Do we really need Estate Agents?

Do we really need Estate Agents?
Estate Agents … love ‘em or hate ‘em they proliferate every high street in every
village, town and city in Great Britain. A September 2013 article in The Times
(subscription required to read the full article), written by Economics Editor Sam
Fleming, took the popular statement of “a nation of shopkeepers” and headlined his
article “Britain becomes a nation of Estate Agents”.

The article, supported by statistics from the good folk at the Office of National
Statistics, showed that in the second quarter of 2013, the number of jobs in the
sector (Estate Agency) rose to 562,000. This exceeded the 2008 peak and the most
since its records began in the late 1970s. That’s a lot of shiny suits, pointy heels and
mini’s!

You could almost hear the champagne glasses clinking in the local pub. The Friday
lagers had now been substituted with champagne and the talk was no longer about
how stagnant the market was, but if you listened carefully enough you could make
out the cheer from Estate Agents, especially in London, saying … “we back baby”!

  “The greatest trick Estate Agents ever pulled was to
  convince sellers and buyers they were indispensable.”
                                            Adapted quote from The Usual Suspects

Ask any Estate Agent what they do to justify their fees and they’ll launch into a well
rehearsed oration.
You’ll hear such verbatim as ‘local knowledge’, ‘no sale no fee’, ‘professional
photographs’, ‘negotiating with buyers’, ‘award winning’, ‘we sell your home fast’,
‘accurate valuation’, ‘longer opening hours’, ‘strict codes of practice’ … do you really
want me to go on?
Ok, here are a few more: ‘your local property experts’, ‘expert advice at every stage
of the sale’ (there’s that word expert again) and ‘we have the experience and
expertise’.
How many times can you fit the word ‘expert’ in your soliloquy, because you are
now clearly talking to yourself? I stopped listening when you said ‘professional
photographs’, then you turn up with an iPhone to take the pictures!

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Not all Estate Agents are bad, but are they necessary?

To be fair not all Estate Agents are bad. After all, I am a former Estate Agent and I
know I was good (inserts smug face < the people laugh).
The question is, are they necessary? Do we actually really need Estate Agents? If
tomorrow, Estate Agency was deemed illegal could buyers and sellers still interact
with each other and have a successful property transaction?
The simple answer, of course they could. Providing the right systems and processes
were put in place to allow buyers and sellers to interact directly and efficiently. The
most important part of a property transaction, the conveyancing (the legal process
of transferring ownership), is not handled by an Estate Agent, it is handled by a
Conveyancer / Solicitor.
Did you know, despite having what is possibly the most important role in a property
transaction, the Conveyancers/Solicitors actually get paid the least? The reason for
that is they are not sales people. Estate Agents are sales people. Good sales people
make themselves required. It doesn’t mean they are necessary though.
What about all their ‘expert’ this and ‘local knowledge’ that drivel, you ask? Unless
you do not have the internet, everyone has access to local knowledge.
Knowledge is defined as the facts, information and skills acquired through
experience or education. Ironically, ‘The Knowledge’ is the exam London black cab
drivers need to pass to drive a black cab and as you’ll discover further in this essay,
their industry has been disrupted by an upstart founded just 5 years ago. The
London black cab industry dates back to the 19th century.

   Every day we create 2.5 quintillion bytes
   of data and rising

Today we not only produce but assimilate more facts and knowledge than we did
just 5 years ago. Add to the fact (pun intended), that any facts we need to clarify are
only a tap away.
We are moving from the ‘Information Age’ to the ‘Automation Age’, where the
information that is being produced is being analysed to provide us with insights
which allow us to make informed decisions, streamline processes and automate
many of the tasks that were done manually. The end goal … more efficiency.

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What if ...

What if, before you put your property on the market for sale you could go to your
smartphone or tablet and see exactly how much buyer demand there was for
property like yours in your geographical area?
What if, as a buyer you entered your property requirements into an app and your
details were automatically sent to every owner whose property matched your
requirements in your required geographical area, even if that property was not
officially on the market?
What about negotiating the transaction and all the other benefits Estate Agents
provide, you ask? Sure, I’m certainly not taking anything away from the many
purported benefits, but are every single one of the benefits actual benefits or
should they be the standard when it comes to selling and buying a property?
Let’s remember, that while an Estate Agent says they are working for the seller,
because that is who pays them their fee, the Estate Agent is actually working for
themselves. Which is why when it comes to “negotiating” the Estate Agent
“encourages” you to accept the “offer”, despite it being nowhere near what you
want in many cases.
Consider this, if you are paying your Estate Agent 1.5% (+VAT) as a fee for selling
your property, every extra £1,000 they get for you is exactly £15 (excluding the
VAT) to them. If you are unlucky enough to pay them 2%, that £15, becomes £20 for
every extra £1,000 they get for you. Need I say more?
You have to give Estate Agents credit for making themselves indispensable. London
black cab drivers were, until recently, indispensable as well.

   Pardon the disruption

Uber, Whatsapp, Apple’s iPhone & iPad, Twitter, Skype, Wikipedia, Rightmove,
Google, Netflix and Amazon. 10 companies and innovations in the case of Apple’s
iPhone & iPad devices, who have disrupted the incumbents. All done in under 2
decades.
Amazon, founded in 1994, has disrupted giant incumbents like Barnes & Noble
(founded in 1917) and Waterstones (founded in 1982).

