Success stories of innovation being used to solve problems often boil down to one thing: increasing convenience through eliminating the need for physical interaction. These innovations often change the entire landscape of the industries in which they work, regardless of whether or not they achieve widespread acceptance.
In the property industry, although most people have spent the last few decades relying on physical estate agents to manage their real estate transactions, a new crop of online alternatives has popped up over the last few years, changing the game for buyers and sellers alike. Yet while Russell Quirk, former CEO of Emoov — whose doors closed a year ago today — once predicted a 35% market share for online agents, based on recent performance this is far from the case today.
The crash of Emoov feels very different indeed to the recent fall of Thomas Cook, once one of the biggest players in the UK’s travel industry, of which a major cause was the rise of apps that can easily whisk you away to a sunny beach in just a few taps, no talking required. Emoov’s decline occurred during a period in which a regional decline in market share was seen across the entire online agent sector — but the real estate industry is decidedly different to the travel industry. This could suggest that perhaps while a high-tech, one-off fee model might make it easy to book a holiday, when it comes to a major decision like buying a house, perhaps an app can’t speed things up as well as their traditional counterparts: humans.
The traditional estate agent works on a commission-based model, generally taking the form of a percentage fee of the agreed selling price (usually less than 3%). For the agent themselves, the variables affecting their pay are the value of the deals they close, and the rate at which they close them. Someone working within this incentive structure could take one of two routes: they could sell the property at a below-market price, hoping for a quicker sale and some guaranteed money, or they could play the long game, investing more effort into harder deals to up their commission. In either case, the fee borne by the seller is guaranteed, and considering that a 2% fee on a £1,000,000 pound London flat is still £20,000, feels like a decidedly hefty sum.
So if a seller came across a platform that offered a convenient full service listing and selling service — including options for valuations and viewings, an online management system, and 24/7 availability — for a one-off payment of, say, £1,399, could they be blamed for skipping the high-street alternative? These fixed-fee formats and slick software systems have characterised many of the online agencies that have sprung up over the last few years. Just looking at the numbers, the seller from our previous example would save almost 95 percent using an agency like Purplebricks. It appears that they’d be fully aware of the total cost of the transaction when they signed up, and even before the sale, they wouldn’t have to change their schedule to accommodate visiting an estate agent during working hours to coordinate the admin. It all sounds perfect, but is there a catch?
Part of this might have something to do with the human touch. Supporters of independent agents claim that you can’t ‘commoditise personal service’, because to them, it’s not just the technical ease that counts. The subjective nature of buying a house — an inherently emotional financial milestone in an individual’s life — is massive. Thus paying for the added bonus of going through that with a human voice at the end of the phone, every step of the way, doesn’t seem unreasonable at all. While an online platform might enable you to sell your home from your couch, research has shown that in actual fact using high street agents — when carefully selected — lead to higher numbers of viewings and offers, and a sale price that’s an average of 5% higher.
Emoov’s bankruptcy saw a readjustment of former CEO Quirk’s original 35% prediction, taking it down to a 10% maximum.
He chalked it up to three things: too much competition, a high cost of customer acquisition, and a service that was too cheap to inspire trust in the emotional process of buying a house. It’s therefore clear that while online agents have made a splash in the industry, their business model still needs some refinement. While traditional agents could further integrate new-school concepts like efficient software and other technological timesavers — hard to beat especially when it comes to convenience — they’re definitely not out of the picture.
What makes the online agent model stand out is that it’s set a new standard for flexibility, and inspired dialogue around various sector-wide issues, particularly with regard to transparency. It arguably represents a fundamental change in how the transaction process is marketed and executed, yet even though the idea isn’t inherently bad, technological solutions aren’t always the optimal solution for the context in which they first appear. So it could be that the traditional estate agent has therefore been given a ‘second chance’, and to capitalise on this opportunity to restore its reputation and increase its market share, it’ll have to modify its approach to become more flexible, but despite this, as an established part of the property ecosystem, they’ve already got the foundation to achieve this.
It may be time for online agents to reconsider their pricing model to incentivise the market. Perhaps agents could charge a percentage on commission for the sale, not necessarily as high as 2%, but around the 0.5% mark. This way they can keep agents — man and machine alike — incentivised to achieve higher property sale prices. Agents are an integral part of the growth of the property market, and it is their natural role to ensure prices increase (subject to being personally incentivised), which benefits everyone in the system. While some may argue that driving the prices higher might work against the buyer, at some point, when the buyer eventually sells their property, they will also benefit from the higher price.
Perhaps it’s finally clicked for Vic Darvey. If Purplebricks successfully pivots back to the previous pricing model and reintroduces a commission scheme, they could indeed be the ones to bridge the gap between old-school and new-school, refreshing the agent-buyer relationship and shaping the future of the market in a way that works for everyone, but only time will tell.
