Economics are driving the creation of new hybrid estate agency models more than consumer buyer behaviour.
Like most businesses, the death knell for Estate Agency was rung by the emergence of online portals which promised to allow the seller to cut out the middle man, with transparency of the transaction through sophisticated online portals, essentially facilitating a DIY approach to real estate sales.
But did it ring too soon?
Online builds for the future
The online market was touted as the future, and major brokers like emoov and Purplebricks captured market share, especially at the lower end of the scale, being able to offer consistency and low costs through economies of scale.
However, building a new business model, especially one based on huge upfront investment in technology and marketing, is not without its issues as seen by profit warnings from large player like Purplebricks, and the high profile administration of eMoov, who cited cashflow issues even though listings were paid upfront, demonstrate online agencies are struggling to find traction in a largely people-based business.
Purplebricks Accounts for 2018 show marketing spend of £382 per listing on marketing, up 25% on prior year, showing how expensive it can be to build brand awareness and engagement in a business traditionally dominated by high levels of service and personal reputation.
Ultimately, your house is the most expensive transaction you will ever embark on, so trust is essential, and as yet, a large proportion of the public is still not comfortable trusting an online agency with the such a large transaction
Purplebricks is undoubtedly playing the long game, it knows that combining a strong brand awareness with a growing customer business will translate into higher lead flow in the future, so it’s prepared to invest in the short term to reap rewards for the future, but many businesses are not in the same boat, especially the traditional High street agents.
The future for the high street retailer?
With falling prices and lower commissions, high street estate agents are finding revenues declining at a time when costs, especially retail lease prices are climbing at up to 5% per annum, the pinch coming for the high street agents.
The decline of estate agents has been forecast for years, as online businesses with low operating costs drove down the commissions much to the benefit of homeowners, but there was still a strong market on the high street with footfall driving walk-in enquiries and acting as a strong shop window for local listings.
But the economics are changing.
High street footfall is declining, which is leading to lower occupancy rates, as the High street becomes a less attractive retail destination for consumers. At the same time, retail leases are becoming more expensive, with a growth of 5% per annum in lease costs alone.
As the housing market begins to slow, average house prices are dropping at 2.5% per annum, and commissions are dropping closer to 1%, further squeezing the margins for independent estate agents around the country.
The rise of the Hybrid
In the US, hybrid estate agency models, where self-employed agents are supported by third-party shared service providers are the norm, with centralised offices hosting 100+ independent agents offering significantly diluted costs for the selling agent.
Businesses like Keller Williams have recognised that in order for agents to be successful they need to deliver across 4 fronts.
Help agents create a strong personal brand
Keller Williams is not a real estate company, it’s closer to the traditional model of a shared services/BPO provider. This means, that, unlike other franchise or national brands, it’s agents operate as separate entities and brands with Keller Williams providing the support and infrastructure to develop those companies.
This means that the agent’s personal brand is at the forefront. The company encourages each agent to develop and promote this brand to the marketplace, rather than a dry, generic corporate brand. The agent is the focus.
Operate in a low-cost environment
Hybrid estate agency models tend to be based on a centralised facilities model, meaning that fixed costs such as rent, utilities and IT management, key holding etc. are diluted substantially across a much larger agent base, with 30-50 agents bearing a fraction of the total cost of a location.
Such central locations also offer marketing, IT, Business and Admin support at low costs, as the services can be provided more efficiently ad effectively.
Clear focus on relational vs transactional selling
Purplebricks and hybrid estate agent facilitator Keller Williams are obviously focussing on the long term, knowing that the value of businesses is more closely linked to the size of its contact base than it’s immediate transactions.
Focussing on minimising the cost structure takes away the cashflow risk and allows Estate agents to focus as much on building a pipeline for the future, leading to referral and listing business, as marketing existing listings.
A strong scalable technology platform
Technology will become the backbone of the offering going forward, with expert systems and simplified UI delivering efficient management from the initial listing through to sales processing and billing which lets the agent spend more time actually selling and providing service.
Increased adopting of AI has created new offerings and services, with companies like Nextdoor seeking to own the consumer by providing predictive hyperlocal service offerings tailored to the individual needs of the consumer, based on their user history and location.