The cost of not innovating

6 November 2018

By Kylie Davis

There’s so much talk of disruption, it’s easy to ignore it as white noise.

Real estate is a high-value, low-volume and high-risk transaction, meaning people will always need an agent to guide them through the process, right? Well, that is right, right now, because real estate is complicated and slow.

There are legal issues and paperwork (lots of paperwork), fingernail-bitingly stressful negotiations and expensive marketing, banks and conveyancing, phone calls and emails.

In the current environment, most people feel safer having a person they can turn to. Someone who will manage the ownership issues of their biggest asset and emotional investment. A website can’t do that. There’s no app for it and robots haven't evolved that far – yet. So, real estate agents can rest easy for now.

Real estate's Achilles heel

Most real estate agents work for vendors first and landlords second. Unfortunately buyers and tenants are usually not considered as much as they should be. This results in untold reputational damage.

This is not an opinion – the data proves it.

According to CoreLogic, over the past 12 months (to 30 June 2018) 459,964 properties sold across Australia netting $294 billion combined. If we calculate real estate agent commission based on 2.5 per cent (some earn more, some earn less), that equals $7.35 billion made by real estate agents across the country.

So far, so good.

However, from CoreLogic and RP Data's Perceptions of Real Estate Agents research, we know that 14 per cent of vendors and 14 per cent of buyers has unsatisfactory experiences with agents.

This percentage is important to us as an industry because it represents the proportion of clients who never want to deal with us again.

The next time these people transact property – in seven to 10 years – they will actively look for other options that can fulfil the functions of a real estate agent. So, we are effectively handing our clients over to new technological competitors.

How big a problem is this? Well, 14 per cent is the equivalent of $1.03 billion in lost commission. It's an interesting number because in the start-up work $1 billion is the magic amount that piques the interest of venture capital funding.

When you add the proportion of vendors who received average service, commission lost increases by another $1.62 billion. So, in total, agents stand to lose between $1.03 billion and $2.65 billion in commissions, representing between 64,394 and 101,192 real estate sales.

How do we feel about that as an industry?

Improving service to change perceptions

Luckily, the expectations of service of vendors and buyers are straightforward.

The research showed that both sellers and buyers are looking for agents who have great market knowledge, excellent follow-up and response times, empathy and understanding, and first-class negotiation skills.

When agents nail these basics, their clients feel they are in safe hands. They understand that, while buying and selling is complicated and confusing, their interests and assets are protected.

This feeling of trust leads them to be grateful and to recommend their agent to all their friends and family. So, while they may not transact for many years, those agents who master this level of service receive regular referrals.