Industry insiders differ on whether fixed-fee and low fee real estate agencies will fundamentally affect the sector
Fixed-fee real estate agencies may be ruffling the feathers of traditional role players, but there is more than enough scope and diversity in the South African market to accommodate both models.
There is also no reason to believe the failure of online model Purplebricks in some overseas markets is indicative of their impending demise here. As technological capabilities have evolved so have disruptors in the property market – like many other industries – been challenging traditional ways of conducting business.
Last year the Pam Golding Property Group acquired online digital real estate agency Eazi. This prompted Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa, to call into question the sustainability of the traditional real estate model.
“When a major traditional brand joins up with multiple other fixed-fee online operators, the question was whether the traditional real estate model would live to fight another day or concede to the digital revolution.”
However, following the failure of the UK-based fixed-fee company Purplebricks in both the Australian and US markets – which it entered in 2016 and 2017 respectively – Goslett says “the bubble around these new, low commission operators seems to have burst”.
He predicts that over time, more fixed-fee operators will go the same way as Purplebricks or “amend their business model to offer a service that is more in line with the traditional real estate model”.
However, both PGP and Eazi.com disagree. Andrew Golding, PGP chief executive, says internationally, residential real estate sales agencies and businesses are being reorganised across at least two different and separate types of business models and customer offerings in specific market segments.
“The first of these is the traditional high ‘touch’, high service, agent/client relationship model which is the cornerstone of the Pam Golding Property group and which will continue to be our core offering. But secondly, in recent years, we have been following the advance of the online hybrid estate agency model, which is a predominantly digital offering with less personalised agent ‘hand-holding’.”
Golding says the hybrid agency model uses technology to reduce costs and pass on savings to consumers in the form of lower, flat fees. This model is not only specifically suited to the lower ends of a number of key markets around the world, but is said to have the potential to become a “significant sales modus operandi” in these markets.
“As a result, in specific market segments it is possible to give consumers a choice between a low cost, fixed-fee, lower agent involvement, technology-enabled online service, or a traditional agent-enabled, high-touch, personal service with all its inherent advantages,” says Golding.
It is “illogical” to describe Purplebricks’ troubles in Australia and the US as a sign of its imminent demise, says Richard Day, chief executive of Eazi.
“One only has to look at Purplebricks’ performance in the UK itself to confirm the viability and potential of its business model. After all, it took them only three years to become the number one residential real estate agent in the UK, and today Purplebricks has 3.5 times the market share of the next largest UK agency.
“They’re also profitable in the UK, with a reported 11.3% EBITDA (earnings before interest, taxes, depreciation and amortisation) for their last financial year.”
The notion that the fixed-fee online model “cannot be viable and is a thing of the past is contrary to our experience with Eazi.com, which is performing well and continues to validate the merit and potential of the online hybrid business model”, he says.
Crispin Inglis, co-chief executive of online agency PropertyFox, which acquired low commission digital property agent Steeple in 2018, says today, the option of selling at a low fee has become “almost as normal” as selling with an agent.
“While it’s still a small share of the market, we have a large base of loyal customers, many of whom are referrals, as well as repeat business. We’ve seen some amazing adoption growth over the past three years for low-fee and full disintermediation solutions.
“The industry is rapidly evolving and we expect this to continue in the foreseeable future.”
How the business styles differ
Low fee and fixed-fee businesses are often “lumped” into the same category but they are all actually quite different, says PropertyFox’s Crispin Inglis.
Purplebricks, for example, charged an upfront non-recoverable fee to sell. “It’s possible that this, in conjunction with a generally down property market, was too much of a challenge for them. The US and Australian markets are also quite different to the UK/ London markets.
“We don’t see much traction in South Africa for models that require upfront fees, certainly in challenging property markets. We believe the model that will succeed is the one that embraces data to be able to offer risk-mitigated, transparent, innovative and consistently good service to clients.”
Fixed-fee models are based on online interaction, referred to as “low touch”. Traditional models, involving more human interaction, charge commission as a percentage of a property’s sales price.
While traditional agency commissions vary from agency to agency, PGP’s Andrew Golding says they are determined by market forces and at the discretion of individual agencies.
Typically commissions range from 3% to 7.5%. At Eazi, sellers pay a set fee of R39 500, including VAT, on the successful sale of their home. The agency boasts it achieves 94% of the listing prices compared with the industry average of less than 90%.
Eazi’s Richard Day attributes this, and the fact that properties generally sell quicker through this model, to “affordability of a quality service” and a “bespoke, client-centric technology platform that facilitates the seamless and paperless administration of the transaction from initial inquiry to concluded sale”.
“This enables buyers and sellers to conclude real estate transactions including book valuations, change prices, arrange viewings, collect feedback, review marketing data, make offers and agree to sales 24/7.”
PropertyFox is a low-fee agency but does not, according to Crispin Inglis, offer less from a service point of view. “The reality is we have elevated the sales process on all fronts, while reducing our sales fee. “More and more people are making use of this option every day.”
Inglis says the fundamental difference between its low-fee offering and a traditional agency offering is that one features an agent while the other does not.
The challenge faced by the traditional industry is that it requires infrastructure to support an agent.
“We have redesigned that and now even extend our software platform to some agents to use in their sales process, allowing them to charge less and focus on the most important elements of the sales process – selling.” While the industry is evolving rapidly, he says the lion’s share of the industry will still elect to use an agent in the short-term.