A turning point in the South African real estate industry

News just broke that one of South Africa’s largest traditional real estate companies Pam Golding, bought online set fee agency Eazi.com for an undisclosed amount (probably for R10–20 million if you ask me). In short, Pam Golding have plans to take the platform national and international, so it indicates that they are willing to make quite a substantial ongoing investment.

Pam Golding, one of the most respected names in SA real estate, is giving a thumbs up to the low-fee agency model. Shocker!

Shooting themselves in the foot or a golden opportunity?

Probably the latter.

  • They took their competitors (traditional agencies) by surprise. They are clearly following international trends and decided to make a (risky) move that may or may not pay off. One thing I’ve learned in business, is that you need to take calculated risks to stay relevant. Pam Golding is doing just this in a fast changing real estate landscape.
  • They bought time. PG took on an existing set fee business that they’ve identified as scalable. Maybe they have over paid, but it buys them a crucial +-12 months in development time by not having to start anything from scratch. They can hit the ground running.
  • They are large enough to experiment with the model, get valuable feedback and use this to their advantage to tweak their traditional percentage fee model and make it future proof. There may also be some overflow of Eazi listings into the Pam Golding model for clients requiring a more ‘high touch personal service’.
  • It allows them to “own and control” a certain market segment. Can you see Pam Golding agents become ‘super agents’ focusing on high touch personal service deals and Eazi catering for the rest? Two different models, one company = efficiency. Own the competition.

Was it unexpected? Not really. If you look at the UK, Savills bought into Yopa to fight Purple Bricks (now the largest UK agency in terms of listings). With Leadhome the ‘Purplebricks of South Africa’ and gaining traction fast, the time was ripe for someone to make a move sooner than later.

It is an ironic twist of events, with large franchises downplaying low fixed fee models for quite some time. While low fee agencies never worked in South Africa, I’ve always advocated that you only need one company to make a model work, and the rest will be history (even in other industries, think Uber and AirBNB with a multitude of competitors now launching). With the latest advancements in technology it is a different ball game than 10–20 years ago when agents were the sole guardians of information. Game on.

Some catch-up to do

Make no mistake, Pam Golding will need to put in some serious cash to make Eazi work. The fact that it is a pure reactive move that follows international trends, and will need to compete with existing set fee models, makes it even more challenging. They need to balance 2 different business models although it would operate as two distinct entities. You also need to ask yourself why Eazi couldn’t make it work on their own… Not enough funding? Competition too strong? N̶o̶ ̶f̶u̶t̶u̶r̶e̶ ̶f̶o̶r̶ ̶s̶e̶t̶ ̶f̶e̶e̶ ̶a̶g̶e̶n̶c̶i̶e̶s̶?̶

The success in low fee models, is all about volume. To have volume, you need cash AND need to be super efficient. At least to compete with the leader, Leadhome who had a head start and tweaked their model over the years. This is evident looking at listing numbers:

Eazi.com has about 201 homes for sale compared to market leader, Leadhome’s 1700. That’s almost x10 times smaller. That’s listing numbers, actual sales are not disclosed. Can Eazi catch Leadhome, or will it be a fight for 2nd spot with PropertyFox and others as we are currently seeing in the UK with Purple Bricks?

Really a different market segment?

Pam Golding says low fee agencies define a different market segment:

From a South African perspective, while in no way detracting from the personal and professional service and high agent involvement of our existing Pam Golding Properties offering, we believe this investment into Eazi.com broadens the group’s access to the South African and African residential property sector by enabling us to take an interest in the high-volume segment of the market, which comprises over 100 000 transactions annually in South Africa alone. This is particularly relevant in the price segments between R500 000 and R2 million, to which the Pam Golding Property group has traditionally had limited exposure to date.

So they are saying the high-volume segment (R500k-R2m) is the opportunity here. Their agents are safe. Or are they?….

What if it backfires and their own R2m+ clients decide to go the Eazi route?

To add fuel to the fire, I’ve calculated that currently, about 42% of Leadhome’s listings are above R2m (covering Gauteng with recent rollouts to KZN and WC). With Eazi, about 60% of their mandates are over R2m (due mainly to their WC focus).

So their is no proof that the R500k-R2m market is Eazi’s (or any other fixed fee agency’s) target market. In fact, I would think the over R2m price range is the most lucrative segment for fixed fee agencies, since it is easier to market the cost saving advantage to those homeowners. Quite contradicting then. Pam Golding does however think that it boils down to giving people choice:

This is not a disintermediation or cannibalisation play but rather a recognition that in specific market segments it is possible to give consumers a choice between a low-cost, fixed fee, low agent involvement, technology-enabled online service or a traditional agent-enabled, high touch, personal service with all its inherent advantages.

Time will tell if people will see 2 different options in selling their home. Time will tell if they would alienate some of their agents in the process. Dr Andrew Golding must be biting his nails … or feel reassured in his decision and that the majority of his network will support the idea.

Leadhome is welcoming the competition

Marcél du Toit, CEO of Leadhome says:

I for one am excited to have Pam Golding entering the low commission space through Eazi. Believe they’re going to do a great job of growing the brand nationally, which heeds well for Leadhome as well.

In short, a large investment into Eazi.com will strengthen the local set fee model option for sellers and help ‘educate’ sellers that there are alternatives to the percentage based options, simply by creating more awareness. Looking into the crystal ball, this can ultimately make life difficult for traditional agents who can’t deliver a “high touch, personal service”. There is no more middle ground for mediocre service coupled with high service fees.

Pam Golding surely would have looked at all the possible outcomes for this including how it could strengthen their own market position. They’ve decided to take (some) control of a particular market segment and own it. Their decision will not be overlooked by other real estate franchises or portals, and I can see similiar set fee options or takeovers being launched in future. We’ve recently seen this with Only Realty, taking an innovative approach by offering clients the choice of traditional or set fee commissions.

Either way, Pam Golding took a brave move that indicates a turning point in the South African real estate industry. Will it be a success or failure? Sellers will decide. Get the popcorn!