The Beginning Of The End For Estate Agents?

[Smyth]

http://www.dailymail.co.uk/news/article-2588481/Poundland-tycoon-sell-house-390-Supremo-sets-sights-estate-agents-fixed-prices-website-allow-owners-cut-middle-man.html

Mr Smith has teamed up with the founder of dating website Match to develop the EstatesDirect website.

Until now, individuals have been restricted from directly placing their homes on many of the property websites, being forced instead to pay high charges to agents.

For £195, Mr Smith’s basic service will list homes on property websites such as Zoopla and Rightmove, bridging the gap between online and high street estate agents.

EstatesDirect will act as an intermediary fielding calls from prospective buyers and setting up viewings. However, homeowners will have to show off their own homes and put up for sale signs.

The site does offer a range of extras – such as negotiations on your behalf and glossy brochures – but these cost more.

If the house sells, the vendor pays another £195. A prestige service, for a flat rate of £1495 when the property is sold, includes glossy brochures and a choice of For Sale boards.

I dont know whether this particular scheme will take off, but something like this surely has to replace estate agents at some point in the near future. The growth of rightmove and zoopla have make a lot of their traditional functions obsolete, so it seems like only a matter of time before some disruptive technology replaces them altogether. Estate agency is largely an outdated industry thats only still around because nothing better has come along yet, but things have changed a lot in the last few years now that rightmove/etc have replaced traditional property advertising.

The lunacy of the current system is especially noticeable in London just now, since the insane market means that most properties are sold within 2-3 weeks of being listed, through what is essentially a sealed-bid auction, and often there are no private viewings (rather than the traditional model of estate agents spending months advertising the property and showing people round, they now just put the property on rightmove, arrange an open day a couple of weeks after the listing is placed, turn up for the open day, and take everyone's final bid a few days after. Then charge thousands of pounds for their work).

Also I dont know how we got stuck in the current model of paying the estate agent a percentage of the sale price, as if selling a house for £400k takes twice as much work as selling one for £200k. Its clearly a bad equilibrium and it cant last, surely.

Edited March 25, 2014 by Smyth

[Smyth]

Its interesting to think what some of the consequences would be though.

1) Its probably really easy to sell your house on your own in a rising market where houses only remain on the market for a couple of weeks, but it would be quite a chore to do it in a falling market where you might have to wait months. So estate agents would be more useful (and hence more used) in a falling market, which means that it might be better for their business if prices were falling. So the opposite from the current situation. Also it might encourage people to lower prices faster in a falling market since the cost of having it drag out for months is higher, which could reduce the price-stickiness problem a bit.

2) I suspect gazumping would become more common. The current system encourages people to play by the rules since estate agents dont have much incentive to let gazumping happen once the sale has been agreed (since the increase in commission they get from an extra few thousand is pretty small). And since the seller typically instructs the estate agent not to pass on any offers, there is less temptation. But if you are selling it yourself and are in direct personal contact with buyers, its probably a lot harder to resist when someone phones you up and offers you an extra £5k.

Edited March 25, 2014 by Smyth

[interestrateripoff]

Its interesting to think what some of the consequences would be though.

1) Its probably really easy to sell your house on your own in a rising market where houses only remain on the market for a couple of weeks, but it would be quite a chore to do it in a falling market where you might have to wait months. So estate agents would be more useful (and hence more used) in a falling market, which means that it might be better for their business if prices were falling. So the opposite from the current situation. Also it might encourage people to lower prices faster in a falling market since the cost of having it drag out for months is higher, which could reduce the price-stickiness problem a bit.

2) I suspect gazumping would become more common. The current system encourages people to play by the rules since estate agents dont have much incentive to let gazumping happen once the sale has been agreed (since the increase in commission they get from an extra few thousand is pretty small). And since the seller typically instructs the estate agent not to pass on any offers, there is less temptation. But if you are selling it yourself and are in direct personal contact with buyers, its probably a lot harder to resist when someone phones you up and offers you an extra £5k.

Not sure I'd agree with that as if the seller kept allowing the sale to be gazumped they'd never actually sell the house.

[The Knimbies who say No]

It's already possible to get a listing on RM via a nontraditional "online only" agency and has been for a good while; as I understand it you upload your own photos and then the agency fields the phone calls for appointments etc (although others will differ)

https://www.google.co.uk/search?q=online+estate+agency&sourceid=ie7&rls=com.microsoft:en-US:IE-SearchBox&ie=&oe=&gws_rd=cr&ei=DjAxU-SIKqnB7AaL7YGIDw#q=online+estate+agent&rls=com.microsoft:en-US:IE-SearchBox

I guess the reason these have not taken off in a big way is that, when push comes to shove, people think dickheads in MINIs are good at extracting top dollar for them from a buyer, worth more than the percentage they charge.

Edited March 25, 2014 by The Knimbies who say no

[Bloo Loo]

Its interesting to think what some of the consequences would be though.

