The unchanging face of NZ real estate

by Alistair Helm in


 Photo by  Sharon McCutcheon  from Pexels

Photo by Sharon McCutcheon from Pexels

I had the pleasure the other week of lecturing to second year Property students at the University of Auckland Business School. The subject of the lecture was the structure, processes and practices of residential real estate. In putting together the slides for the lecture, I was wanted to provide some facts around the 'typical' real estate agent and therefore went over to the Real Estate Authority website to check out the latest stats on licenses held by those in this industry.

This single slide provided the students with a visual insight into the industry some might be interested in joining, or so I thought. I took the opportunity to ask the assembled c.100 students how many were considering a future career in residential real estate?

Not a single hand rose.

The fact is most of these students see their future career in commercial real estate or property management or valuations, so I took the opportunity to open up a discussion as to the students' views of residential real estate.

However before sharing the thoughts and feedback let's dwell a moment on the facts as presented in this chart.

The demographics profile of NZ real estate agents

The age demographic of the NZ residential real estate industry has hardly changed over the past couple of decades. It is regarded by many as a 'second career' with that median age hovering in the late 50's. (No surprise here that my recent entry into this industry as a practicing agent puts me squarely in that age bracket!)

Across the more than 15,000 individual licensees the gender balance is slightly more skewed to men, having said that within the age bracket with the most agents, being 40 years to 60 years; women are in the majority, representing 52% of all agents. However in my opinion, the most glaring statistic relates to the two age extremes. The fact is that less than 1 in 10 of all licenses held by agents (both men and women) are under the age of 30. Whilst the proportion of men over 65 years in the industry is 1 in 6. These are the facts, and whilst I have no historical data to hand, I recall from earlier readings that even 10 years ago these demographics were pretty similar. 

It is interesting to compare these numbers with the latest data from the US and their National Association of Realtors whose 2018 Member Profile Report shows that 63% of agents in the US are women, the median age is a similar 54 years but over there, the age bracket of under 30 years represent just 5%, whilst over 65 years represent 20%!

Across the ditch whilst I could not find any published statistics, I know from first hand experience that it is a far younger industry, with I would imagine probably around a quarter of all agents under 30. The industry in Australia certainly has a more youthful feel.

Now back to the question and the subsequent discussion - why is it that young people are so under represented in the make up of the real estate industry in NZ? Here are 4 possible explanations as voiced and discussed by the students.

Income

The first explanation voiced by the students was money. As I had outlined the NZ real estate industry is a commission-only industry and it is hard reality that a new agent entering this industry will need to support themselves for up to 6 months with no income and in addition would likely require to fund total costs of many thousands of dollars to get established. Students already saddled with debt are highly unlikely to be able to survive such a start to a career.

Trust

Secondly, trust came up as a point of relevance. How could a twenty-something be able to build trust when perception is that wise older individuals with the relevant life skills engender greater trust around a process that is fraught with emotion and risk? It is a fair comment, especially when you also consider that twenty-somethings have not bought and sold a property. However I could well counter that with the fact that in any line of business such new entrants to the workforce are often handling contracts and responsibility for multi-million dollar value goods and services, the difference being that they are operating within a structure that supports them and backs them within the 'organisation'. In real estate the fact is that you are the organisation.

Perception

The industry is a reflection of the current incumbents and this is self perpetuating and a hard cycle to break, there is no denying that. However there are well over a thousand agents under 30 years who are making a success in this industry. They are overcoming these hurdles and breaking the perception.

Industry Structure

The NZ industry as I have outlined in the past articles is very concentrated with 6 leading companies holding more than half the share of offices around the country. This strength in the major brands and franchise structure that the majority operate, could be seen to perpetuate the same business model that attracts the same demographic profile of agents and does not foster innovation.


So that's 4 perspectives as to why the industry demographic is the way it is and the way it has in someways always been. So what could change, what could be the seeds of change that could be sown to foster a greater diversity amongst the league of agents in the next 10 years? 

