There’s so much talk of disruption, it’s easy to ignore it as white noise. Real estate is a high-value, low-volume and high-risk transaction; people are always going to need an agent to guide them through the process, right?
Well, that is right, right now, because real estate is complicated and slow.
There are legal issues and paperwork — lots of paperwork — and fingernail biting negotiations and expensive marketing, and banks and conveyancing and phone calls and emails and so much communication.
In the current environment, most people feel somewhat safer having a person they can turn to who will look after all of that and guide them through the ownership issues of something that is both a big asset and emotional investment. A website can’t do that. There’s no app for it, and a robot can’t do it — yet. So, real estate agents get to rest a little easy.
But most real estate agents are interested only in vendors first, and landlords a distant second, while buyers and tenants cop the worst of agent service and as a result inflict untold reputational damage. This is the real estate industry’s Achilles heel. That’s not an opinion. Let’s look at the data.
Over the past 12 months across Australia, there was $294 billion in residential sales with 459,964 settled sales (to 30 June 2018), according to CoreLogic. If we calculate real estate agent commission based on 2.5 per cent (maybe you earn more, maybe you earn less, but bear with me), that represents $7.35 billion made by real estate agents around the country.
So far, so good.
But from the Perceptions of Real Estate Agents research, we know that 14 per cent of vendors and 14 per cent of buyers both had a truly awful experience with the agents they dealt with. This is an important number for us as an industry, because it’s the proportion of clients who never want to deal with us again.
So, the next time they transact — in seven to 10 years — if there is a piece of technology that can perform the services of a real estate agent, these are the people who will lead the charge towards it. That 14 per cent is the proportion of the market that is actively going to hand market share of real estate services over to new solutions. This is the proportion of the market that poor service is handing on a plate to new technology competitors.
How big a problem is that? Well, 14 per cent is the equivalent of $1.03 billion in commission that will leave the real estate sales pool. And that’s a telling number in itself, because in the start-up world, $1 billion is the magic amount that needs to be up for grabs that piques the interest of VC funding.
So, the poor degree of service currently offered by the real estate industry is actively handing over market share to the new technology solutions to such a degree that VC is prepared to fund — and scale that disruption even further.
And when you add to that the proportion of sellers who received average service, that number jumps up by an additional $1.62 billion. Those vendors who received average service are likely to be open to the idea of using an alternative to a real estate agent the next time they transact.
So, the total size of the problem is somewhere between $1.03 billion and $2.65 billion in commissions that we stand to lose, representing between 64,394 and 101,192 real estate sales.
How do we feel about that as an industry?
Happily, the expectations of vendors and buyers as to what they want in order to trust and receive excellent service from their agent are really straightforward.
The research showed that both sellers and buyers are looking for agents who have great market knowledge, excellent follow-up and response times, empathy and understanding, and first-class negotiation skills.
When agents nail these basic deliverables, their clients feel that they are in safe hands; that while buying and selling is complicated and confusing, they are going to be okay and that their interests are being protected. And feeling that degree of trust leads them to be grateful and to recommend their agent to all their friends and family. So, while they may not transact for many years, those agents who master this level of service receive regular referrals.
But based on the current data, there’s only 33 per cent of real estate agents who deliver “excellent” or “good” service. This represents $2.3 billion to $4.7 billion in commissions, and unless our service improves dramatically as an industry, these are the only agents likely to still be viable in a digital future.