1) Its probably really easy to sell your house on your own in a rising market where houses only remain on the market for a couple of weeks, but it would be quite a chore to do it in a falling market where you might have to wait months. So estate agents would be more useful (and hence more used) in a falling market, which means that it might be better for their business if prices were falling. So the opposite from the current situation. Also it might encourage people to lower prices faster in a falling market since the cost of having it drag out for months is higher, which could reduce the price-stickiness problem a bit.

2) I suspect gazumping would become more common. The current system encourages people to play by the rules since estate agents dont have much incentive to let gazumping happen once the sale has been agreed (since the increase in commission they get from an extra few thousand is pretty small). And since the seller typically instructs the estate agent not to pass on any offers, there is less temptation. But if you are selling it yourself and are in direct personal contact with buyers, its probably a lot harder to resist when someone phones you up and offers you an extra £5k.

2) never been to an auction?...

[Unsafe As Houses]

If Estate Agency 'work' does become obsolete WEstate Agents will just become Letting Agents

[Milkshock]

Is there any evidence that a credible and motivated vendor can't get an equal or higher price on their own without using an agent ?

[Sancho Panza]

Is there any evidence that a credible and motivated vendor can't get an equal or higher price on their own without using an agent ?

Transactions are mostly based on price versus perceived value.

It's about expectation management.That's where a good EA earns their money.Most people place an emotional element in their original estimate and need to be gently persuaded to bring that value down to the market level.

London is/has/always will be different.

Edited March 25, 2014 by Sancho Panza

[arrgee1991]

If Estate Agency 'work' does become obsolete, Estate Agents will just become Letting Agents

Agreed. Most of the estate agents in our part of London get most of their business letting. Sales volumes and commissions (less than 1%) are too low to make enough profit. Most see sales as a lucrative sideline.

[Sancho Panza]

Its interesting to think what some of the consequences would be though.

1) Its probably really easy to sell your house on your own in a rising market where houses only remain on the market for a couple of weeks, but it would be quite a chore to do it in a falling market where you might have to wait months. So estate agents would be more useful (and hence more used) in a falling market, which means that it might be better for their business if prices were falling. So the opposite from the current situation. Also it might encourage people to lower prices faster in a falling market since the cost of having it drag out for months is higher, which could reduce the price-stickiness problem a bit.

'Price fixes everything.' Jim the Realtor

[Ultra Fox]

Nothing new here. urbansalesandlettings.co.uk have been doing this for a while.

[arrgee1991]

Is there any evidence that a credible and motivated vendor can't get an equal or higher price on their own without using an agent ?

They can, but the main advantage EAs have is knowing who is looking and what they will be prepared to pay. There are a lot of properties that don't even make the market. We invited an EA around a few years ago who told us he had a couple on his books that would pay market value and slashed his commission to 0.5%. They duly viewed and made an immediate offer. It was in the EA's interest to not let us tout our property so they will tell you what you can achieve and make the necessary introductions. Had I advertised I may not have set the right price or not reached the couple prepared to pay that much.

Pricing a house is tricky. Nothing has sold in our street for about three years, so I wouldn't know what people are prepared to pay. Price needs to be set to attract viewers and get a good offer.

[janch]

In my experience the EA worth his salt starts the real work after a sale has been agreed. They can see if the "buyers" are genuine or time-wasters and check put their financial position etc. They can also guide the process and can prevent chains collapsing etc. Also for viewings I find it better to get a third party to do it and get out of the way myself so that the potential buyers are looking only at the property and not swayed one way or the other by me or my family.

[Smyth]

They can, but the main advantage EAs have is knowing who is looking and what they will be prepared to pay. There are a lot of properties that don't even make the market. We invited an EA around a few years ago who told us he had a couple on his books that would pay market value and slashed his commission to 0.5%. They duly viewed and made an immediate offer. It was in the EA's interest to not let us tout our property so they will tell you what you can achieve and make the necessary introductions. Had I advertised I may not have set the right price or not reached the couple prepared to pay that much.

Yeah I dont buy this, it doesnt really make sense from an incentives perspective

Estate agents make around 1-2% commission on the sales price. Lets say you have a typical house priced at around £250k and a 2% commission. So the estate agent gets £5k if it sells for that.

The problem is now that for every £1000 it sells for in excess of £250k, the estate agent is only getting £20. So even if the agent can push it up to £255k, they are still only making an extra £100.

Now consider the costs to the estate agent of getting that extra £100. They (at minimum) need to keep the property on their books for a while longer, engage in more phone calls, arrange extra viewings, etc. It probably isnt worth it, compared to just selling for the original £250k as fast as possible, getting it off their books, and moving on to the next property.

So when I hear that an estate agent hasnt listed a property and has instead sold it to a person who was on their books, the obvious way to interpret this is that the agent is trying to do the minimum amount of work possible, to sell the property fast. Rather than actually having to arrange multiple viewings, they can just make a quick call, get it sold in a few hours, and boom, £5k in their pocket. But by any basic economic logic, actually advertising the property would result in an equal or higher sales price, since if even one other person in the market wanted the house more than the person on the EAs books, then it would sell for a higher amount. But of course the EA doesnt really care about getting the house sold for a few thousand more, since the extra £100 or so that he gets isnt worth it.

