You’d think that a service that cuts estate agents out of the house-buying process would be hailed as the best thing since sliced bread. Such services already exist, and can save you thousands of pounds, yet for some reason they have yet to make any significant impact.
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Estate Agent Board Dome: A sculpture by Nick Sayers, made from estate agent advertising boards.
The Money Programme 'Beat the Estate Agent' explores the growing range of alternatives to the traditional high street approach to buying and selling houses. These include a number of internet-based services, as well as leading supermarket chains, all keen to grab a slice of the market.
"Estate agents have seen their fees skyrocket tenfold in the last 25 years"
Estate agents have seen their fees skyrocket tenfold in the last 25 years, without doing a jot more work. In addition, many customers complain of dubious practices and poor quality service. Against this backdrop, it’s not surprising that some see this market as long overdue for change.
The internet has transformed the way we buy and sell most things. It has proved exceptionally successful at disintermediation, which is the ability to cut out the middlemen, especially where they’re seen as adding little or no value to the supply chain. So could it damage estate agents’ stranglehold on the property market?
The internet offers alternative business models which are attractive to house sellers in a number of ways, and a growing band of sellers are eager to switch. But this doesn't appear to be enough in itself to change this marketplace.
Very few innovations that rely solely on technology are successful. Technological innovation must be matched by market need, and so far house buyers seem reluctant to embrace this change. This acts as a brake on private sellers who would rather have a sale with a hefty estate agent’s fee, than no sale at all.
It’s not clear why buyers are slow to take up these new opportunities. Whilst some 70% of people now search for their next home online, many people still seem to be uncomfortable with the notion of engaging in direct negotiation with vendors.
Understandably, estate agents are not keen to see any growth in private sales. They suggest that sellers will lose out by not realising the full value of their property and not having an agent to manage viewings and screen-out undesirables. As Peter Bolton-King, chief executive of the National Association of Estate Agents, puts it “if you are selling it privately, any Tom, Dick and Harry can just come round”.
Much of the competitive advantage that estate agents have comes from controlling the flow of information at the various stages of the house buying process. However, this is gradually being eroded. For example, the Land Registry decided a while ago that the prices paid for homes must be made public. So both sellers and buyers can find out exactly how much was paid for other houses in their neighbourhood.
The availability of this information helps private sellers place an accurate value on their properties, effectively deskilling the estate agent’s role. Hopefully, as more information enters the public domain the house buying market will be exposed to more transparency, which (in theory) should be good for customers.
"The role of the estate agent could be on the cusp of a radical transition"
Everything suggests that the role of the estate agent could be on the cusp of a radical transition. But it’s not yet clear what will be the tipping point which will push the old business model aside. Until then I guess it’s business as usual.
Further reading
- Beat The Estate Agent – The Money Programme investigates some surprising alternatives to estate agents
- Network effects – new technology doesn't succeed or fail on its own merits
- War breaks out on the home front as old and new estate agents clash
- ThisIsHousePrices.co.uk
- The Rise of the Network Society: The Information Age by Manuel Castells, published by Blackwell Publishers
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Estate Agents On The Brink?
The market speaks for itself. If self selling was a success then estate agency would become a defunct business. Because buyers continue to use estate agents to purchase their most expensive asset it is understandable they prefer to negotiate via a third party.
If the selling of property was left entirely to the owners new legislation would probably need to be brought in to prevent some unscrupulous sellers duping prospective purchasers. The Property Misdescriptions Act 1991 provides buyers a source of recourse if the property concerned was sold using ill prepared property particulars by an estate agent. Each contravention of the act is liable for a £5,000 fine to the selling agent.
Just because you can do something yourself does not necessarily mean you want to do something yourself, not everybody wants to DIY. To market a property effectively in order to achieve best buyer and best price there is quite a significant cost. A private seller has to bear these costs up front with no guarantee of a sale. By instructing an agent you only pay for results. No sale no fee.
Compared to the USA where fees are from 5% to 10% and are usually around 6%, the UK selling fees are lower and range from 1% to 3%.
"So could it (DIY internet sites) damage estate agents’ stranglehold on the property market?" I am glad to say estate agents do not have a stranglehold on the property market as there are many options to selling. The market will dictate how the property market operates not the estate agents. The agents that are transparent and do right by the customer are the ones which will prosper.
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