The hidden costs of using a random estate agent

Adriaan Grové
Jun 28, 2019 · 7 min read

All agents are equal right? Truth is, the real estate industry has changed very little over the years and this has let to certain perceptions. As Joe Rand puts it:

The misconception that real estate agents are just salespeople is like that — like an original sin at the heart of our industry

This has led to the assumption that selling property is a commodity service and just about any agent would be able to sell your home, heck, why not even try it yourself. It is easy to see why: all agents and FSBO’s these days have access to the same data and marketing tools.

This has also led to an array of new models introduced including hybrid and online estate agencies, while the US has seen the introduction of instant offer companies. Traditional agents are quick to point out the dangers of these low fee models but with increased awareness generated by deep marketing pockets, consumers are asking: Why should I pay you 5% when I can get away with a fixed fee of R40,000?

Which begs the question, is going the traditional commission route still the best option and will your house sell if you pick the average agent?

A small chance of finding the right agent

I recently posted a poll in the Property Practitioners group on how big overpricing is in the industry. The results from agents were unsurprising and reconfirms my favorite 80/20 Pareto principal as well as discussions I had with real estate agents over the years:

As you can see, it’s a big problem in the industry and it contributes to homes sitting on the market too long. As Grant Rea from RE/MAX Living puts it:

The problem in a nutshell is DESPERATION… Agents who fear losing out if they are brutal about price and who pander to demands of sellers.

Marnus Steyn from Steyn Realty adds:

Your home only worth what a willing buyer is prepared to pay for it …. I think this problem (overpricing to secure stock) is as old as the industry itself. You have to be a really well established and successful agent to walk away from an overpriced listings. In most agents minds they still think: I will take it and drive the price down over time before I let one of my competitors do it because what if they get that one buyer that’s prepared to pay close to the asking price and the seller (who probably knows it’s over priced) accepts the offer and we have a deal!

For Leadhome, pricing is everything as CEO Marcel du Toit points out:

Speed of sale is always a function of price — the closer the listing price is to “fair” market value, the quicker the sale (in relation to the price segment).

So choose a random agent and you gamble marketing at the wrong price (or your idea of the ideal price anyway). A great agent will convince you to be more realistic, but as we can see, finding the right agent is a hit and miss. Miss the right price, and the end result is longer selling times, over exposure at the wrong price and bargain hunters looking to drive your price down even more once they notice an eventual price drop.

The golden week of online exposure

A new property mandate will typically receive most of its views on portals in the first two weeks, due to a number of reasons including appearing higher up in the default search results and buyers receiving property email alerts for new listings. Price it wrong and you will miss a golden opportunity to attract the initial interest of serious buyers.

Getting that initial price right is critical to sell quickly, and something the top agents understand. They also know when to walk away from something that will just hurt their reputation and track record. Unfortunately it is reported that some agents are trained to come in at higher prices to land mandates. So how do we fix this?

Transparency in selling time and price needed

I believe that in order to solve this common over pricing issue we see today, agents and their agencies should be more transparent and open up their sales stats to sellers and therefor be held accountable.

Some online and hybrid agencies are already seeing the opportunity here and use it with their commission savings as leverage point to attract mandates. Eazi states that their homes with a price range between R750 000 and R2 million takes an average of fewer than 30 days to sell (1/3 of the industry average) while Leadhome claims an average 35 days on a national level. Isn’t it time everyone opens their sales stats to the greater benefit of the consumer and the industry?

Problem is that sales data is all locked up which makes it cumbersome to provide statistics to sellers. What we ideally need is a national open sales database that simply records:

  • Listing and selling price.
  • Listing and selling date with the agent and agency name.
  • Key property details like area info and features but excluding any sensitive client details.

This can then be used as authoritative reference point for any potential seller to do their own research and get assurance with their agent of choice. It will make compiling CMA’s a lot easier and cost effective. This also brings us to the role of qualified property valuers as part of the pricing process.

So is low fee agencies really the problem?

Every now an again an article surfaces on the dangers of using low or set fee agencies and the hidden costs. But looking at the above, one of the most critical problems in the industry is actually setting unrealistic listing prices. What will make a seller happier? Selling his home in one month or 4 months? Time is also money. If you compete on price alone (your commission) you are opening yourself up to disruption.

The point I’m trying to make here, is that instead of downplaying fixed fee models one needs to look at what will make your own model more attractive and efficient to increase your sales turnover. Handing the seller a professional CMA with your price point validated by your recent sales history seems key. Showing them the impact the first two weeks of exposure makes at the right price in order to achieve a quick sale is a no-brainer.

Enter computer assisted valuations

We are moving to a future where machine learning (a small subset of AI) will increasingly be used to price homes, so my feeling is that pricing will become more accurate and will result in a more liquid real estate market. This by itself will drive commissions down as sales volumes will be higher.

We are already seeing this in the US with the rise of the iBuyer model that provides instant cash offers in as little as 24 hours. These models are self learning so get more accurate with time and more real world input data. Over time these machine learning models will assist agents even more in getting the price right and will become the standard way of pricing a home, with the agent validating the results.

Choice drives competition and that is good for buyers & sellers. Increased competition will drive mediocre agents out of the market. The days of offering a vanilla service is gone and why there is room for both traditional and low fee models in the market:

Advice for sellers

My advice to anyone looking to sell their home right now, is to ask for an agent referral on your social network and Google agent reviews before you commit. Ask for sales stats and if possible get a CMA from at least 3 agents to compare insights. Outputs are non-linear based on the quality of the work you put in, this is why you should choose a smart agent that is prepared to walk away from mandates they feel is priced in such a way that it won’t sell. Sounds like strange advice right? Why would anyone want to decline marketing your home? But with over 15 years experience talking to top agents in our industry, I know that this is one of the traits of a top agent. These agents understand that reputation is everything, and time is money!

Choose just any agent, and you might open yourself to hidden costs.

Advice for agents

Real estate is a zero sum game: You are one of many agents in your area and a sale will take place with or without you. It is either you or another agent who will seal the deal. Get the price wrong and you’ve lost half the battle. It’s time to be more honest with sellers and walk away from those mandates you know is over priced.

The Real Deal ZA

Promoting opinion, insights, transparency and challenges in the South African and International real estate industries

Adriaan Grové

Written by

I’m the CEO of www.entegral.net, I love working with my remote team to solve real estate problems. Questions everything.

The Real Deal ZA

Promoting opinion, insights, transparency and challenges in the South African and International real estate industries

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