Like most of suburban Australia, where I live there is a feral infestation of real estate agents. Saturday mornings are particularly bad with stupid wire signs poked into footpaths on every street corner directing you to the agent’s little kerfuffle called an “Open House”. Where in the front yard, beside the excessively large for sale sign is the real estate agent assistant. A young blonde chicky babe, clipboard in hand, immaculately made up, with her fulsome silicone breasts and nipples peeping from a tight black dress that extends to barely covering her arse, even in winter. Any time a red-blooded Australian guy wanted what she has on overt display he would either talk sweetly to his spouse, go to a bar or visit the local brothel. Sex should not be confused with buying the family home.
Closer to the front door is the goon agent himself. A walking parody of what it means to be a good citizen. With shiny shoes, sports jacket and of course fashionably tieless to give an impression of friendly approachability. The cropped beard the product of many hours of lovingly looking at himself in the mirror. All togged up in a fantasy of his own importance. His immediate task is to hold open the front door and introduce himself. Like you actually want to know the prick.
If asked anything technical or legal about the home his is selling, the response is inevitably that he is not sure, and you should speak to a building or legal expert. This is the only time you will hear him speak the truth. Truth delivered not out of moral character, but truth from ignorance. For he is typically dumb.
On the kitchen benchtop will be the neat little piles of his printed real estate pornography. The stock in trade for the human pornographer is lingerie, deceptive camera angles, improbable storylines and shaved vaginas. For the real estate pornographer his improbable story lines starts with his fantasy sale price “guidance” and ends with feigned surprise to disappointed buyers when this is well exceeded. And, of course for many, the connection between vaginas and real estate agents will be an obvious one.
Like the human pornographer, the agent is soon sated and quickly moves on to his next vendor victim. And like the blackmailer of homosexuals of days past, the agent intimidates the vendor into the belief that only he can get the best price for the vendors property. And the weird semi-consensual financial rape is repeated. Semi-consensual because the reluctant vendor is conditioned to believe there is no other option but to bend over and take it.
Agents around Australia are typically charging commissions anywhere from 1.8% to 2.5% on the property sale price. The rate varies greatly in different parts of the country and of course you as a vendor are free to negotiate the terms with your agent. In Sydney the rates are typically 1.8% with advertising and marketing charges on top of this. With the Sydney median house price at around $1.3m, the agent sales commission is typically around $23,000. On-line marketing businesses Realestate.com (ASX:REA) and Domain (ASX:DHG) appear to take an amount that is around 7 - 10% the size of this figure, depending the fee plan the agent is on.
REA dominate the on-line real estate advertising having four times the visits to their sites as their nearest and only real competitor DHG. On-line real estate advertising has become so ubiquitous that very few properties in Australia will go to market without using either REA or DHG. Currently both REA and DHG deal exclusively through agents, and individuals cannot market your home using their websites.
Many see the key piece of the real estate marketing puzzle as not the agent, but the service provided by the likes of REA. As it says on the REA website: "When it comes to owning a property, knowledge is power". And over the last decade the public's access to that knowledge has hugely improved, both in absolute terms and relative to that available to the local real estate agent. in past years the local agent pretty much has had a lock on his local area as far as comparable sales knowledge, planning rules and general local knowledge. Information was, and still is his currency. however his currency has been severely devalued, with up-to-date sales data, planning information, comparable listings and much more all now readily available.
Buyers and sellers are no longer at the information disadvantage they once were. And REA with its on-line market dominance and trove of easily accessible information is at the center of this change
Every day in Australia thousands of goods from antiques to livestock to cars are auctioned on line. The software is so ubiquitous and those buyers and sellers so accustomed to it, it is now just routine. The savings for buyers and sellers not having to physically attend an auction site, and the reduction in sales friction is significant.
So why not real estate? You might argue doing so would remove the agent’s “salesmanship” and negotiation role and rob the vendor of the potential of gaining a higher price. This is just a nonsense argument as the “negotiation” is just replaced by on-line bidding, just like a physical auction. Well, you say: what about all the other factors in a negotiation, like settlement date or what chattels might be included in the sale. Again this is either in the contract or can be put in and is reflected in the agreed price paid at an auction scenario. Or the software could easily allow for these non-dollar matters to be submitted to the vendor at the same time as the price is closed. All this is not hard. And yes, a person to open and lock up the house on inspection day would still be required. However he or she could be engaged on more favourable financial terms in accordance with the Door Openers Award. And if anyone is worried about the goon agent becoming unemployed, he or she could take up more honest alternate employment like selling used cars.
REA as the leader in this field is doing just fine out of the system as it exists now. It is after all a $31b market cap company and has 5X in the last decade. REA would well understand awaiting them at some point is a larger share of commission pie by eliminating the agent from the sales process. Surely it will only likely be a matter of time before REA takes on the agents. I suspect most vendors would be happy to pay REA double or more what REA currently charge agents to eliminate the cost inefficiencies of using agents.
Around forty years ago the public were thoroughly brain-washed into believing that only a university qualified solicitor had the knowledge and skills undertake the weighty task of a real estate conveyance. Well, we all eventually worked out the High Priest of conveyancing was not the lawyer, but a cluey 35 year old mum in the back office. The job of conveyancing for her was just a means to put food on the table. And she went home from a day at the solicitor’s office, cooked dinner for her kids and useless husband and then worked well into the evening to make a life for her family. And eventually the jig was up for the lawyers. The legislation was changed and quickly Conveyancers were in every suburb. Real estate transaction costs plummeted and society was better for it.
Bank Managers, once gatekeepers of home finance and the after-hours kings of the local golf club, have in a similar way been relegated to irrelevance. In their case by regulatory change and mortgage brokers.
There are of course smaller on-line competitors out there like “forsalebyowner”, but real industry change needs the heft of the lead player, REA. And REA has the right culture to do it, given they are 61% owned by News Corp (ASX:NWS) who have a history of market disruption going back 70 years to its origins in Adelaide. Maybe not a task for the ancient Rupert Murdoch, but you would think breaking apart the Australian real estate agent cartel is not beyond REA and NWS.
It is not often that Australians would cheer for corporate Australia, let alone a company controlled by a Murdoch. However, assuming at some point in the future a REA CEO has the courage and strength to initiate the above change, then a grateful population will erect their statue in Centennial Park. Beneath their stone effigy will be chiseled in granite: “This single individual did the more to reduce the price of real estate in Australia than any government policy or politician, and so saved Australian households billions of dollars and made the dream of home ownership possible for tens of thousands of Australians who never thought it imaginable.”
Once CoStar have taken over DHG and make a mess of it, REA might be in a position to make such a change. Step up REA, Australia needs you.