Online estate agency – cure or virus for property professionals?

Online estate agency is growing by the day and 2010 seems as if it could well be the year of sale by property owner websites. These property portals have been set up for owners to sell their own properties by missing out the estate agent. They are selling their services with claims of 0% commision and 0% fees.

Google have recently entered into the estate agency market place which sent waves throughout the industry. The stockmarket acknowledge a threat to Rightmove property portal from Google by wiping close to 20 % off the share price of Rightmove shares in a short period. Google are, it must be said successful at most avenues they decide to go down and we can not believe that this new real estate on Google’s offering in the UK will be any different. We are generally big Google fans and look forward to their future property related developments.

Google entering the market will undoubtedly send shivers down the spine of some property portals but others will welcome them with open arms. Most have focused on the threat they could bring to the high street estate agent and what affect it will have for them. However, are ‘sale by owner’ websites a more probable threat to the quality and integrity of other related property professionals?

At first glance the natural competition would be with the estate agents and to an extent one would be correct in assuming this. However, other industry professionals related to the home buying and selling process may also be affected by the sale by owner type sites, dependant on their business model. These sites are springing up on an almost daily basis and vary from extremely professional sites to ones which are obviously less grand though to be fair do not perceive to be.

These websites which have a seemingly similar end result for the user I.e. allowing the individual home seller to market their property without a traditional high street estate agent, though can have vastly different business models within them.  A couple of examples of these new breed websites:

Tepilo – is the Sarah Beeney backed site which has progressed fairly rapidly and allows users to list their properties for free. The site Tepilo was set up and run without making revenue for several months. Tepilo say they are finalising a sponsorship deal which should enable them to keep the website completely free for the end user.

Tepilo claim there is no advertising on there site though do have a dedicated page for their ‘partners’ who generally have some property related connection which of course Tepilo’s visitors may want to visit, is that not advertising? Tepilo say that they don’t take commission on any other services either and use this to reduce the cost of the services. This is an approach which could have been easily exploited and we commend Tepilo for their stance in this area.  This direction and attitude certainly helps foster trust towards ones users and visitors.

Hablib.com – is a new site which is not actually ‘fully’ live for listing as yet and is currently trying to attract professional ‘partners‘ including conveyancers, HIP providers and surveyors. Hablib intend to utilise the obvious strengths of social media to sell or rent clients’ properties. If you take a look at the fees that property professionals must pay for being a supplier and the extra charges they must pay if they get an instruction via the website, it can be quickly be seen how and where Hablib.com will make a large proportion of their money.

A typical high street property conveyancer may charge approx £1000 combined to buy and sell. If this was the case the conveyancer would need to pay Hablib.com £100 (2% on a qualified lead and 8% on completion) of their fee if the instruction was gained via the site as well as the original listing fee. This part of their site and concept seems as if there will be many similarities with price comparison sites for professional services. However, with the fees payable to Hablib, whether the client will get the best deal for ‘required’ professional services, including price and quality is very much debatable.

Profit margins for property professionals have been squeezed throughout the ‘house price crash’; so can conveyancers for example really afford to pay an extra 10% cost without the service/product being negatively affected or raising their fee by 10% to take account of this cost? This is no different in the case of surveyors or HIP providers and it could be argued even more so in their cases.

Property professionals such as HIP providers, surveyors, conveyancers etc must calculate the cost of a ‘job’ no differently to any other industry. Some have undoubtedly made this calculation incorrectly or purposely ignored certain costs in order for them to able to justify lowering their fees to clients to win work. Many have had gone into administration due to this misjudgment often leaving a wake of misery including unpaid bills to suppliers and incomplete instructions which monies have been taken for.

Yet another ‘cheap HIP provider’, mysalepack went into administration this week quoting high overheads as one of the main reasons for this action. An attempt to get further information from their website is unfruitful and all that is present at time of writing is a completely white page.

Price comparison sites work for well for traditional retail products and some financial products, increasing competition and lowering prices. However, on the websites we have seen to date which monetize ‘property professionals price comparison’ the opposite has unfortunately applied for professionals services. We have seen and experienced constant lowering of price to compete with competitors which has often ultimately resulted in providers supplying what we consider to be a sub-standard product and/or service. Some websites actively promote an auction style bidding system with the obvious intention to lower the cost to the client. If this degrades the product or service can they really claim to be a consumer champion?

