The Unconditional Blog

The impartial voice of the industry

 
11

New Year brings new business models for real estate

Posted on: February 8th, 2011 | Filed in Featured, Online marketing, Real Estate Industry News

It is often said that the best time to launch a new company is in the depths of a recession. To survive in the midst of such adversity should surely provide a proof of the potential when and if the recovery comes, and the economy begins again to fire on all cylinders.

Well, we are from all accounts climbing; albeit slow out of recession across the general economy. The real estate market though is still not as yet firing on all cylinders. Sales in 2010 were barely above the all time low of 56,071 in 2008 at just 56,303.

When compared to the 5 year period of 2003 to 2007 when the average total year sales were just under 107,000 it is very clear to see how slow the property market has become in recent years. Even during the recession of the Asian Crisis of 1997/8 the average sales volumes during those years was over 80,000.

So despite this slow market it is therefore not surprising to see some new companies emerging in the real estate market. With these new companies comes some new approaches which clearly are trying to define a new business model to attract what is still a significant business.

The real estate industry in the residential sector alone accounted for total transacted sales of just under $25 billion in the last year. With an average commission of around 3.5% that adds us to close to $850 million in fees earned by the industry per annum in the depth of the property market recession. In the height of the market the figure reached over $1.4 billion.

Such revenue opportunity supports a large industry of over 11,000 sales agents working out of a total of close to 1,100 offices around the country.

These new entrants to the market that have emerged over the past couple of months share a two key things in common:

1. They focus on online marketing

2. They offer a lower fee for selling a property

The two most recent companies to highlight are 200Square and The Property Market. Additionally it has recently been speculated that Mike Pero may be looking to enter the property market. It is interesting but not surprising that the proposed concepts is also a solution based on a lower fee structure combined with a focus on online marketing.

NZ Real Estate  - new business models for 2011Late last year details emerged of an Australian company Refund Real Estate looking to enter the market with a rebate scheme of fees and a focus towards online marketing.

This focus online is logical. As has been detailed in the blog previously the focus of property buyers and sellers is to use the web first and foremost for searching and researching property. This focus online in the home or the office is now fast being complemented by the evolution of the mobile real estate applications. At this stage with the Realestate.co.nz iPhone app which is gaining significant traction and usage, with over 14,000 downloads and well over 1,500 daily users. So for smart new companies to advocate the priority to online marketing is both logical and appealing as in so doing they not only save their clients significant amounts of money compared to print advertising, but also provide great analysis of lead generation.

The other aspect of these new companies, being the low fee offering as compared to the established operators. Certainly the consumer appeal of paying a flat fee or a lower percentage is undoubtedly strong, the key question will be as to the ability of these companies to make the business model work. There have been those who have tried and succeeded with a low fee structure, uniquely in the Christchurch market with Diane Astle and Premier Real Estate both offering a 1% fee service. Equally there have been those who have tried and failed, most notably The Jones.

What is certain is that the web marketing advocated by these new companies is pointing the way to the future for this industry, with it comes cost savings for vendors as compared to print media. As for the fees for professional services of real estate agents – the judgment will ultimately be made by the consumer who will trust in agents that deliver true value whether that will be in a low fee, or a full fee structure will be interesting to see and well worth watching as the year progresses.

Article Discussion

  1. This is indeed an interesting space to be watching… here are myy views:
    1. online focus is obvious I agree, but it will be a long time before the traditional print media plays no part in the marketing of property.
    2. in many many instances, in order to extract the best money from the market, and in order to get nervous buyers across the line, a skilled negotiator is required. The situations that often arise are delicate, and a considerable investment of time is often required. Therefore it is difficult to provide a comprehensive service from a suitably skilled negotiator and navigator of such situations, for a 1% fee.
    Perhaps in markets where the product is more homogenous, and the deals more transactional, the process can be streamlined and the fees reduced accordingly. But I can’t see how a well skilled negotiator can be heavily involved for large periods of time if the fee is only 1%?
    My 10 cents’ worth…
    😉

  2. Alistair Helm says:

    Adam,

    Really appreciate your comments. As to online vs print. I agree that it is unlikely that we will see print removed as an option for real estate marketing for quite a time. The fact is that more people, more of the time search and research online, with a consequential diminishing value from print. The industry at large are recognising this and starting to include a great proportion of online premium advertising as part of the marketing campaign – often at a far more cost effective rate, with the added benefit of full metrics.

