ANALYSIS -- AGENTS: What value are you really providing?

Following last month’s analysis piece in Real Estate Business, comments about these hot industry topics came through thick and fast to our website, www.rebonline.com.au.

One in particular stood out in relation to the future of real estate agents.

“With this sort of approach, how long will it be before home owners start asking themselves, ‘real estate is simply advertised and sold online; do I really need to pay an agent $1,000s to do that for me?’” Sam asked. With that in mind, and with an agency offering no perceived ‘value’ because they no longer need to appear as a business or have any sort of shop front presence, is this a precursor to home owners’ asking the question, ‘Is technology negating the need for a real estate agent?’

It’s a question raised at an LJ Hooker sponsored forum held on the sidelines of the recent Australian Real Estate Conference (AREC) by social commentator and author, Rachel Botsman.

Ms Botsman, author of the book What’s Mine is Yours: The Rise of Collaborative Consumption, told an audience of real estate agents that while she wasn’t suggesting they didn’t have a future, it was important they considered how technology was impacting their industry.

“It’s not that your industry is dead,” Ms Botsman said, “but you seriously have to think about your relevance.

“When people can start cutting you out and … making much better profits in between [and] they say, ‘I can trust to directly sell to someone without you in the middle’, how do maintain your relevance?’

“I think that’s a really important question for the real estate industry, so it doesn’t become the publishing industry … or music industry, and it doesn’t become the financial industry. They’re all getting caught out by this super trend of disintermediation.”

Ms Botsman pointed to the rise of peer-to-peer lending in the UK as an example of what can happen to intermediaries. Also known as social lending, it involves lenders and borrowers being matched without the banks being involved.

An example of this is the website ‘Zopa’, a site that matches people willing to lend money to people who need to access finance.
“What was happening was a collapse in trust in big things,” she said. “This opened up the opportunity for things like Zopa.”

According to Ms Botsman, the sytem works: While the average default rate on credit cards is around nine per cent in the UK and between four and five per cent at traditional banks, for social lending platforms it is less than 0.9 per cent.

“Every single borrower and lender I spoke to all spoke about transparency,” she continued. “They all spoke about accountability. They all said, in some shape or form, ‘I trust you [the lender] more than a big bank’.”

Zopa’s founder had told Ms Botsman that the scheme’s success was also due to the way in which they treated customers.

“They never referred to the people that use their service as consumers or stakeholders or users,” she said. “He refers to them as members; he thinks of them as part of a club. And what he said was that consumers consume one-way transactions; members participate in a two-way relationship. So, for him, banking isn’t transactional, it’s an experience.”

FOR SALE BY OWNER (FSBO)
One area in which technology is already helping consumers to do without agents involves ‘For Sale by Owner (FSBO)’ companies, of which there is a particular concentration in North America.

According to Derek Thorvaldson, assistant regional director at RE/MAX of Western Canada, statistics from the US-based National Association of Realtors (NAR) show FSBO companies accounted for 10 per cent of sales in 2011.

“This is down from 14 per cent in 2003 and 2004,” Mr Thorvaldson told Real Estate Business. “Of this 10 per cent, four per cent were ‘non-arm’s length’ transactions where the seller knew the buyer. Also included are situations where the buyer approaches the seller. So the actual number of homes sold through FSBO marketing efforts is around five per cent.

“We don’t have figures for Canada but expect it will be higher,” he continued. “[And] many FSBO homes are sold by agents.”
Mr Thorvaldson explained that while FSBO companies were once small operations, this is changing.

“They are becoming national, better funded and developing a brand name presence in the market,” he said. “They are, however, restricted in what they may do without the need to be licensed. They can provide the seller with some tools e.g. yard signs and an internet presence.

“In Canada, they are now allowed to advertise on the same real estate site the realtors use – realtor.ca – provided they are licensed with a local real estate board (association), which provides more opportunity for exposure than was possible in the past.”

AN FSBO THREAT?
Local professional real estate marketing and communications consultant, Julie Ryan, tempers the growth of FSBO companies in North America by pointing to a key difference between the markets – higher commission levels.

“It is common for commission to be in the range of 6 per cent to 8.5 per cent, so the seller has a greater incentive to achieve a sale for themselves,” she said.

