already waiting outside the property.
Buyers are not required to be either polite or enthusiastic about what they are viewing; a rather bitter pill to swallow when you are showing someone around your own home.
Outside the seller’s comfort zone
Under the current system it’s the agent’s job to deal with the rejection and inconvenience and repackage it as once-a-week ‘feedback’. Agents don’t take cancellations and no-shows personally. Another consideration is that buyers are often not that comfortable with being shown around a property by the owner. The agent affords both buyer and seller anonymity from each other, which suits the British sense of reserve. I believe this sense of reserve and a general dislike of call centres have also contributed to the slow growth of online estate agencies, despite the savings available.
Expensive and unpopular
High street agents, however, have two major black marks against them: they are expensive and unpopular. Historically they charge big commissions and many sellers perceive them to be bad value for money. Estate agency is not well regarded or popular among many members of the public. In order for sellers to feel resolved about paying higher fees, the agent has to offer manifestly better service and we all know that this isn’t always the case.
Is a hybrid agency the way forward?
What the development of this hybrid online service shows is a willingness to adapt to changing market conditions. This adaptability seems largely absent among traditional high street agents. The shortcomings of the current online offerings (lack of local knowledge, viewing services, lack of conveynacing expertise etc.) will be addressed in the future and the substantial savings online agents offer will become harder to resist. High agency fees will become increasingly difficult to justify, despite all the challenges of moving this business online discussed here.
Adding value is the key to surviving
If high street agents are serious about continuing to operate and charge as they currently do, then they must get better at demonstrating how they add value. The must sell their market knowledge, personal service and technical expertise. High street agents need to answer two questions: how can we prove the value of the work we do in return for our higher commissions? And how can we improve our public image in order to remain relevant to consumers now and in the future? I don’t believe that estate agents will disappear completely from our high streets, but I do think market conditions and technological change will force a radical rethink of the old school model. The smart estate agents have started this process already.
This is a guest blog piece I wrote for Lonres.