Unfortunately, the public’s desire for the cheapest of cheap, comparison websites aspirations to be make revenue and the service/product provider’s hope to increase turnover has led to allegations of poor practice. These allegations have included for example (and far from extensive) utilising untrained/inexperienced staff, adding hidden costs to products/services, misrepresentation of actual costs, lower grade product/service a ‘normal’ client would receive to name but a few. This was further supported very recently in the HIP and EPC industry when the Communities and Local Government found ‘EPC reports strewn with errors‘.

Sale by owner websites will undoubtedly be here to stay and can add something to the mix for sure, whether that will be a new ‘extra’ addition or be at the detriment of other areas and property professionals we will watch with interest.


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21 Responses to “Online estate agency – cure or virus for property professionals?”

  1. Nice article, but I must raise the point that there are some sound reasons for the drop in prices. We give instant prices for removals, surveys, conveyancing, HIPs and EPCs. The first 3 services for over 10 years during which survey prices have dropped 33% and conveyancing by neary 10%. The reasons for this is that technology allows a surveyor to work more efficiently – digital cameras allow faster surveys and reports can be loaded directly into a report, rather than via a secretary to type up. Similarly, e-conveyancing has speeded up the processes involved. It’s not all bad news!

  2. Interesting perspective from this blog and I agree with the two main points raised.

    I recently discussed Real Estate Agents need for change because of the new marketing and new technology techniques on my own blog site http://www.jamesdearsley.wordpress.com. I stated that property portals will struggle in the near future but real estate agents need to sit up and take notice; involve new techniques and I believe it will be a great symbiotic relationship otherwise agent will look slightly outdated.

    On the point about companies only concentrating on the bottom line and not much else, I couldn’t agree more. This business model will be here for a while I think, and I believe it all started with the airlines (sounds strange until you think what Ryanair and Easyjet have done to the airline industry). There will be a turning point however as service industries are exactly that. It may take time though.

    Great blog.

    James

  3. Truth is that comparison sites what ever they compare are not interested in the consumer saving money, nevermind the quality of the products. The buck stops with the bottom line and how much money they can make. If the consumer gets a poor deal via a comparison site, hey its the providers fault not our sites fault. Check out their terms and conditions, more disclaimers than products to compare 🙂

  4. Hi Rosie,

    Agreed there are technological and general efficiencies that can be made to lower price. However, is there not a point where you are as efficient as is possible, and any further efficiencies do not have a direct impact on cost?

    We all know that there is often a direct comparison between price and quality.

    EPCs are a good example and this seems to have been quite well demonstrated and evidenced by the CLG. Do you want to use a EPC company who basically subcontracts the work out, based upon who will do it cheapest for them with overall quality of service about as low as it is possible down the agenda OR pay a ‘sensible’ fee and recieve what your actual paying and hoping for.

    Unfortunately, using the eg of EPC price comparison this is not represented within the results. It appears we are comparing apples with apples when we are really comparing apples with turnips.

  5. Hi James

    Sale by owner property portals will develop for sure and will have a direct effect on the way some buy and sell property for sure. What the actual impact on the high street agent will be long term is unclear in my opinion.

    Your analogy with the budget airlines is an interesting one. It is said that before one can find the middle ground we must find and experience what is unacceptable.

    Thanks for your kind words

  6. There appears to be quite a negative theme with the way that you express the recent changes to your marketplace. All companies dealing with the public must accept there will ALWAYS be someone cheaper and someone who can do a better job than you. How do you get round it ? stay and be professional give a better service follow through and ensure you communicate effectively DONT sell on price.

  7. Thanks for your thoughts

    It is not negative, more reflective of certain aspects for ‘true’ professionals. The points raised are not aimed just within ‘our’ dedicated field but for ‘all’ property related professionals.

    I do agree with some of your sentiments, that selling solely on price could make it particularly hard for one in the future and is partly discussed above.

    We have never promoted or aimed to be the lowest or cheapest price which we are concerned a greater number of ‘professionals’ are now doing as common place.

