Why estate agents need to move online or acquire?
I’m currently studying for a masters in innovation and management and thought it would be good learning to discuss and highlight current trends I see in the different markets. I have decided to do an innovation series on topics I find interesting, the first being the online estate agency.
Online estate agencies have grown in recent years but have been fairly unnoticed until the last few years with the acquisition of Hatched, which has been operating as an online estate agent for 10 years, by Connells last year (2015). The model of the online estate agency compared to a normal bricks and mortar estate agency such as a Foxton or Connells is that the online estate agency charges a much lower fixed fee for selling the home rather than a percentage. Online estate agencies, such as eMoov, charge £595 for selling a home; this compares greatly to a typical estate agency which would charge 1.5% — 4%, with commission ranging from as low as £7k to as high as £16k for properties in the capital (London). Both of these models offer the same service and both go through the same legalities, the only difference is face to face contact. Online estate do offer phone based contact, however online is the first point of call for buying and even letting your home., and soon selling your home online will be the main channel. With this recent acquisition, it shows Connells sees a major trend in online sales catching up to offline sales.
Connells explains that Hatched will be used to infiltrate towns in which Connells do not have a physical presence (i.e. expansion), but it appears that Connells is also attempting to future-proof themselves from market disruption. This is a similar case to the Netflix and Blockbuster scenario, except with Blockbuster missing the opportunity and innovating too late. Online estate agencies are a type of radical innovation within this industry. In this case it has taken Hatched 10 years to be noticed by a big player which sees where the market is going. Radical innovation doesn’t always align with the customer need at a current time, which means there is no threat in the beginning. However, once the customer and need is met the trend will increase. In this scenario we have seen the influx of several online estate agents such as easyProperty (with its large company backing from the easyGroup Limited), eMoov, PurpleBricks, Tepilo and HouseSimple and the market is newly getting educated with this concept although the model has been around for a while. One advantage is that these innovations have to wait for the market to change, with companies such as PurpleBricks raising over £100m, and eMoov raising £5m. Also, the new entrant these companies have cash for the market to catch up for a period of time.
If traditional estate agencies decide to move online, they would need to make serious changes to infrastructure and downsize staff to focus. My advice to those offline large estate agencies such as Foxtons or Country is to down size on bricks and mortar offices but invest more cash online and create two offerings — an offline and an online experience. Another option would be to wait and acquire an online estate agent which is gaining market share, but this may be costly. The space is exciting to watch as consumers are becoming more aware of different offerings. Millennials have grown up online, it has become the first point of call for a majority of things, if and when these millennials buy and sell homes I’m sure online will be their first point of call also.