A fair comparison?
MAIN IMAGE: John Murray, COO of Leadhome.
Low-fee estate agency Leadhome claims their use of property technology empowers both agents and consumers whereas traditional agents in most cases don’t use technology effectively and have mostly merely exchanged a computer for their pen and paper. A fair observation?
“Property technology (proptech) is not about replacing agents. It’s about empowering both agents and consumers (buyers & sellers),” says John Murray, chief technology officer of local hybrid estate agency Leadhome.
Murray wrote in response to ‘Looking at ibuyer: proptech won’t replace agents says expert’.
Weighing up the three types of agencies
Murray says there are broadly three types of agencies currently in the market, both locally and internationally, which he sums up as follows. His statements about traditional estate agents Leadhome says is based on research they did on the current offering, which included interviews with agents and recent sellers about their experience.
High-touch, high cost – In the traditional model, a local estate agent is closely involved in all aspects and does most of the work manually. The business typically works on a franchise basis and in most cases, he reckons they don’t use technology effectively. This he says this results in inconsistent service levels from different agents and high commissions being charged to cover the cost of inefficiency.
Based on anecdotal evidence that he has seen on Property24, he says they are under the impression that many traditional estate agents hold only an Estate Agency Affairs Board certificate with no other relevant qualifications and/or don’t have the necessary knowledge and expertise.
He says they found in their evaluation of traditional agents that many make only very basic use of data in valuations.
Murray’s comments resonate with what Leadhome claim about traditional agents on their website – a matter that has been a source of much contention with the latter group. For instance, on the website is stated that traditional agents do “valuations based on gut feel rather than data”, are only available during office-hours and that estate agents hold only “EAAB qualifications”.
Low-touch, low-cost – Murray says these agencies don’t have local area agents, but rather work completely online and/or via a call centre. South African examples include Homebid, PropertyFox and Eazi.com (although Eazi.com has local agents on request in some areas). Internationally, the online model has had limited success and total market share remains low.
Murray says the hybrid model combines the service and expertise of local agents with the efficiency, transparency and convenience that technology provides. He says they have a rigorous hiring process so clients can expect qualified, knowledgeable property experts. These agents hold tertiary degrees as well as EAAB qualifications. Also, he claims they make extensive use of the available data in their valuations and they are transparent about how they use it. Lastly, they don’t do open show days where anyone can walk in unannounced. They verify all buyers and book an appointment with the seller’s knowledge.
Proptech and agents
Murray says while most estate agencies will tell you that they use technology, what they really mean is they’re doing the same thing that they did 30 years ago, but now using a computer and the internet rather than pen and paper. Innovative technology has not (yet) transformed the property industry or addressed the problems of consumers like it has in other industries.
At Leadhome their focus is on employing technology to empower their customers and the agents that serve them says Murray. For example, Murray claims their sellers have full transparency on how their listing is doing and who’s viewing it while it’s on the market. They can simply log onto their online dashboard and see the information. He says the use of proptech lowers costs, which enables them to charge their clients a lower fee.
“The technology plays a key role, but local, qualified agents are essential to the process. They provide sound advice, local market knowledge, offer negotiation, legal know-how, etc. These are things better done by a qualified human, so we won’t try to replace it with technology. Rather we use technology as an enabler,” says Murray.
With reference to the Ibuyer model, Murray says it is an interesting concept, but in South Africa property data is not as freely available or comprehensive as it is in the US. This makes it harder to provide an instant offer. Transaction costs also tend to be much lower in the US. “Pulling off iBuyer at a large scale in South Africa will be much harder. That said, there are already companies formed by investors willing to buy up distressed properties for a lower value and then resell at a profit; they just don’t do it at the scale or using technology like Opendoor and Zillow does,” explains Murray.
High commission cause of slow markets?
Murray says in a slow market, the price that buyers are willing and able to pay is lower than what sellers are prepared to sell for. Transaction costs like estate agency commission, as well as bond and transfer fees, widen the gap between what it costs the buyer and what the seller eventually gets out.
“An agency that can lower these costs (without compromising on service) can bridge the gap between buyers and sellers in a price-sensitive market. South Africa’s estate agent commissions are among the highest in the world, and I believe this contributes to the slowness of our current market,” Murray explains.
Murray disagrees that low-fee agencies don’t do well in a slow market. He says Leadhome was founded in the worst property market in recent memory and is not just surviving but growing fast. The company pioneered the hybrid model in South Africa in late 2015, and now employs over 55 local property experts in seven cities as well as a team of technological experts.
Compared to other low-fee agencies, Murray says 65% of all online sales on the local market is currently done through Leadhome. As far as active listings goes, Leadhome now has 2448 active listings compared to 1107 listings this time last year.
Murray says internationally the hybrid model has also done very well with reference to companies like PurpleBricks (UK) and Redfin (US) leading the way.
However, contrary to Murray’s rose-tinted statement, Purplebricks recently suffered a setback with the expansion of their business model in Australia. The company had to announce the closure of their operations there citing among the reasons why that they ‘couldn’t make progress fast enough in challenging conditions’ and that they had ‘expanded too fast’. (Source: Domain.com)
The digital disruption of the local property industry had to happen resulting in three types of agencies available to consumers in South Africa at present. It is also to be expected that each will aim to present its service as the best – however does that justify the making of sweeping statements about your competition based on anecdotal evidence presented as fact? What do you say? Email your comments to firstname.lastname@example.org.