    It is an observation that many property related professionals (especially on websites) are promoting being the cheapest as their number one selling point to the prospective clients i.e. selling on price.

    It is quite ironic that estate agents who can recieve alot of criticism do not generally sell their service with price as their number one benefit. Is there a lesson to be learnt here?

    In response to your point that we must accept that.

    “there will ALWAYS be someone cheaper and someone who can do a better job than you”

    Am afraid we will never beable to do so and we will always strive to be the best.

  8. Dom RICS surveyor Says:

    A reputable surveyor will not promote their service on price and what distinguishes us as a profession. You are correct to highlight the growing level of focus solely on price by clients and commisioning agents

  9. Brighton EPCs Says:

    Some EPC comparison sites do try to uphold standards, but a couple that seem to be fairly popular continue to mislead. On (sorry name removed) there are many companies advertising at lower fees than it is in reality to attract custom but add aditional cost on for VAT, postage and traveling costs. This can be easily seen as the prices they advertise on the (Name removed. sorry) are much lower than there own website.

    What too many people fail to see is that turnover is not profit.

  10. No sympathy for conveyancers Says:

    Conveyancers have consistently inflated their prices. If comparison site lower the price to clients which they take a small cut for, fine, as long as we are no longer treated with contempt.

    For too long solicitors have taken as long as they want, charge whatever they feel and refused to answer your calls. Is this not called turning the tables?

  11. I can’t help believe “you get what you pay for” Property sites that offer free everything make it difficult for everyone involved in this sector, not only do they put themselves in a position that won’t create profit and therefore money to improve their services they make waves confusing the customers of that sector. Look at Facebook for the social network model they have been trying to make good revenue for years and still quite cant do it.

  12. @IHS – “I can’t help believe “you get what you pay for”” An interesting observation. EA fee on average house in UK = £2500 (1%) to £7,500 (3%). Conveyancers would charge £800 ish. What does an EA do that is so clever cf a conveyancer. So EAs need to wise up and; start providing a service commensurate with their fees; lower their fees; clear their desks. As to wehther FSBO sites make money – who cares? They appear to be offering a service the consumer wants – the viability of the business model is for the FSBO site owners alone. But there is value in being popular – a la Facebook. As to confusing customers – EAs seem to have done their best to mystify the process all these years. The internet changes that and to assume that consumers are confused easily is a little patronising?

  13. @A Punter
    FSBO that charge fair enough its quite transparent. You are then paying to list your property in the hope you can negotiate as well as an agent with years of experience witht the leads FSBO sites may bring.

    To say ‘As to wehther FSBO sites make money – who cares?’ am sure the owners of these sites do, after all they are businesses and want to make profit am sure. This is being done through gaining market share and advertising or by commisions (as shown) from suppliers. If the suppliers as forced to compete on price then the customer will get an inferior product for def. If this is the case the FSBO is hardly a consumer champion.

    Yes i would agree that FSBO have there place, as do smart price baked beans and reconsituted chicken.

    Estate agents have always been the way to sell houses profitably and efficiently, this fad will be over before it gets started as soon as the owners wise up leaving many FSBO clogging up the internet.

    @IHS agreed that quality costs and websites provide a good tool for good agents. Websites attract leads, they dont sell houses.

  14. will FSBO rule Says:

    FSBOs are the future growth within estate agency. The impact they will have on agents is debatable. However, as with facebook there will be one or two that dominate, and the rest will pick up scraps. Teplio seems to have good backing and funding and has been promoted widely.

    The likes of Hablib which i had never heard of, sorry guys!! and many more i have seen do seem to be lacking and will struggle. Possibly with a lot of money thrown at them they may work out as Teplio looks as if it may do, but they could easily become a money pit with no real interest shown.