Here then are a few of my own ideas to stimulate some debate as to solutions.

Income

Tackling the issue of income has been broached by some companies in the industry through cadetship - offering a base level of salary for an initial contract period rather than commission-only earnings. This base income sustains the cadet and still offers an adjusted commission which would give the young and aspiring agent a vital leg up. I know of some of these schemes from Harcourts, Barfoot & Thompson and I know first hand of such a series of schemes at Bayleys.

I recall very well the discussions back in 2007 when the revision to the Real Estate Agents Act was being debated and the issue came up as to the status of 'independent contractor' which was challenged, but finally upheld for this industry. As I recall at the time it was limited to real estate agents, share milkers and courier drivers. Maybe in time, just as in Australia a minimum salary becomes mandatory and provided to all agents in real estate.

Would a change to employed agents change things? 

In someways it would, as it would seriously challenge the business owners in their recruitment and performance management of all agents as to costs of supporting a non-performer would be very real. It would though at the same time not fundamentally change the open commission opportunity and with it the core appeal of the industry to the majority of top performing agents.

Trust

I am not actually sure this is an issue that needs addressing. It is a perception that is so easily overcome when dealing face to face with a smart professional who can deliver a great service and age is no barrier to that.

Perception

I think there are a number of things that can be done to change the perception of the industry from a career opportunity perspective. There is an organisation that specifically focuses (as the name suggests) on young real estate professionals: Young Professionals in Real Estate (YPIRE) - it's an Australasian organisation but has held a number of events in NZ, however none lately and none planned. It has the backing of the Real Estate Institute of NZ and Realestate.co.nz but judging by its Facebook page and website it has all the signs of a distinct lack of attention.

Engaging young people I think has a lot to do these days with creating an entrepreneurial spirit, young people are inspired by peers who are leveraging technology to transform industries and processes. I have been impressed over the past few years by a US initiative driven by Realogy (the leading US real estate franchise conglomerate) - FWD is an annual innovation summit where budding startups pitch their technology solution within the real estate industry and stand the chance to win the top prize of $25,000 and with it the kudos of being profiled in front of the most influential people in the US real estate industry.

Why not adopt this approach in NZ. There are a number of smart tech innovators looking to offer solutions to the real estate industry here in NZ who have ambition to capture a global market. How hard would it be for one of the leading real estate companies or even REINZ to put such an event together and in so doing reframe the perception of the industry, one that is open to new ideas and willing to support innovation.

What am I doing?

Something I am doing personally is to participate in the Business School 'buddy' system - acting as a mentor and allowing a couple of students to tag along with me as I do my day-to-day work over the next few weeks giving them what I hope is an insight into the industry, and in so doing foster some greater appreciation of the way this industry works and highlight the opportunities open to smart graduates.


How would you select an agent to sell your house?

by Alistair Helm in


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This was the question I was eager to answer when last month I undertook a survey to find out from people who had sold their house using an agent. The reason for undertaking the survey was twofold. Firstly for very selfish reasons I wanted to better understand the approach that I would need to take to be a successful agent; and secondly I have often written about the value that agents provide and I felt that the survey would go some way to validate these assumption.

The survey was undertaken online and was promoted through this site, my personal database, as well as some degree of Facebook promotion. The survey was just 8 questions long and was anonymous. The survey resulted in 60 completed questionnaires. I would naturally have liked to get a couple of hundred responses but given the specific requirement that participants would need to have sold a property through an agent in the past year or two and without the mechanisms of a large research company, I am comfortable with the scale of the survey. I make this statement up front so as to ensure that there is clarity that statistically this sample size does inherently have large margins of error.


The Results

I will go through the results for each question in the sequence that the questions were asked, providing the objective data as well as my comments and interpretation of the results for each.

 

Question 1 - How did you decide which agent to use?

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Facts: The overriding opinion of those surveyed is that they selected an agent based on personal connection. The most common factor was that the agent was the recommendation of someone they knew. The 3 leading results all speak to a connection or experience, either first hand or through a trusted recommendation.

