London, 26 Oct 2016
A new breed of technology companies is challenging the business model of the traditional real estate agent and changing the way properties are bought, sold and managed.
It has been a decade since online classifieds transformed the way consumers list and search for properties. Now, a small but growing number of companies in markets such as the UK and Australia are using technological innovation to build technology-driven businesses for the sale of properties, eliminating the need for a real estate agency shop front.
This disruption to the traditional real estate industry is likely to significantly compress agent commission, resulting in a substantial saving of time and money for consumers.
“The analogy I draw is a bit like travel agents. In the UK there used to be travel agents everywhere. Now it’s an anachronism to see one because you do everything online,” says Ben Bailey, Macquarie Capital head of Telecommunications, Media, Entertainment & Technology Europe.
The dominance of traditional agents is being tested by companies such as Purplebricks in the UK, which uses a hybrid model to allow consumers to manage transactions online, but with assistance from a freelance estate agent known as a “local property expert” for tasks such as valuing a home and creating a promotional package.
Purplebricks, which also launched in Australia this year, is now the UK’s fourth largest estate agent.
Hybrid and online models currently account for less than 5 per cent of property transactions in the UK but Bailey sees scope for rapid growth.
“I expect almost a third of all real estate transactions will be done online within 10 years,” he says.
In Australia some new online portals have emerged that are completely digitalised.
All of these companies charge a fixed-rate, no commission fee, saving consumers thousands on commission and marketing costs charged by traditional agents.
I expect almost a third of all real estate transactions will be done online within 10 years.
Macquarie expects online portals to be highly disruptive to the real estate business model because the largest portion of revenue related to the traditional property space is agent commission.
However, Bailey doubts the real estate sales space will ever be forced entirely online because the high value nature of property asset classes means there will always be some consumers who want a face-to-face service.
But other parts of the industry are quickly moving toward digitalisation.
In the UK, classifieds portals such as Zoopla are expanding beyond real estate advertising to become full property management and research portals for services including utilities, mortgage brokers and telecommunications.
Zoopla now offers research on specific neighbourhoods and a price comparison service for consumers across energy and communications, after purchasing online price comparison service uSwitch late last year.
Australian company Property Exchange Australia (PEXA) is leading a transition toward a 100 per cent digital conveyancing process by assisting conveyancers, lawyers and financial institutions to lodge documents with land registries and complete financial settlements electronically.
At a marketing level, some agents and websites are starting to use photos captured by drones of high rise apartments and their surrounding views.
In years to come, virtual reality tours could be a commonplace tool used by potential buyers to view a property, reducing the need to have hundreds of people attend an inspection day, with some building companies already using these headsets to allow buyers to tour their display homes.
Bailey says the move toward change is long overdue and will encourage the entire industry to become more efficient.
“One thing that has always struck me about the property value chain is that the process of trying to buy or sell a house is incredibly antiquated. Digitalising that process is incredibly innovative and well-needed,” he says.