Proptech Weekly #54 — Fantasy Proptech M&A #2: Building the British Realogy

JANUARY 25, 2017 | Rayhan Rafiq-Omar

Friends, Feudal Landlords, Commoners,

In 2014 I wrote this:

Seriously, in a massively fragmented property industry, few companies make big money and none come close to dominating in any sphere.

What is it about estate agency that perpetuates an incredibly long tail of same-same service providers. There’s very little difference between one agent and another, consumers have a general hate for agents as they see the job as not adding value, yet it seems accessing property owners requires a long tail of small agencies to exist.

In the US, Realogy group uses this fact and the licensing/broker/MLS regime to provide a platform for many agents to operate; often part time.

If Realogy wanted a larger slice of the pie, could it go from franchisor to massive, consolidated agency/ brokerage?

In the UK, the largest groups of Countrywide, LSL and Connells don’t even represent 20% of the market combined.

So if we take as fact that real estate agency is ‘local’ — and that Realogy have proven that the franchise model with lots of brands is the optimal strategy to extract value and build scale — how would we shape something ‘big’ here in the UK.

Well there are a few trying: Purplebricks has the momentum, Countrywide has the scale and Martin & Co have the model.

These three combined have just over 10% market share of listings. It’s tiny, but a good start.

We’d obviously keep the various brands and pricing models, but swiftly ditch Countrywide’s bloat and replace the contracts for all of their staff with the Martin & Co option — let management ‘buy out’ the branch, assume the costs, pay a license fee and keep the lion’s share of the revenue.

For those Countrywide branches that just need to be put out of their misery, offer them the Ewemove option of going solo sans real estate overhead. There are some quality people who once unshackled could be winners.

But unless you get rid of the corporate bloat, they won’t have room to shine.

And that is the beauty of the franchise model: more agents, more ability to earn and far less mediocrity.

There is more to be gained from focusing on today than the long term. In the same 2014 piece I added:

Until then, listings services will gather the biggest profits (for providing access to market — selling shovels and jeans in a gold rush).

That’s the current focus of Purplebricks — there’s little more there than an optimized listings service. And while ‘traditional’ agents may moan about this, it’s working for building Purplebricks as a brand.

I hear plenty of people complaining that Purplebricks service after listing is poor — but even more people love that they are sticking the boot into traditional agents.

But I don’t believe the world is going to move away from high-value, high-touch agency — and that’s why you use Purplebricks’s insight on ‘how to win’ and funnel it into the higher value delivery.

Their ‘Commisery’ adverts were brilliant — moreso for the lame reaction by traditional agents: if you think there’s a better value proposition from offering a commission led ‘no-sale-no-fee’, then I beg thee to tell us when the pithy TV advertising campaign is about to hit our screens. I mean, what is Agents’ Mutual for after all?

So mashing together two franchisors with Countrywide is just the start. It’s for now.

What about the future? You need visionary leadership.

Step in Rajeev Nayyar of Fixflo. He who built the simplest piece of software that made the most amount of difference to Lettings and Management agency.

Any manager can come in and find ‘efficiencies’ in a business — but it takes someone clear-headed and bold to plot a path to a ‘bigger’ and ‘better value’ future.

Now if I were to step into this role, I’d look to hire away the recruiters and trainers from Cambridge — yes, the weight-loss company.

The way they build out a franchised workforce on a shoestring budget demonstrates the efficacy of their incentive structure: People who go on the weight-loss journey are invited to become Cambridge consultants.

Their original consultant earns for all the sales the new one makes. Yes, it’s a pyramid scheme. And yes, it works. Incentives are aligned — the best performers rise to the top and no-one need worry about customers being treated badly, because they can just switch to a better consultant.

In agency, it would be a point of massive differentiation to have people who are nice, trustworthy and who perform. Simple tools like league tables based on results are a powerful motivator, alongside financial incentives.

In the US, it’s absolutely normal for real estate agents to earn seven figures — imagine how powerful a draw it would be for the best agents in the UK to earn most of the sale fee rather than a paltry salary plus bonus.

I do believe there’s space for a few corporate agencies — like Savills and Foxtons — to continue with their niche models. But for the mass market of people selling and letting their homes, change the model from location based agents to social network based independents.

After all, who would you most trust to sell your home that people who know it?

But of course there will be those screaming “they’re not professionals” and “what do they know about selling homes”?

The public ask the same about the current crop of ‘professional agents’.

Let that sink in for a moment, and then think about all the little bits of useful technology people could be given in the palm of their hand — pricing and listing property, organising viewings, signing contracts and communicating. All these things technology can and does do better when humans get the help they deserve.

Like the referee who embraces video replay technology — these are the agents who will win the trust of vendors and landlords, and therefore win their business.