Guest Blogger Sinéad Canning of Residential Edge on Online Estate Agents
15 November 2016 |
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When Sir Tim Berners Lee gifted everyone his invention of the World Wide Web 25 years ago, not even he could have imagined the profound impact it would have. Cost effective, lightning fast digital communication shrank the world to a palm-sized tablet that fit in your back pocket. The web ushered in globalisation on an unimaginable scale and became the ultimate disrupter of old businesses; spawning whole new industries, relegating others to the history books and inspiring new consumer behaviours.
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 are predicting that will change, with a new breed of online estate agents replacing the old business model with virtual offices and cut price commissions. So will the local high street agent be consigned to the dustbin of history like Blockbuster or will it adapt and survive?
Selling property online is not exactly a new idea: the first agent launched in 2008, 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?
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 representing each of these parties, as well as a buyer and seller and their families. In this sense it is unlike other businesses that have successfully moved online, such as travel services or banking. It is a very high value and technical transaction that requires a skillful hand to manage it. 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?
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 being sold 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 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.
Crucially, the high street agent currently trumps the online agent when it comes to personal touch and local market knowledge. The high street agent works in your area, is familiar with its amenities and knows the kind of people who will buy your property. He / She is a visible, identifiable person you can build a rapport with and drop in to see in their local office. This personal relationship is more 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.
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 a 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.
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.
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.
What the development of this hybrid online service shows is a willingness to adapt to changing market conditions that appears 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.
If high street agents are serious about continuing to operate in the way they do and charge fees accordingly, then they must get better at demonstrating the value they add in terms of market knowledge, personal service and technical expertise. High street agents need to focus on answering 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.
About the author
Director, Residential Edge
Sinéad Canning runs independent sales & marketing consultancy Residential Edge, which delivers bespoke and commercially driven advice to London’s residential developers. Her clients have included renowned developers Lendlease and Argent.
Sinéad has worked in prime central London property since 2000, spending 10 years working as an estate agent and sales’ manager for leading London agencies Foxtons South Kensington, Savills’ Sloane Street and Carter Jonas’ Knightsbridge. Since leaving agency, she has worked for ‘golden post code’ developers Rigby & Rigby and Northacre plc.