Why are traditional real estate agents getting agitated

Paul Ryan | April 21, 2017

It seems the launch of Real Estate Group Purplebricks into Australia is already agitating a few of the local real estate agents.

I read with interest an article in Australian Financial review on 17 April 2017 with the headline:

PRDnationwide claim disruptors such as Purplebricks achieve lower prices.

In the article, PRDnatioanwide made the claim about research suggesting “customers got a better result when they pay full commission rates.”

Purplebricks is a real estate agency that has launched a flat fee business model where a property owner pays $5,500 for their property to be sold as opposed to the traditional real estate commission fee of 2%.

For example, if a property sells for $600,000 at Auction then under both models the fees to the paid to the real estate agents are:

* Purplebricks - $5,500.00

* Traditional Real Estate - $12,000

Under this scenario, the property owner saves $6,500.00.

In the article, PRDnatioanwide Research Manager Diaswati Mardiasmo was quoted as saying

* "Overall traditional real estate is achieving higher median prices than disruptors,”.

* "Based on this data, it's appropriate to coin the term 'when you pay peanuts - you get monkeys'.

* "Although vendors might be paying higher commissions it would appear they are getting much better results under the traditional model and the accountability that it creates," she added.

Unfortunately for the National Research Manager, there was no real evidence to back up the claim. I will let you read the article to make your own judgement.

However, it was the statement about peanuts v monkeys that I found surprising.

Furthermore, the article and phrase was repeated by an award winning real estate agent.

Under their Linkedin post, there were a number of other interesting comments. Here's a snapshot:

* “Save money on agents fees, but sell for much less”

* “Get the first offer in and move onto the next”

* “The Purplebricks agents can’t hang around as there is no incentive to get the vendors top dollar”

* “Good luck to the foolish vendors who use them”

* “A race to the bottom”

* “You pay upfront with little to no local knowledge”

The key to being a disruptors or challenger is to be able to identify a gap in the market and create opportunities for customers to save money, make money, save time and or experience better service. 

It is no different to challengers like Aussie Home Loans, RAMS and Wizard and how they took on the big banks in the 90’s.

Some of the comments are a little rich when you consider we’ve seen headlines like Australian’s don’t trust Real Estate Agents and Top Lies Told by Real Estate Agents

There are many great real estate agents operating in Australia and they are deserving of the recognition and income they earn. They, like all other quality operators from all industries, have happy customers who are prepared to refer them to others.

However, there is a flipside and it's the same across all industries.

I’ve always been a fan of people and businesses who take a risk and challenges current offerings.

It's certainly never easy and you have the thiefs of imagination to contend with but the most compelling reason why I'm a fan is they provide the community and potential clients with more choice.

Back to Purplebricks, the commentary offers a real sense of how the existing players are going to counter their involvement and how they'll pitch themselves against their local roperty agents.

If I could make the following comments:

Headlines

Headlines, similar to above, were created long before challengers like Purplebricks entered the market.

Race to the bottom

There have been a number of real estate agents in recent years discounting their commission fees. In speaking to many property owners they’ve been willing to share how they’ve been able to negotiate commission fees down from 2% to 1.8%, 1.6%, and 1.5% and in some cases 1.2%.

If there is a "race to the bottom” where and when did it start?

You pay upfront with little to no local knowledge

In a quick search on the Purplebricks website I found the following local property experts:

* Pru – 30 years’ experience

* Richard – 33 years’ experience

* Larry – 19 years’ experience

* Stephen – 20 years’ experience

* Richard – 5 years’ experience

Do I now if they have local knowledge? No, but if I jump on realestate.com.au, domain or any other real estate website where am I able to clearly identify how much local knowledge any agent has of the suburb I’m looking to buy into.

Save money on agents fees, but sell for much less

This sales pitch always intrigues me because the sale of a property is a one off transaction at one point in time.

The sale price is simply what someone is prepared to pay and what the vendor is prepared to accept.

No real estate agent can make claim that they could have sold the property for more especially if they weren’t involved with the sale process of that property – it’s hypothetical and sales BS

Get the first offer in and move onto the next

Interesting as I've sat in traditional real estate sales meetings and heard the leader of the group say

“ok, this property, we need to move it on, let’s just get it sold so we can move onto the next property”

I did wonder what the property owner would've thought of such a request.

The Purplebricks agents can’t hang around as there is no incentive to get the vendors top dollar

As I understand the Purplebrick Property Agents are contracted to the business.

The one thing that remains consistent across the community is if someone isn’t happy they tend to let someone else know about their feelings, a particular experience or whether someone did a good or bad job for them. It’s simply, word of mouth.

If over time there is consistent feedback on how an individual or business is performing then it won’t take too long before the community and potential customers make their own judgement and a business and management will need to take action.

It's the same for all employees, contractors, and franchisees in any industry and for real estate agents across all brands. We all have KPI’s and feedback loops

So what is a Purplebricks agent’s incentive – like most, to do the right thing for their customers and … keep their job.

Will Purplebricks or any other real estate challengers be successful… that will be up to their people, their service, and their customers.

What I do know is, as consumers we now have more of greater choice in how we engage real estate agents and despite any perceived negativity or sales pitch, that's a good thing.

Oh and as far as the comment made about peanuts and monkeys, I can only assume the position of National Research Manager is worthy of a $1M plus salary.