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Published 02 July 2012 04:38, Updated 05 July 2012 05:01
Ever heard the comparison between real estate agents and the Ku Klux Klan?
It’s made in the best selling book Freakonomics, written by Steven Levitt and Stephen Dubner. The authors don’t infer that real estate agents are a bunch of racists but rather that both groups maintain power by controlling “secret” information.
The book details how the Ku Klux Klan wielded its power as a secret society until it was no longer a secret and its formerly hidden passwords were turned into material for children’s comic books after World War II.
Real estate agents have also held onto their power by convincing the average punter that because of their secret knowledge only they can get the best possible prices for properties.
It may be time for the authors of Freakonomics to update this chapter because the information collected and held by agents is not so secret any more – it’s online, mostly free and changing the game for the real estate sector.
Consumers can now buy and sell their homes online at a fraction of the cost of an agent by using websites such as PropertyNow (see story “Virtual agent makes its move”).
These sites act like a virtual real estate agent. Depending on how many bells and whistles you’re prepared to pay for, they help arrange professional photographs, a for-sale board at the front of your house and provide the vendor with general over-the-phone advice when negotiating with buyers.
Landlords, too, are being offered alternatives to agents. New websites cut out the agent as the middle man and instead allow landlords to manage their properties online for a lower fee.
Such sweeping changes have empowered sellers, buyers and landlords like never before.
“The veil of secrecy has been lifted; it’s not hard to sell a house, it’s ridiculously easy,” the owner and director of PropertyNow, Andrew Blachut, says. “Agents try and wrap it up in mystery as much as possible.”
His knowledge comes from having worked in the real estate industry for 15 years, for big companies including LJ Hooker, Ray White and Elders.
“They say things like, ‘We are masters in selling your home – you don’t have access to buyers and don’t have masterful negotiation skills’. It’s complete nonsense.”
Buyers advocate David Morrell says the internet will become “more and more the medium through which people buy and sell” and that “you don’t necessarily need the agent in the middle”.
Investors can now do their own research and get a reasonably accurate home valuation from a variety of sources. Some of it’s freely available on the web, including suburb and street profiles and median house prices.
Some comes at a small cost – between $30 and $300 depending on the level of valuation information you’re after – from players such as RPData, Australian Property Monitors and onthehouse.com.au.
The banks still have their own valuations undertaken by qualified valuers but all the information online has helped consumers become informed.
Morrell says this means agents have to demonstrate value or risk being phased out. “The public have become more knowledgeable; they have access to market reports and information. They’re not believing the real estate agent,” he says.
“So the agent has to work harder rather than just stand out the front of a house handing out brochures.”
Many people have also learnt that marketing your home isn’t really that hard. Hundreds of thousands of properties are listed for sale or lease through the portals www.realestate.com.au and domain.com.au and some consumers are using Facebook and Twitter to sell their homes.
Domain and realestate.com.au dominate in property listings. REA Group, which owns realestate.com.au, controls about 70 per cent of the online real estate advertising, IBISWorld esimates. It and domain.com.au charge real estate agents a subscription fee plus advertising fees to advertise houses on their portals. Consumers pay a one-off listing fee.
The duopoly is working hard to protect its territory – Google was admonished two years ago when it tried to take them on by putting up the details of properties for sale on domain and realestate.com on Google maps (it no longer does this). Real estate agents are trying to devise an alternative site so they can avoid paying the two websites hefty subscription fees.
The fight for online advertsing continues, with hundreds of websites allowing consumers to upload their listings for free.
To get the best results, print advertising is still used which allows consumers to directly compare properties but social media is playing a bigger role for people wanting to target the broadest audience possible.
In February, social media expert Kurt Opray used a blog and Twitter and Facebook to market his Northcote home in Melbourne.
He bought domain name northcotehouse.com.au (at the time of print it was still the top result on Google when you type in “northcote house”) set up a WordPress blog, made YouTube videos and put up photos telling potential buyers everything they needed to know about his home – including pictures of the autumn leaves on the trees in his backyard, the veggie garden and the local playground in his neighbourhood.
He says the blog got 23 hits a day on average (both through traffic he generated himself and that referred by the local Hocking Stuart real estate agent he used). His three-bedroom home sold for $1.05 million – $135,000 above its reserve price of $920,000 – because he was able to give the buyer something the agent couldn’t: a vivid account of what it’s like to live in the property and neighbourhood.
“Who better to sell my house than me?” Opray asks. “I know the best place to have a coffee and take in morning sunrise, I know where all the local amenities are. I was able to sell the emotional attachment to the house; the agents don’t have one.”
Opray deliberately didn’t bypass the agents, he complemented what they do by running his own campaign simultaneously. “When I said what I wanted to do online, they were amused,” he says. “It was a brave new world for them.”
The internet isn’t only creating competition with agents when it comes to buying and selling. It’s also attacking their largest income stream – management fees for looking after a landlord’s property.
Gareth Robinson, who was mentored by entrepreneur Matt Barrie in his university days, set up online site called Leasate which cuts out the agents and allows landlords to manage their own properties with tenants. The entire process – from the lease application, to rental payments, to maintenance issues – is done online and for a significantly lower management fee.
The site, which initially was set up as a university project, went live in February after Robinson was able to secure $55,000 in funding from an investor. He says that about 120 landlords and tenants are using the site – most are friends they’ve talked to about the service but once they get more investors on board they hope to take it national (it only is available in Sydney at present).
“We’re trying to grow the site and get licensing in all states,” Robinson says. “Our aim is to capture 10 to 20 per cent of the market. We really feel that for a lot of people hiring a real estate agent is something that’s outdated and no longer necessary.”
The real estate industry is facing its biggest shake-up in years. IBISWorld estimates that during the five years to 2011-12, revenue for the real estate industry fell 1.1 per cent a year to $9.02 billion from $9.55 billion. At the peak of the property boom in 2002-03 the nation had 76,599 real estate agents but at the end of 2011-12, this had dropped to 67,621 agents.
Real estate agents aren’t extinct yet though. IBISWorld forecasts industry revenue will increase by 1.6 per cent a year over the next five years to $9.8 billion in 2016-17 as the population grows and development increases.
So long as people buy and sell houses there will be a role for intermediaries. But to survive, agents will have to convince consumers they can provide a professional service akin to a doctor or lawyer, as well as remodel their business to a lower-margin world.
“Real estate agents have to be transparent,” says George Rousous who heads Industry Training Consultants, a company that trains real estate agents and lobbies governments on behalf of the industry for change. He believes business models will change, with firms offering multiple services and moving towards a flat fee rather than a commissions-based approach.
Some agents are working hard to convince consumers of the value of their service by embracing technology. Franchise business Ray White offers its agents a device called Field Agent (see story “If you can’t beat them join them”), which uploads photos of a property during an inspection and instantly sends them to the landlord.
Ray White is also installing “research bars”, where consumers can come into an agent’s office and research properties for free. In the past, real estate agents have held this kind of information tightly but Ray White director Ben White is the first to admit that hiding information is foolish.
He says agents who do that will end up going out of business. “The good agents are those that have courage to say, ‘We can survive post this phase’,” White says. “If they sit around and try to ignore [technological changes], it doesn’t do anyone any favours.”