Low cost vs traditional estate agencies

Various low-cost online estate agencies have entered the SA property market recently. Will this new way of selling homes disrupt the traditional real estate model? Estate agency heads give their opinions on disruption in the market.

Technology has and will continue to change just about everything associated with the way we live, work and conduct business. Thanks to the various streaming services, it’s changed what we watch on television, online dating sites have changed the way we find love and with the introduction of online estate agencies, it may well affect the way we sell our homes.

Various online agencies have popped up over the past few years and although the model dictates that sellers have to do more work in order to sell their homes, part of the attraction is the flat rate of the commission charged.

The big question has to be: is this relatively new model set to disrupt the traditional real estate model whereby sellers employ agents to take care of all the nitty gritty details and the commission earned is based on the eventual selling price?

We approached various industry leaders and asked them for their take on the situation.

Q. In your opinion, have online agencies that offer a flat commission had a major impact on the traditional real estate model? If not, is there a possibility of this happening in the future?

Andrew Golding CEO Pam Golding Properties

A. In general terms, these models are all relatively new to the market and so, as yet, the impact on the overall market has been small. As a consequence of the relative newness of these companies, there are no proven sustainably-viable, non-traditional models – it is common cause that newer low-cost “non-agent‘’ and technology driven models rely on volume and scale for success (namely profitability and sustainability). Time will tell whether the market will adopt these models partially, significantly or not at all in the medium to long term, but right now it’s too early to judge market take-up firstly and secondly whether, for example, a low, flat commission model is one that can be sustainably profitable.

Lew Geffen chairman Lew Geffen Sotheby’s International Realty

A. The market needs the traditional real estate model. It offers a professional approach to marketing and is there whenever and however needed for both sellers and buyers. Traditional real estate companies are not blind to the world’s adoption of technology and how it has changed the manner in which consumers perform a number of day-to-day tasks, so we’re incorporating technology into our industry to reach the widest audiences and simplify property searches. This is in addition to our bespoke service though; it doesn’t act as a replacement. At a base level, sellers who’ll use low commission online agents are the same clients who buy no-name brands from budget supermarket chains and they’re not our target market anyway. We’ve seen these online agencies before, as long as 15 years ago. They didn’t work then, the concepts being offered by the new ones are the same as before, so they won’t work now.

Adrian Goslett CEO RE/MAX of Southern Africa

A. The power of online agencies has been somewhat overplayed in the media. According to a study conducted near the end of 2016 by one of these online agencies themselves, only 10 percent of listings in the US were done without an agent’s help. Unlike renting short-term accommodation or catching a cab, a property investment is one of the biggest transactions someone will make in their life. Having a professional by your side when navigating through this process is critical in ensuring that your investment remains well looked after and that the true value of the property is realised. Online agencies will only be a threat to agents or agencies that offer little to no value in the transaction.

Paul Stevens CEO Just Property

A. We have found that although South Africans look at available properties online, the majority still prefer to deal with a person when making the big decisions associated with property transactions, whether they be sales or rentals. It makes sense to deal with a property professional who is not only working with the client’s best interests in mind, but has the experience to negotiate the best deal while guiding the client through the steps of the process. We do not believe this preference will change, but we expect to see a rise in online agencies testing the market.

Q. What is the difference between the online model and the traditional real estate model?

Lew Geffen

A. The most reputable traditional real estate companies have been around for decades and offer intimate knowledge of the residential markets in which they operate. Most agents know every property in their specific service area and can give both sellers and buyers pearls of wisdom such as when last a particular property was sold – even if it was 20 years ago – as well as accurate advice on pricing to sell.

Sellers want the professional bespoke attention that comes with a full-service agency; someone who knows the property industry and can almost totally remove the worry factor from their shoulders. That’s important, because make no mistake; it’s a stressful process at the best of times and the more professional your assistance to do this, the easier it’ll be. Traditional agents won’t, for instance, heighten security risks by making owners show their own homes to prospective buyers and in the process perhaps offer inappropriate or unappealing information that could scupper a potential offer.

The main difference between online and traditional real estate agencies is the professionalism and service levels offered to clients, which are incomparable and Pam Golding Properties, Seeff and Lew Geffen Sotheby’s International Realty certainly won’t be going out of business because of them any time soon!

Adrian Goslett

A. The main difference is that the online model leaves a seller to conduct the transaction on their own, whereas the traditional model helps and guides a seller through every step of the process, handling the tedious and time consuming tasks associated with selling a house and allowing the seller to get on with his/her daily responsibilities. Sellers often do not realise just how time consuming it is to sell a house – going the online portal route will quickly help them to realise this.

Andrew Golding

A. There is no clear definition of this. All so-called traditional agencies make extensive use of the digital environment and technological advances. The central premise of the so-called ‘’online agency’’ is that they either purport to be able to automate a number of processes in the real estate transaction through technology or they assume that the consumer (in some cases this applies to the seller and in others to the buyer) is willing, competent and able to expedite a number of the processes which traditionally have been the responsibility of the agent. Fundamentally, however, the difference between the so-called online model and traditional agents is about the commission rate they charge for the service they offer. This is not a new phenomenon as so-called low-cost agencies, defined as agencies which offer their services at a discount to other competitors, have always been a reality in our market. Ultimately, consumers will vote with their feet and decide which of the many different value propositions best suits their needs.

Q. Do you believe that buyers and sellers will embrace the online model or is there always going to be a need for traditional agents? If the latter, why?

Adrian Goslett

A. At this point, it is difficult to imagine a world where there isn’t a market for traditional real estate agents. Consumers are willing to pay for convenience. What the online property portal model might save them in terms of finances, will cost them in terms of time.

Paul Stevens

A. Innovations that disrupt industries often work for the good of society as a whole. The traditional way of selling property is forever changed but there is still a great need for human contributions in property transactions; for the insight and expertise that only estate agents can offer. The agencies that survive the digital disruption will be the ones offering excellent, personal service and the peace of mind that no website can match and who match that service with effective technology which works not only for profit but for the good of their clients.

Andrew Golding

A. The notion of an online model is a misnomer but rather goes to the question of the value proposition that agencies offer clients and what they are viably and sustainably able to offer those clients in terms of fees and continue to run successful businesses. In the final analysis, it really boils down to whether the agent or agency can add value to a real estate transaction and a satisfactory contract of that value for all concerned in that transaction. Currently, agents and agencies add real value in many varied and different ways. The purchase or sale of a property is usually at least a six-month process from start to finish, it can often be complex, it is frequently nuanced, and it is usually the single biggest transaction clients undertake. No one property transaction is exactly the same as another, each has its own specific peculiarities and nuances which the ‘’average” homeowner is not likely to have been exposed to.

Generally speaking, the disposal of or purchase of this asset is usually not within the client’s area of knowledge and competence. The requirement of and need for credible, professional, expert advice is therefore sensible and prudent. Property transactions involve hundreds of small steps from the first decision to sell to the final transfer of that property to new owners – these steps include the requirement for expertise and competence in a number of different disciplines from marketing to strategy to negotiation to finance to legal and conveyancing, to name but a few. The many and varied components of this value proposition ultimately result in a necessary sense of comfort and peace of mind as well as importantly, convenience in today’s very fast-paced world.

Lew Geffen

A. Sellers want to put the worry-factor of selling a house in the hands of professionals they know will also have the marketing muscle to take their homes to the widest audience. Absolutely nothing beats a full service agency staffed with well-trained, experienced and expert agents, so we’re not concerned about our market share.

article courtesy Private Property