  15. @Amanada You miss the point. Whether the owners of FSBO sites make money or not is an irrelevance TO CONSUMERS. The new model is no charge – a la Tepilo. How they generate cash is up to them – or maybe they just hope to become the portal of choice and have a longer term strategy. Whatever.
    “Estate agents have always been the way to sell houses profitably and efficiently” A baseless assertion. They have been the ONLY way, by mystifying a simple process and claiming some mystical mastery of negotiation skills that are neither taught, tested or independantly regulated. If you give consumers the information and tools they need to do the job of an EA, then consumers can do it. EAs are in the same bracket of public distrust as politicians and bankers. But people can do what EAs do – and save themselves alot of money.
    I would also note that you failed to address the issue of EA vs Conveyancing costs in the process – how convenient.
    As to the idea of taking commission from suppliers – if cost is the only factor then the consumer might suffer – you are far too unequivocal in your deduction. If quality is also factored in then the argument dissolves. Why should HIPs/Surveys/Conveyancing not be subject to market forces as other products are? Cost/quality comparison is a valid tool that consumers are comfortable with. As you note, quality can command a premium – it doesnt take much nouse to see how a provider should position themself strategically.
    It seems to me that many players in the housing market have become too fat and happy in the latter bubble. The bubble has long burst.

  16. I’m all for online estate agents, the market in general is getting very competitive and estate agent fees, in general, are dropping.

  17. Sorry to join this debate so late, I agree with much of what is said – I don’t know if this will be the year for For Sale by Owner but in the long term I think Online Estate Agents will experience the growth, but two points on this:

    1. I think it will only come after the forthcoming ‘double dip’ – in prices and sales volumes
    2. I think many of the present ‘oline estate agents’ will be qover taken by traditional estate agents moving off the high street and investing in business models that are more online focused.

    We compared 22 online estate agents in our recemnt report, so you can see who is currently in the running:

    http://blog.thebigpropertylist.co.uk/compare-online-estate-agents

  18. Some interesting views in a debate that’ll go on for another year at least!
    I had a look at the report listed above and was glad to see some issues highlighted I think are fundamental, and which I addressed when setting up my own ‘online’ estate agency for Leeds:

    • ‘Online estate agents’ don’t undertake viewings
    • Desktop or report based valuations often replace a visit, there is an emphasis on sellers setting the price themselves. (some advise getting quotes from local agents!)
    • It is not always clear on their websites what is included and what the seller is expected to do – especially negotiations once an offer is received.

    And these are major flaws for sites claiming to be estate agents, when really they are just ‘for sale by owner’ sites. They just require the services of Rightmove who only allow ‘estate agents’ to advertise, so simply change their business model slightly!

    My company ‘Property Parrot’ addresses the fact that people want lower fees, and the issues listed above.

    • I offer local knowledge from 10 years estate agency and property buying experience… yes I’ve put my money where my mouth is as an investor on many occasions and know my area better than most agents.

    • I can build a rapport with clients from a face to face local service, flexible hours (7 days a week) and the same goes for buyers.

    • I know the properties I market and can take this knowledge to buyers as well as deal with vacant properties which online firms cannot. Accompanied viewings – no problem.

    As with most business – as you scale it up, there’s a danger you dilute the service and you end up with less of a product. That’s why I’ll stay local.

    I believe the internet is a big place with it’s fair share of crooks and bad guys… and some great ones struggling to get noticed. So if you can get the owner of one business to come at 6.30 one evening to say his/her piece, or click on another’s payment page not even knowing how many employees they have, where they are based or even what service they actually offer… it’s no contest: My company Property Parrot, selling property in Leeds (and any others like it in your area) should win everytime at similar fees.

    I’ll leave the national firms to bang properties on Rightmove all day long, but I’ll stick with my own business model – low fees but not at the expense of service. A chap/chapess who comes to your home on a one off trip to do your brochure doesn’t give a damn whether you sell your house or not. And why should they? A true estate agent will want his/her sold board there for all to see.

    Oh… and if Rightmove want to protect their business model, they’ll stop ‘for sale by owner’ sites (pretending to offer estate agency services) listing at all. Otherwise their portal will be full of badly written details & badly priced property which can’t possibly all comply with the Misdescriptions Act (it’s not policed at all). Will the public then revert to using individual estate agent’s sites again so they don’t have to trawl through the mess that Rightmove’s pages may become?

  19. I think it is a cost v Revenue issue. If your costs are £200K per annum you need to get this in before you make any money. If your costs are £40K per annum you can afford to charge a lot less and try and capture a different type of customer.

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  21. SpankerGirl1960 Says:

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