Online research continues to grow in importance as our lives are so normalised in our behaviour to seek answers online and so this choice came in 4th place. Equally the physical presence of an agent through adverts and signboards do inform vendors. However clearly unsolicited letters and flyers appear to have little impact.

My opinion: These results are not surprising when you reflect as I have done over the years, that the true value of an agent is the personal connection that provides you as a vendor with a consultant, an advisor, a sounding board, a confessor as well as a negotiator, marketer and influencer. This speaks to the heart of the real estate process which relies heavily on trust. The key dividing line is the need to have a connection that brings trust and respect but equally establishes a clear professional detachment. An agent is not there to be your friend, they have a job to do, and have legal and fiduciary obligations to you and the buyers as defined by law.

The results also speak to the challenge for new agents – advertising your presence plays a part in building awareness which is so important but without the track record of working with clients this presence offers little until you secure a client who can then become a referral. For the new agent the response on the survey that shows real value is the digital presence to be found when prospective clients go searching for an agent.

 

Question 2 - Which real estate company does the agent work for?

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This question was included more as a validation of a representative sample. The results show the largest respondent group was using Barfoot & Thompson. This  does show a degree of Auckland bias as a representative sample of all NZ would probably see this around figure at around 15%.

Harcourts at 13% is a degree under-represented and Ray White at 22% slightly over-represented. Amongst the others were a mixture of regional operators and boutique operations.

 

 

 

Question 3 - When you chose your agent, to what extent did the real estate company's reputation and brand influence the decision?

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Facts: This question is pretty clear cut. Vendors choose the agent.

The company they work for; the brand that sits alongside them has a bearing, but in only 1 in 8 of those surveyed did they state that the company was critical; whereas over 8 out of 10 said the company was of little importance or not important at all.

My opinion: This comes as no surprise. The facts are there for all to see, well established real estate agents that move between brands don’t skip a beat in regard to business – the business follows the agent. Agents are the brand, and building and curating that brand is so critical to the success of every agent. There is no doubt though, that a new agent does leverage the company to establish a credibility and support. There is a symbiotic relationship between agents and real estate companies.

 

Question 4 - Did you just select an agent,  or did you ask a number of agents to come and appraise the property?

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Facts: Half of respondents stated that they chose their individual and went with that choice without reference to any other agent. Half of respondents decided to interview more than 1 agent.

My opinion: I find this fairly predictable given the answer to question 1 – recommendation or first hand knowledge is largely driving the decision, so it would follow that that person would be appointed, as against the process of assessing a number of other agents.

 

 

Question 5 - If you chose to invite a number of agents to appraise your property and present themselves, how many did you invite?

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(Ok - I know this result seems to be at odds with question 4 which said that half of survey respondents chose their agent without interviewing other whereas this question now says that this was just 40%. I guess this is one of those issues with survey questionnaires. In retrospect I should have designed the questionnaire better to have conditional questions, my apologies.)

Facts: Whilst 4 out of 10 of those surveyed said that they stuck with the one agent they selected, the majority of those surveyed – 6 out of 10 decided to invite more than 2 and nearly half invited 3 or more.

My opinion: This is the question I was in some ways most interested in. Personally I believe this should be the case when choosing an agent. Property owners should take the time to review a number of agents. Selling a property is a major event and given it is undertaken on such an infrequent basis I believe every property owner should select a group of agents and request they make their pitch to win the business, but also to win the trust and confidence of their future client.

The pitch to win the business should clearly separate the appraisal (the market valuation), from the marketing strategy for the property, from the profile of the agent. This process would allow the property owner to get a sense of who they think they can work with best to facilitate the sale, and which agent has the right manner, approach and capability to succeed to extract the value that resides in the property in a successful outcome.

 

Question 6 - In choosing your agent what do you think were the most important factors in selecting that agent?

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Facts: The top 3 attributes all related to professional capabilities. Likewise at the other end of the spectrum incentive based choice ranked consistently lower.