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Netflix, founded in 1997, has not only disrupted the sector, but literally put
Blockbuster (founded in 1985) out of business. The ironic thing is it was widely
reported that Blockbuster had an opportunity to buy Netflix back in 2000.
Google, founded in 1998, has disrupted the Yellow Pages business, which first
came into prominence in 1886. Yellow Pages make handy doorstops these days.
Rightmove, founded in 2000, has disrupted the way we search for property.
Research has shown that 9 out of 10 buyers begin their search online. This is just
the beginning, there is opportunity for further significant disruption in the entire
residential property ecosystem.
Wikipedia, founded in 2001, has disrupted the famous Encyclopaedia Britannica,
a general knowledge publication which has roots dating back to 1768. In March
2012, Encyclopaedia Britannica, Inc. announced it would no longer continue to
publish its printed editions, instead focusing on its online version.
Skype, founded in 2003, disrupted the international telephone market, erasing
billions in revenue and potential revenue for Telco’s around the world. In addition it
has virtually obliterated the calling card business.
Twitter, founded in 2006, has disrupted ‘breaking news’ announcements, getting
one up on News networks and broadcasters worldwide. News breaks first on
Twitter, then on television.
Apple iPhone & iPad, released in 2007 and 2010 respectively, have disrupted not
only the mobile device market, but also the desktop market. Overtaking
incumbents such as Nokia and Motorola in the mobile device space and forcing
companies like Dell to revisit their desktop strategy. In addition, Apple devices and
the App store have been instrumental in disrupting how we consume digital data on
the go.
WhatsApp, founded in 2009, has disrupted the sms market, erasing hundreds of
millions in revenue and future revenue from mobile network companies worldwide.
You know it has gone mainstream when your parents are on WhatsApp!
Then there is Uber, founded in 2009. Uber made headlines recently (June 2014)
when taxi companies across Europe staged protests against the private car hire
mobile app. In London, the argument the Licensed Taxi Drivers Association put for-
ward was that Uber drivers are using a smartphone app (the Uber app) to calculate
fares despite it being illegal for private vehicles to be fitted with taximeters.

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At the time of writing (June 2014), action has been started by Transport for London
(TfL) to secure a High Court ruling on the legality of the American company’s app.
On the day of the protests in London, Uber reported that their registrations
increased by 850%. Uber literally caused disruption.

     Common ingredient

There is a common ingredient in all of the above disruptive companies and let it
serve as a warning to Estate Agents. Each one of these companies is leveraging
technology to make existing processes significantly more efficient and has
disrupted the incumbents.
The goal of technology is not to necessarily replace the human element in a
transaction, but it is to ultimately make our experiences more delightful and less
stressful.
Property transactions are often listed in the top 5 of most stressful things people
have to experience. The majority of the stress is as a result of poor, inefficient
systems and the human factor, also known as the Estate Agent primarily only
interested in their commission.

     An industry ripe for disruption

We hear that term a lot. If you Google it, one of the first results is from Virgin’s
Entrepreneur blog. The blog post asks the question What makes an industry ripe
for disruption? Professor Mark Jenkins, a Professor of Business Strategy at
Cranfield School of Management lists 4 points to identify when an industry is ripe
for disruption:
1.    It has grown complacent from past successes
2.    It has lost touch with its customers
3.    It doesn’t take new entrants seriously
4.    The business model is out of date
Any of the above look familiar in the Estate Agency industry?

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Closing thoughts

In a way I feel sorry for Estate Agents. They know their days are numbered. Efforts
such as the Agents Mutual portal are a last-ditch attempt as an industry to fight on
by ‘innovating’.
My earnest recommendation to any Estate Agent reading this essay, buy a copy of
Harvard Professor Clayton Christensen’s The Innovator’s Dilemma. Read it,
understand it and truly innovate your industry.
The most comical thing of the Agents Mutual portal, whilst backed by over 2,500
Estate Agents including notable firms such as Knight Frank and Savills, is some of
their aims and terms. You couldn’t make this stuff up.
Exhibit A, taken directly from their website :
“The portal has the medium term aim of setting listing fees at the minimum level
consistent with developing and maintaining itself as one of the leading portals in the UK.”
Translation, “Our fees to vendors will not go down. We are launching Agents
Mutual so we do not have to pay more to the duopoly that is Rightmove and Zoopla.
Therefore making ourselves more profitable.” Agents Mutual has zero benefit to sellers
and buyers. Let me repeat that again, Agents Mutual has zero benefit to sellers and
buyers.
Whilst I have been unable to verify this, it has been widely reported that one of the
conditions on being a member of Agents Mutual is that you have to be
monogamous. No Rightmove and Zoopla polygamy. You can only be on Agents
Mutual and have to choose between Rightmove or Zoopla, not both.
Alex Chesterman, CEO & Co-founder of Zoopla responded with what can only be
described as a pincer move – he offered discounted shares ahead of their IPO.
According to reports, over 20 percent of Estate Agents using Zoopla took up their
rights to purchase the discounted shares. Round of applause.
As potentially disruptive PropertyTech businesses launch, like Movebubble (not
sure about having the name ‘bubble’ in a property business though) and our own
HOMESPLACE platform, the next 5 years are going to be defining moments in the
residential property ecosystem.
We will not need Estate Agents.

   “The enterprise that does not innovate inevitably ages and
   declines. And in a period of rapid change such as the present …
   the decline will be fast”. Peter F. Drucker
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About the author

                           Phin Mpofu
                     Founder HOMESPLACE
Scotland Director Startup Grind powered by Google for Entrepreneurs