Re­al­tors: adapt or die

Financial Mail - - CONTENTS - Joan Muller [email protected]

FNB’S re­cent launch of an app that al­lows its cus­tomers to trade their homes pri­vately among them­selves at no cost couldn’t have come at a worse time for real es­tate agents. The liveli­hood of SA’S es­ti­mated 40,000 es­tate agents has come in­creas­ingly un­der threat in the past few years, with the en­try of a num­ber of dig­i­tal dis­rupters chal­leng­ing the way in which South Africans have tra­di­tion­ally bought and sold prop­erty.

New on­line list­ing plat­forms such as Lead­home, Prop­er­ty­fox and Home­bid of­fer a cheaper al­ter­na­tive to the av­er­age com­mis­sion of about 7% of the sales price (plus VAT) that sell­ers typ­i­cally have to pay es­tate agents to mar­ket and sell their homes. Most new en­trants charge com­mis­sion of only 1.5% (plus VAT) or a flat fee of be­tween R35,000 and R40,000 — payable once a sale is con­cluded.

Lead­home, for in­stance, claims that its fee struc­ture means a seller of a R1.5m home will save nearly R75,000 in agent’s fees.

The big­gest dif­fer­ence be­tween the busi­ness mod­els of tra­di­tional agents and on­line oper­a­tors is that the lat­ter aren’t in­volved in prop­erty view­ings and price ne­go­ti­a­tions. (Most do of­fer buy­ers and sell­ers sup­port to fa­cil­i­tate the sales and trans­fer process.)

But es­tate agents haven’t only had to con­tend with new com­pe­ti­tion. Their in­come has also been eroded by fall­ing trans­ac­tion vol­umes: the num­ber of hous­ing sales con­cluded in the year to date in SA is down about 30% from 2014/2015 peaks. So it’s not sur­pris­ing that es­tate agents are less than en­am­oured with the ad­vent of yet an­other dig­i­tal plat­form — FNB’S nav» Home app — which is bound to fur­ther cut into the in­dus­try’s mar­ket share.

Es­tate agents have ac­cused FNB of ef­fec­tively en­ter­ing the hous­ing sec­tor as a pri­vate bro­ker with the aim of un­der­cut­ting their busi­ness. But FNB Home Fi­nance CEO Lee Mh­longo de­nies that this was the bank’s in­ten­tion. He says the idea was never to com­pete with es­tate agents or ex­clude them from the nav» plat­form. “Our key aim is to of­fer greater choice, con­ve­nience and ef­fi­cien­cies to FNB cus­tomers,” he says.

Mh­longo em­pha­sises that es­tate agents are en­cour­aged to list their busi­nesses on the app at no cost. “It is then up to an FNB cus­tomer to de­cide whether they want to use an in­ter­me­di­ary to sell their home or go it alone,” he says.

The app also of­fers sup­port ser­vices to buy­ers and sell­ers alike, such as of­fer-to-pur­chase doc­u­ments and dis­counted bond reg­is­tra­tion fees through a se­lected panel of at­tor­neys.

Mh­longo con­cedes that the app is likely to take some busi­ness away from es­tate agents, given the size of FNB’S cus­tomer base. The bank has nearly 8-mil­lion cus­tomers and a 25% mar­ket share of SA’S R944bn home-loan in­dus­try, ac­cord­ing to Re­serve Bank fig­ures. But he ex­pects most FNB buy­ers and sell­ers will still use an es­tate agent to guide them through what can be a com­pli­cated process. “Tech­nol­ogy will never re­place the hu­man touch en­tirely. As such, es­tate agents re­main crit­i­cal role play­ers in the mar­ket,” he says.

Mh­longo nev­er­the­less sup­ports the widely held view that prop­erty trans­ac­tion costs in SA are ex­or­bi­tant, with all-in costs (es­tate agents’ com­mis­sion, trans­fer du­ties and bond reg­is­tra­tion fees, for ex­am­ple) amount­ing to an es­ti­mated 15%-20% of the sales price for prop­er­ties priced above R1m.

“That’s al­most ob­scene com­pared with the fees in­curred when in­vest­ing in other as­set classes,” he says.

Trans­ac­tion costs are even higher, per­cent­age-wise, for lower-priced prop­er­ties. This, Mh­longo ar­gues, is one of the rea­sons home own­er­ship re­mains out of reach for the less af­flu­ent. “So our plat­form could be es­pe­cially help­ful to lower the en­try bar­ri­ers for low-in­come cus­tomers, given how pro­hib­i­tive cur­rent trans­ac­tion costs can be.”