    As for fees – there a key word of value – can a skilled professional command a high fee? (at an hourly rate which reflects their skills) absolutely when they deliver a high performance result.

    Do you get what you pay for? – ultimately yes although some people’s judgment of value is different from another persons. To charge 1% is a discount to 3% – but then again 1% is twice as much as charging 0.5%.

  3. George says:

    Going online alone saves alot of cash in marketing ( which the agents get a cut of anyway, so a double blow as they miss out on the advertising portion, and potentially lower fee’s.)

    Although skilled in negotiation, buyers have also changed and I can see auctions being web based and remote in the not too distant future, meaning the spend on fee’s will again be under pressure as there will be no negotiation – Mike Pero’s approach will be interesting as he is hugely IT savvy and is going back into a market he pretty well owned for a long time.

    We’ve bought 2 houses in the past 3 years and everything was web based in regards to finding them as invariably we miss getting papers and at 11 pm at night, seconds to do a search

    Although agents we used to buy and sell were great people, we’d long made up our mind on our limits on selling and buying, so their participation was more to ferry documents between buyer and seller than anything else – certainly not worth the $30K + fee’s we incurred in my opinion.( may have been different if we got $100’s of thousands more than we expected )

    I don’t think the model is broken, but is quite fat and slow with plenty to trim off , and looks as though plenty of others have the same idea with everyone having a crack – some will be ok, some will fail but it is going to change no doubt

  4. Totally agree with you on the new model concepts for real estate companies but it won’t be viable until the companies give up the expensive retail floor spaces they use for offices. These overheads continue to drive the need for bulky commissions in many areas.
    Realistically, we are moving quickly to a time when salespeople will work from home as the default, surrounded by all the tools thewy need to do their job effectively.

    There is little need for a large office space. Unfortunately, many of the agency owners are still stuck in the past and feel the need to have salespeople turn up regularly to the office and sit at generic desks in tiny cubicle spaces to do their real estate work. Duty times and manning the phones are fast becoming a relic from the past but many agencys still enforce these activities. The nature of our business has changed dramatically in the last five to ten years. There are fewer walk ins, fewer guided tours of the properties available for sale, and fewer inward phone calls. There are more and more emails and texts.

    Instead of walking into an agency office, buyers now preselect the properties of interest on the web and turn up at the open homes of these properties on the weekend. The process is becoming more anonymous in the sense that salespeople have less direct contact with buyers and less chance to develop the rapport that is necessary to grease the wheels when negotiations become difficult or stalled.
    Salespeople have to take the opportunities provided by the web (personal websites and blogs) to sell themselves not only to prospective vendors, but also to prospective buyers so that these groups are familiar with the salesperson when they turn up at open homes or meet them on the street.

  5. Thanks for the big-ups Unconditional and go the indie agencies!

    Our new listing websites launched last week so we are now about as digital as you can get – and better still they don’t cost our clients a penny. And our buyer database is working nicely too with purchasers submitting their details online to give us a good list of people to contact when a new listing goes live.

    Here’s to a fab 2011 everyone.

  6. Fully agree with the move away from print media to online for real estate and very surprised it hasn’t happened quicker. With total NZ sales volume under 60,000 in recent years and likely to be the same in 2011, real estate offices will be looking to simplify procedures and cut costs and going fully online is the easiest way to do it.

    2011 could be the watershed year when sellers of homes finally click that expensive print media campaigns are simply not necessary in the online age and are more of a profile boost for the real estate agency than an effective method of finding a buyer for a home?

    We operate mainly in the Pt Chevalier, Westmere and Grey Lynn areas and in 2010 we were more online and less print media than ever before.

    Most of our sellers simply selected our $749 package which provides a strong online presence using realestate.co.nz trademe.co.nz and open2view.co.nz along with our local office site sellrealty.co.nz and several other sites including professionals.co.nz and sella.co.nz

    Also included in that package is a colour sign, colour brochures, professional photographer, window display at our Pt Chevalier and Grey Lynn offices and a weekly email to our extensive buyer database.

