Disintermediation is a really long word with a short, but scary meaning – the removal of the intermediary in a transaction.
For real estate, it’s the word that asks the question – in this digital age, do a property seller and a buyer really need an agent to connect and mediate the selling of a property? When you can upload a property to a portal, and that portal will alert buyers to new listings that meet their criteria, what is the real value a real estate agent adds to the deal?
The common response is that agents offer a value-added service, ensuring that vendors not only sell, but sell at the best price with the least stress. They are a concierge service to help and guide vendors through their property journey and the key decisions that will be required to get the best result.
But is that the service that most vendors are currently receiving?
Real estate is set to be one of the most disrupted industries in Australia and New Zealand, with 82 per cent of real estate jobs at risk of digital disruption by 2032, compared to 44 per cent of Australian jobs generally, according to PricewaterhouseCoopers.
Although 2032 may feel a long way off, the effects are already being felt now. In a separate report, Deloitte found that the way 52 per cent of property businesses are structured today has changed significantly due to technology, allowing for improvements in efficiency and reduced costs.
Essentially, what this means is that disintermediation of the real estate industry has started. And here’s why – the service that too many agents offer their clients is not good enough.
In the recent Perceptions of Real Estate report, CoreLogic unveiled that 34 per cent of vendors surveyed had an average to poor experience with their real estate agent. That’s more than one third. Of this, 14 per cent described their experience as either very bad or disastrous.
Last year (to end November 2015, the most recent data at the time of writing), there were 494,564 dwelling sales across Australia. If 34 per cent of vendors, representing 168,152 properties, decided not to use a real estate agent, this makes for some disturbing figures.
Taking the 34 per cent as a benchmark, it is the equivalent of 121,445 houses which at a median house price of $600,000 nationally, is equal to nearly $73 billion in property sales and nearly $1.8 billion in commissions (based on 2.5 per cent commission).
For units, the figures are 46,706 unit sales at a median sales price of $502,000, which is a total of $23 billion in sales and commissions of $586 million.
Effectively, poor service levels are putting an estimated $2.3 billion in annual commissions at risk.
But surely vendors don’t want to deal directly with all the stress and bother of selling themselves? The property markets in other countries indicate otherwise. In Canada, the Canadian Real Estate Association estimates 20 per cent of the property market is now For Sale By Owner, while other sources put it as high as 30 per cent. In New Zealand, the figure is currently around 10 per cent. In Australia, newcomers such as Hello Real Estate, which offers a real estate coach, and Sellmycastle.com.au are helping owners sell their properties without a realtor.
If one in every three vendors is having an ordinary experience with an agent, they are more likely to look for an alternative the next time it comes to selling. As more vendors turn to digital alternatives and have a positive experience, critical mass could be quickly achieved.
The irony in all of this is that, according to the Perceptions survey, good service is not that hard to deliver. Key behaviours that vendors want their agent to demonstrate to them are:
1. The ability to follow-up
2. Customer service
3. Negotiation skills
Agents who aced these three basic skills were rated extremely highly and more likely to be recommended for additional business by their vendors.
Improving industry standards is not only essential now, but will go a long way in protecting the future of real estate.