In­dus­try play­ers say it is too early to ac­cu­rately pre­dict what per­cent­age of the hous­ing mar­ket dig­i­tal plat­forms are ul­ti­mately likely to cap­ture. How­ever, tra­di­tional es­tate agency Pam Gold­ing Prop­er­ties (PGP) has de­cided to face new com­pe­ti­tion headon. In a bold move in Au­gust, An­drew Gold­ing — a med­i­cal doc­tor who took over as MD of the fam­ily busi­ness in 1996, suc­ceed­ing his mother, founder Pam Gold­ing — an­nounced the ac­qui­si­tion of fixed-fee on­line plat­form

Last month, PGP upped the ante by form­ing a joint ven­ture with Ir­ish on­line auc­tion plat­form


PGP is the first of the ma­jor tra­di­tional play­ers to in­cor­po­rate fully fledged on­line plat­forms into its busi­ness model. It’s a move that has been crit­i­cised by some of its com­peti­tors, which be­lieve PGP’S dig­i­tal leap sup­ports the phas­ing-out of es­tate agents.

Yael Gef­fen, CEO of Lew Gef­fen Sotheby’s In­ter­na­tional Realty, says get­ting rid of the mid­dle man may lead to a short-term cost sav­ing for buy­ers and sell­ers but, ul­ti­mately, it is not in the best in­ter­est of con­sumers.

She ad­mits that on­go­ing tech­no­log­i­cal ad­vances will un­doubt­edly trans­form the lo­cal in­dus­try and the way in which homes are bought and sold. But she ar­gues that es­tate agents still have a cru­cial role to play.

“Buy­ing prop­erty is a com­plex trans­ac­tion, and phas­ing out es­tate agents means con­sumers don’t have ac­cess to a skilled and ex­pe­ri­enced pro­fes­sional who will help them get the best price for their home.

“Let­ting a buyer and seller get to­gether to de­ter­mine their own price and con­di­tions is like ex­pect­ing a hus­band and wife to fi­nalise their divorce with­out a me­di­a­tor,” she says.

Though fixed-fee and low-com­mis­sion agen­cies em­ploy agents to sup­port buy­ers and sell­ers when needed, Gef­fen says one has to ques­tion the cal­i­bre of agents these com­pa­nies at­tract. “It wouldn’t make fi­nan­cial sense for a skilled agent to work even harder for far less re­turn,” she says.

Se­eff na­tional mar­ket­ing man­ager Ted Frazer holds a sim­i­lar view. He says on­line agen­cies are bound to ap­peal to a cer­tain seg­ment of the mar­ket, but there will al­ways be a need for an ex­pe­ri­enced ad­viser to fa­cil­i­tate the process “given how com­plex the home-buy­ing trans­ac­tion is and the sig­nif­i­cance of the fi­nan­cial com­mit­ment of buy­ing a house”.

How­ever, in much the same way as tra­di­tional travel agents had to repack­age them­selves and el­e­vate their value propo­si­tion when on­line plat­forms en­tered that in­dus­try, Se­eff is look­ing to adopt tech in­no­va­tions that can equip its agents to pro­vide a bet­ter real es­tate ser­vice to its clients. “Tra­di­tional com­pa­nies will have to re-ex­am­ine the way in which they op­er­ate and en­gage with cus­tomers. And those com­pa­nies that don’t adapt to this chang­ing paradigm will not sur­vive in the long term,” Frazer says.

Gold­ing is more frank. He be­lieves thou­sands of tra­di­tional es­tate agents will be squeezed out of the mar­ket in the next few years. In fact, he says, the num­ber of agents could po­ten­tially halve by 2023 — “not only be­cause of dig­i­tal trans­for­ma­tion. There are also too many me­diocre agents in the mar­ket who will no longer be able to jus­tify their com­mis­sion rates in an en­vi­ron­ment where sell­ers are look­ing for greater ef­fi­cien­cies.”

Gold­ing says the in­dus­try will have to start cater­ing for the needs of dif­fer­ent seg­ments of the mar­ket. “Es­tate agents haven’t done par­tic­u­larly well in pro­vid­ing enough choice to con­sumers. Un­til now, we have tended to of­fer a vanilla ser­vice to ev­ery­one.”

He be­lieves a hy­brid model is the best way to go: a tech-en­abled process and dig­i­tal plat­form that also of­fers the ser­vices of an ex­pe­ri­enced agent if needed. “There are no doubt tech-savvy peo­ple who want to use a self-help dig­i­tal plat­form to buy and sell a house, but most sell­ers and buy­ers, es­pe­cially at the R1.5m-plus mar­ket, will prob­a­bly

No-one can af­ford to cling to the old way of do­ing things while tech­no­log­i­cal ad­vances are hap­pen­ing so rapidly An­drew Gold­ing

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.