So rather than adding value, to me the thing you describe actually sounds like the estate agents are removing value by preventing houses from being advertised properly, because that increases their costs (in the sense of arranging viewings etc) compared to the small amount of extra fees they would be getting. Even in your case where he dropped the commission to 0.5% he is still essentially getting paid for almost zero effort (since he can sell the house in a day), while its quite likely you are accepting a price that is below what you would have got had it been advertised on an open market.

[Milkshock]

Transactions are mostly based on price versus perceived value.

It's about expectation management.That's where a good EA earns their money.Most people place an emotional element in their original estimate and need to be gently persuaded to bring that value down to the market level.

London is/has/always will be different.

Thats why I said 'credible and motivated' sellers - ones who do not invest emotionally in their estimations and are genuinely looking to sell.

Anyway you could get a valuation from an EA without committing yourself to them, if you are unsure of its valuation.

[Sancho Panza]

Thats why I said 'credible and motivated' sellers - ones who do not invest emotionally in their estimations and are genuinely looking to sell.

Anyway you could get a valuation from an EA without committing yourself to them, if you are unsure of its valuation.

I would 99% of sellers would consider themselves 'credible and motivated'.How many are realistic is another matter.

EA's generally add a little flattery to their original estimate to get the business and then manage the price down to sale.Most people I know head for the highest valuation.

[Milkshock]

I would 99% of sellers would consider themselves 'credible and motivated'.How many are realistic is another matter.

EA's generally add a little flattery to their original estimate to get the business and then manage the price down to sale.Most people I know head for the highest valuation.

You've kind of admitted that EA's cant get a higher price than a vendor going it alone.

Saying they are able to reduce vendors expectations does not actually answer my question of whether they can achieve a higher sale price than the ordinary person would be able to.

[Sancho Panza]

You've kind of admitted that EA's cant get a higher price than a vendor going it alone.

Saying they are able to reduce vendors expectations does not actually answer my question of whether they can achieve a higher sale price than the ordinary person would be able to.

Never said they could.Sorry for misunderstanding.The market will bear what it will bear.

EA's role is to manage vendor's expectations into a deal of some sort.The desire for commission incentivizes them to do so.

Having said that,even then there's nothing you can do if someone's really a committed delusional.I've seen places for sale on the Isle of Man for the last 6/7 years with various agents.

[Milkshock]

Never said they could.Sorry for misunderstanding.The market will bear what it will bear.

EA's role is to manage vendor's expectations into a deal of some sort.The desire for commission incentivizes them to do so.

Having said that,even then there's nothing you can do if someone's really a committed delusional.I've seen places for sale on the Isle of Man for the last 6/7 years with various agents.

Yeah, I am talking about London specifically as thats where I live. I dont know enough about EA practice to be honest, but I think here Foxton's have a reputation for pricing high and achieving those prices?

[R K]

3:42 AM !?

[arrgee1991]

... the thing you describe actually sounds like the estate agents are removing value by preventing houses from being advertised properly, because that increases their costs (in the sense of arranging viewings etc) compared to the small amount of extra fees they would be getting. Even in your case where he dropped the commission to 0.5% he is still essentially getting paid for almost zero effort (since he can sell the house in a day), while its quite likely you are accepting a price that is below what you would have got had it been advertised on an open market.

Where we live, very few properties ever make it to the EA window. We ended up staying as the buyers withdrew for personal reasons and the best offer we got afterwards was 10% less than the original offer which meant it wasn't possible to move to the house we eventually found in a similar way with another EA letting us know before it even hit the market.

There are few buyers and even fewer sellers, and EAs can't make much selling houses so they do as little as they possibly can.

[Liquid Goldfish]

When we're in a crazy seller's market I think EAs can have an impact on prices with their various wheezes. But usually I think they charge a lot for what they do. My family have always advertised privately when selling houses going back as far as I can remember (the 1970s)

[iamnumerate]

When we're in a crazy seller's market I think EAs can have an impact on prices with their various wheezes. But usually I think they charge a lot for what they do. My family have always advertised privately when selling houses going back as far as I can remember (the 1970s)

You can sell with half a percent http://www.home.co.uk/selling/halfapercent/

I was very happy with their service in 2006 - the local estate agent bad mouthed them but half a percent sold our flat with no problems (apart from the buyer's solicitor finding problems that our solicitor did not find in 2001 when we bought it)

[Liquid Goldfish]

You can sell with half a percent http://www.home.co.uk/selling/halfapercent/

I was very happy with their service in 2006 - the local estate agent bad mouthed them but half a percent sold our flat with no problems (apart from the buyer's solicitor finding problems that our solicitor did not find in 2001 when we bought it)

Half a percent would probably be worth it.

[arrgee1991]

But usually I think they charge a lot for what they do.

They used to, but less than 1% in fees is quiet common now. One of our local EAs is offering to sell for £150+VAT (£180) . If I was selling I'd take them up on that.