Why are traditional real estate agents getting agitated

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 ………., more on that later.

Furthermore, the article, and phrase was repeated by a real estate agent in a post on Linkedin. The agent’s Linkedin profile suggest they were recognised as one of the top 4 real estate agents in Australia.

Under their Linkedin post there was further commentary from others which prompted me to think “ these guys are a little rattled”

Here’s a snapshot of the commentary

• “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”

 

I will leave it up to you to second guess what industry the people making the comments come from.

The thing about disruptors or challengers is they identify opportunities for a new business where potential clients can save money, have a more positive experience or receive a 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 commentary is quite aggressive and a bit rich for an industry when 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 industry’s, have happy customers who are prepared to refer them to others.

However, there is a flipside and experienced by all industry sectors.

I’ve always been a fan of people or 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 greater 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 them.

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%.

So who started “the race to the bottom”?

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 able to identify how much local knowledge any one 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

I find this comment very 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 type of reaction the owner of the property might have had if they were a fly on the wall.

 

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 called word of mouth.

If over time there is a consistent theme in 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, do the right thing for their customers and … keep their job.

 

Will Purplebricks or any other real estate challengers be successful… that’s up to them and their people.

What I do know is that we all have more choice in how we engage real estate agents and despite the perceived negativity or sales pitch, that’s a good thing.

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