Will 2016 be the end for the estate agency industry?
Marcel du Toit, January 20, 2016

People have been predicting the end of the estate agency industry since the advent of the internet. The theory went that, given the internet’s phenomenal capability of matching buyers and sellers, it was only a matter of time before the need for the estate agents would disappear completely and a more effective (and less costly) system of matching supply and demand would appear. 21 years on, and things couldn’t be more different.

The traditional estate agency model continues to be king, with the top 20 players in South Africa (all franchise models) owning ~63% of the total market. Of the remaining 37%, we estimate that smaller agencies (typically family run with a defined location) make up 36%. That means that online agencies and do-it-yourself (DIY) solutions make up only about 1% of the market. And why would a traditional estate agency change given how lucrative their model is? With the price of an average South African home hitting a record high of R1,051,653 in December 2015 (Source: FNB Property Barometer, 5 January 2016), the average commission charged by traditional estate agents climbed to over R70,000 (incl. VAT) for the first time. In Joburg, where the average price of a home is R1,306,000, this equates to a commission of just over R89,000 (incl. VAT). Not bad for a couple of days’ work!

However, as Bob Dylan sang, the times they are a-changin’.

In a world where the price of goods and services are continuously driven down as a result of technology and smarter processes whilst simultaneously delivering the highest quality customer service (just think of Uber and Amazon, and local companies like Takealot and Lexnove), South African homeowners are demanding more from their estate agents – and rightly so. It is no longer acceptable to deal with an agent that isn’t fully qualified or doesn’t conduct themselves with the highest professional standards; or an agent that isn’t available when the seller is or doesn’t call back immediately. In a world where instant messaging is more popular than email, clients should be tended to in real time by highly trained and courteous people, who focus solely on helping them achieve their goals or answering their questions. The best service at the lowest price and nothing else will suffice. Sadly, the estate agency industry is badly lacking.

But what alternatives do homeowners have? Until recently, the only alternatives have been either going for an online-only estate agent or doing it yourself. Although online-only estate agents have significant drawbacks like still paying a high percentage commission fee (typically 2%) to work with an unqualified “agent” that doesn’t know your property or your area and which makes you take all the photos and write the property descriptions, they are cheaper than traditional estate agencies. Whilst the DIY option saves you the most money theoretically, there is a high risk involved in either under-or overpricing your property (resulting in the property either taking too long to sell or the seller not maximizing their proceeds), and not marketing through the optimal channels or platforms.

Enter Leadhome and the hybrid model.

Leadhome has taken the best aspects of the traditional estate agency model, like expert and qualified estate agents (or Local Property Experts as we call them) who knows your area, and combined it with the latest in technology and processes to deliver great customer service.

So back to the initial questions: will 2016 be the end for the estate agency industry?

In short, no. The estate agency industry has proven to be immensely resilient in the face of a changing world order where technology has upended the status quo. The biggest reason for this resilience is the estate agents themselves. Selling or buying your biggest financial asset is a challenging and emotional event; one that doesn’t happen often, and one that can cost you dearly if things go wrong. For most people, this means trusting an expert to help them navigate the various pitfalls and making sure they achieve the best possible result from the sale of their property. Who better to do that than a fully qualified estate agent with knowledge of your property and experience in your area?

That being said, we ardently believe that 2016 is going to be a watershed year for the South African estate agency industry – one that fundamentally reshapes the pecking order. With uncertain economic prospects and less money in the consumer’s pockets, home sellers will increasingly look for a better solution when selling their properties – whilst not sacrificing on service standards.

We look forward to helping you in 2016. If you have any questions, or would simply like to chat, please do not hesitate to contact me on marcel@leadhome.co.za.

All the best for your year ahead; may it be the best year yet!

Marcél

This post has been edited to accurately reflect our current business model.


Marcel du Toit
Marcél is CEO of Leadhome. He is interested in the intersection where technology, customer service, and the real world meet, with a specific focus on proptech. Outside of Leadhome he's passionate about his two rescue dogs, sport, and all things South Africa. Marcél holds a masters degree in Management & Finance from the University of Oxford.
M.Sc. Management & Finance, University of Oxford
BA PPE, University of Stellenbosch
Paul Roos Gymnasium, Stellenbosch

Book a free, no obligation valuation with one of our Property Experts - all in less than a minute!

Book a valuation