As I sit down to write this article, Purple Bricks has just been valued at £250 million! Personally, I would not dream of investing in the business at this level but an awful lot of estate agents are growing increasingly worried that the online agents will destroy them. So will they? Personally, I think that this is very unlikely. I am not a luddite and I do accept that new technology is a constant threat to every type of business. Just look at what Uber has done to the London taxi business. The main training centre that has taught black cab drivers “the knowledge” for nearly fifty years has just closed down due to lack of business and every time I take a cab, the driver complains bitterly about how Uber is taking their livelihood away. I feel sorry for them. However, the fact of the matter is that Uber is not just cheaper, in many ways it is better. If I order an Uber cab, I can do so on my phone using an app, then I can watch where the taxi is on an interactive map as it comes to find me. That beats the hell out of wandering about waving my arms trying to attract the attention of a black cab. Perhaps the black cabs’ response to Uber should be to improve their service level rather than complain or reduce their prices.
The Uber difference
However, the comparison between black cabs and Uber is very different to the comparison between estate agents and online agents. A pure online estate agency service fails to give the vendor what they want at almost every stage of the process. A traditional estate agent will give home owners an accurate valuation based upon an intimate knowledge of the area. The online agent will just let the home owner put their property on the market at whatever price they choose. This means that the property might be undersold. Alternatively, it might be overpriced and go stale on the market.
Traditional agents are increasingly worried that online agents will destroy them. I’m not a luddite, but I think it is very unlikely.
A traditional agent will prepare high quality details with professional photographs. An online agent will invite the home owner to take their own photographs using their camera phone. Presentation is so important when it comes to getting the best price for a property.
A traditional agent will have an extensive mailing list of potential applicants built up over a period of several months. An online agent will not have a mailing list, they will just stick the property onto the internet and wait for an applicant to phone up and say that they would like to view it.
A traditional agent will phone their applicants after they have received details in order to encourage viewings. The online agent will not do this, they will just play a passive role in waiting for people to book viewings.
The traditional agent will encourage people to view two or three other properties as well as the one that they phone up about. By increasing the number of viewings, they will increase significantly their chance of buying something and applicants very often buy something that is wholly different to what they registered for. Again, the online agent will just accept the single viewing and do no cross-selling.
A traditional agent will accompany the viewing and ensure that the property is shown to its best advantage. The online agent will just leave the vendor to show the property themselves and we all know how bad some vendors are at doing this.
The traditional agent will phone the applicant after the viewing in order to encourage them to make an offer. The online agent will just wait for them to phone of their own accord.
The traditional agent will negotiate the offer on behalf of the client. Skilled negotiation can increase the initial offer significantly. The online agent will leave the vendor to negotiate their own price direct with the purchaser. They are very unlikely to have the skill or the experience to do this effectively.
The traditional agent will qualify the purchaser and make sure that they have suitable mortgage arrangements, that they have sold their own property and that they have chosen a specialist conveyancing solicitor. The online agent will just hope that everything is OK.
Finally, the traditional agent will supervise the sale in order to ensure that it goes through to a successful completion. They will make a phone call every week to the purchaser, the vendor, both solicitors and the mortgage lender so that problems can be identified and nipped in the bud. Again, the online agents do not generally have a sales progressing facility.
As the online agents’ service levels rise, the fee levels will rise. There’s likely to be a convergence then between both camps.
The price of service
By attention to detail at each stage of the process, a traditional agent can increase significantly the selling price that is achieved for a property. They can do this by enough to pay for any difference in their fee several times over. In order to defend yourself against the online agents, you have to get this message across in your publicity material and during your sales presentation. In essence, you have to persuade vendors that what matters is the net proceeds of the sale, i.e. the sale price minus the commission that they pay. By doing the job properly, you will be able to achieve significantly higher net proceeds than an online estate agent.
These tactics should help you to counter the threat from the online agents for the time being. However, the online agents are already becoming more sophisticated and are beginning to offer higher levels of service. Some have regional teams of valuers who can advise vendors on the price that they should ask for their properties. Some offer an option of professional details with professional photographs and floor plans. Some are also starting to offer a sales progression function in return for a higher fee. These enhancements to the service levels are likely to be just the beginning. What I expect to happen next is that the online agents will start to set up central call centres where teams of negotiators can register applicants and telephone them in order to encourage viewings. It would then be very easy to add a negotiation department to these call centres with a small number of specialist staff whose role it would be to negotiate offers on behalf of their clients. When combined with a sales progressing function, you have a service that looks remarkably like a full estate agency service.
As the service levels increase, the fee levels will rise. There is then likely to be a convergence between online agents offering an estate agency service and existing estate agents offering an online estate agency service. In a few years time, it will be difficult to distinguish who is an online agent and who is a traditional one.
The final stage of the process will be a technological revolution that will automate many mundane estate agency functions. For example, it should be possible to book a viewing appointment online rather than phoning up. It should be possible also to go into a secure section of a website in order to see how a sale is progressing and what factors are holding it up. These things will save time for both estate agents and their clients. However, I can never see a substitute for the hardworking sales orientated negotiator who spends many hours each day on the phone encouraging people to view properties that they have not considered for themselves. Agents who do this well will always find that there is a market for their services.
Focus on service
During the current phase of online estate agency, traditional agents must focus on improving their service rather than competing on price. The online agents have far deeper pockets and competing on price is a recipe for disaster. Agents who do this will survive and prosper. Those that don’t will and probably deserve to fall by the wayside.
Adam Walker is a management consultant, business sales agent and trainer who has specialised in the property sector for more than 25 years.