“Despite the increasing ease of selling privately, the number selling privately, however, has not grown significantly over the past 10 years.”
Ms Ryan, who spoke at the recent NAR conference and who has worked extensively with US-based real estate companies, said “yes and no” when asked whether FSBO-type companies are a threat to agents.

“The ‘yes’ is that FSBO companies encourage consumers to consider the cost of the service they are buying and this is always going to encourage them to look for low fee options. Every business should ask themselves from time-to-time, ‘How would I go into competition with myself?’, and then consider doing some or all of those things.

“The ‘no’ is that there is a long list of reasons why sellers should not try to sell themselves, the most obvious of all is the very real threat to their personal security,” she continued. “I suggest asking any seller thinking of selling privately, ‘If your home was not on the market and a couple of men came to the door and asked to come in and look around, what would you do?’

“Most say they would not let them in. When you ask why, most nominate security. Why would a ‘For Sale By Owner’ sign out the front of your home make you feel safe in what is clearly a high-risk situation?”

Chris Heller, president of Keller Williams Worldwide, part of the second largest real estate company in the United States, told Real Estate Business there were plenty of reasons why agents were still valued by consumers.

“They still want the advice and the expertise of the agent,” said Mr Heller, who also owns a realtor business in San Diego, California.

“They still perceive the agent to be an expert in the area, [they want] to get their opinion, whether it’s on the value of the property, the quality of the property, the neighbourhood or the schools or those types of things.

“The other thing is negotiation. It’s hard for some to negotiate effectively on their own – it’s uncomfortable, it’s awkward, it’s confrontational for some people, and having someone do it for you allows you to have a lot more leverage during the negotiation process.”

Michael Davoren, managing director at RE/MAX Australia, agreed. While agents have no automatic right to exist, Mr Davoren said he is confident quality agents will always have a place in the process.

“Like all service industries, real estate agents will need to continue to find new ways to justify fees and create a ‘value add’ proposition,” he said.

“The obvious area here is the skill of negotiation. This is an area FSBO sellers are not strong in, but agents will need to be able to demonstrate this skill.

“Market access (a database) is also a major point of difference for good agents. As the real estate industry becomes more aware of the global opportunities and knows how to benefit their clients through it, FSBO agents will be left struggling.”

Mr Heller also focused on the selling and buying process. “It’s still an involved process … as far as the paperwork and the financing and the disclosures go,” he said. “All the legal issues and the new laws that are always coming up – they still need agents to wade through all those issues.”

Being able to provide guidance and help through what can be a complicated process is a key area of differentiation, Mr Thorvaldson added. “For this reason, first time home buyers and immigrants especially will use an agent.

“Agents are able to assist the seller in preparing their home for sale so as to maximise saleability and value,” he said. “They are also able to qualify prospects.

“[Yet] the biggest advantage realtors bring to the consumer is in the interpretation of the current listing and sold listings to accurately advise the consumer of pricing trends in a specific neighbourhood.

“The other main advantage is in [providing] a coordinated marketing plan that involves all aspect of promoting the property, such as social media, web presence, newspaper advertising, open houses, neighbourhood promotion...”

TECHNOLOGY AS FRIEND
Mr Heller, who obtained his realtor licence in 1983, said there was a lot of talk years ago about how the internet would render agents obsolete.

“But here’s the reality of it: in real estate, people still always need agents, and that is particularly true in softer markets,” he said. “In a down market, there’s less people selling their homes themselves, there are fewer discount brokerage companies in existence, and the ones that are there are getting a much smaller percentage of the business.

“When the market is very good, it’s easy for someone to sell their home and to see more people doing it on their own – or at least attempting to do it on their own.”

Julie Ryan added that technology is of little threat to good agents.  

“Technology has the ability to free real estate businesses from their high-rent shop front model to a more cost-effective model where rent for space is negligible,” Ms Ryan said.

“In addition to the obvious online marketing and information about property (much of which is also available directly to consumers), I see great agents actively engaging in the use of high-tech tools.”

This includes iPads, interactive floor plans, various smartphone apps and YouTube, she said.

“I agree with the saying, ‘Technology will not replace agents; agents using technology will replace agents who do not’,” she concluded.