    We didn’t need anything else – most homes sold within 3 weeks on the market. many received multiple offers, street records were set and we increased our market share in our prime area.

    None of this could happen without a sales team that have experience, market knowledge, negotiating skills, and a track record of success. What will become more important if you are to retain your full fee is an ability to prove that you add value – for example in the Pt Chev area our office achieved an average of approx 15.5% above CV versus approx 11.1% for all companies that sold homes in the area in 2010. That’s a compelling reason to list with us!

    A salesperson with market knowledge, experience and a track record of exceptional results will never have difficulty convincing a seller that they are worth every cent.

    Feature upgrades on realestate.co.nz and HD video tours are inexpensive options that sellers can add to the marketing mix and these last far longer than a single print media advert and are likely to be seen by many more people than a print media advert ever would. Our latest listing that used these additional components had over 100 people through in 10 days and sold last week with multiple offers presented.

    With regard to offices – yes they will get smaller but they will not disappear in a hurry. In fact in our case we have had a significant boost by setting up a new window display in the heart of the Grey Lynn area and listings resulting from that office have more than paid for the investment.

  7. … and if you want your home to show up on the realestate.co.nz iphone app please make sure your agent puts the address on the online advert – it will not show up otherwise!

  8. Marc Fibbens says:

    In response to Adam Cockburn: ” Therefore it is difficult to provide a comprehensive service from a suitably skilled negotiator and navigator of such situations, for a 1% fee”

    Wendy and I were skilled at marketing and selling real estate when we worked for Harcourts and charged 3.95%. We are doing the same work now, providing the same top service, for 1%. The days of the high commission companies must surely be coming to end. Real estate agents agents received an effective 100% pay rise when property increased in value during 2003 – 2007. I would be curious to know what any of these companies can offer that we cannot, and to be honest I believe that we can offer more (we provide a complimentary dedicated web page to our clients see http://www.12birchwoodclose.com in addition to our full service)

    Total Realty took the top spot for adverts in the Christchurch Realtor last year, and we will do it again this year. 1% is coming to a town near you!

  9. Bruce says:

    I’ve heard the rumour that Pero is entering the real estate market too and
    I think that’s brilliant. There’s too many fat cats charging too much in
    the industry. If the speculation is true and it is a cut price agency
    then look out real estate industry Pero has a better understanding of the
    industry than most agents and he’ll be a cat amongst the pigeons. In this
    market I’d say he’ll grab the attention of the general public who are just
    ripe for the picking. The Joneses may have failed but I would say in this
    climate with Pero and his track record his model will be a huge success.

  10. Terry says:

    It’s great to see Mike Pero announce today that he is entering the real estate market. Agree with your comments Bruce and just because others have failed is no reason not to do something. The only negativity about a launch like this will come from the current main players who are operating with inflexible structures that are still remembering the good old days and not learning from yesterday. With today’s technology ( who knows what tomorrow will bring ) there is no need for Real Estate companies to have these large offices that require a large overhead structure to keep it going.

    Some of the reason media is still such a large portion of Real Estate marketing is due to the large amount of discounting that has been going on in recent years by the main print companies to keep the business as Real Estate is such a large portion of their revenue budget, I’ve seen this first hand.

    It’s great to see someone like Total Realty doing so well also.
    Good luck Mike !!

  11. Moritz AREINZ says:

    The only problem I can see from an Agents point of view in regards to Mike Pero real estate is that they are asking agents to “buy in” to different areas – suburbs. This is very similar to what Borders does at present, I do not think that this will work at present since most agents worth their salt that are looking for a change will not be willing to pay someone to allow them to work in an area that they previously could have for free.

    Yes I understand the whole “exclusive rights” that they are trying to sell; however good agents will not need to buy exclusive rights as they will already have the suburb cornered.

    Its interesting to see how low risk they are trying to make this for themselves by making the agents pay for the whole setup / system, I could imagine that they will fund most of the ongoing business with the money that they receive from the agents buy in money, and the ongoing franchise fees. This info if from their website.

    This must be the smart business plan that Mike Pero is referring to, use other peoples money so if things go sour there won’t be much harm done to his personnel finances.

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