My opinion: These results again are affirming of the ideal objective process. Choosing an agent based should be based on capability and personal confidence, not being swayed by incentives. However in my few months of experience now at the front line of this industry I have heard (as yet not experienced first hand) agents loosing out in competitive situations to the practice of competing agents 'buying listings' (appraising with a high price to play to the vendors greed) or competing agents offering free marketing or heavily discounted commission.

Now I'm a pragmatist and at the same time I have been a vendor several times over the past couple of years and it is my view that hard earned income should always be wisely spent, and I certainly have never wanted to spend more than I needed on products or services. However I am the first to recognise that when someone heavily discounts a service you have to wonder if the service will match the value. Additionally when it comes to marketing there is no such thing as 'free'. Marketing is core to the process of selling a property and it has to be considered as an investment, the more you put in the greater the output - ideally that being in the outcome of multiple competing buyers attracted to a beautifully presented property, some being motivated to buy even though they were not actively looking; rather than just selling to the current active buyer in the market.

 

Question 7 - Did you research the agent online before appointing them? - if so which sites

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Facts: Three quarters of all survey respondents researched the agent online before they appointed them.

There is a clear focus to review the agents own website and the real estate companies website, not surprisingly Google comes a close 3rd to those top two choices. As to the use of property portals Realestate.co.nz and Trade Me are represented well, however Homes.co.nz should feel well please with an 7% - one in 14 respondents used this service to research agents. The level of just 8% who researched the Real Estate Authority agent register is low at just 1 in 12 - its main purpose though is to verify the license for the agent and to highlight if any substantiated complaints have been made against the agent.

My opinion: I think it is encouraging to see 75% of respondents undertaking research online. The bias though is to search the agents' own marketing platform which certainly provides a profile, however it tends to heavily skew to current listings and a portfolio of prior sales. This information is useful but I sense there is more that people could find out of value about an agent using more independent platforms. In saying this I am alluding to LinkedIn; at just 12% this platform's share of research is very low. Selecting an agent should be thought of as recruiting an agent to undertake a job - sure the job may only last a month or so, but in the scheme of things it is a recruitment for a role. No recruitment agent in today's world or employer for that matter would not undertake a LinkedIn search for a candidate profile, so it should be for real estate agents.

Interestingly amongst the 'other' options in the survey question, a single respondent did said Facebook.

 

Question 8 - At this stage of the sale process how would you rate the service you have received from your agent on a scale of 1 to 100?

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Facts: The median rating of the service of the chosen agent was just on 8 out of 10.

My opinion: As some one offered in responding to this question, the better question might have been more refined as to "how you would rate the service you received from your agent, as against your expectation at the start of the process". This was a very good point and may assist in interpreting this result.

Is 8 out of 10 good? or should it be 10 out of 10?

I think any service based relationship that involves a complex and emotional interaction of such significance and risk will lead to tested interactions. This is only to be expected. If an agent acts professionally, more so in today's far more challenging property market, then a result of 10 out of 10 on a survey of 60 respondents would be unrealistic and show the survey to be flawed or biased. I think 8 out of 10 is great. 

The distribution chart above though is illuminating. Fully 90% respondents gave a score at 5 out of 10 or above. The big question lies in those 6 respondents who rated their agents below average (below 5) and the single respondent who rated the agent a 1. I would hope that these respondents shared their feedback with the agent. We all need feedback, people hate giving it but in a service based business we need it more than ever, especially in a profession where trust is so key and referral business is so critical to success.


Update 

Since publishing this article earlier this morning I have had a number of emails all asking the same question "What would you do differently now you have these research findings?"

The short answer I would change nothing. I guess the reason for undertaking the survey was to affirm my feelings or intuitive sense of the process. I remember from my early years in product marketing it was drummed into me that you should never do any research unless you had an outcome or hypothesis you wanted to test. So I tested the hypothesis and proved that my suspicions were correct. As a new agent you need to build your brand and work hard to make connections. The analogy that has come to me is of an old fashioned London bus - those ones where there was an open platform at the back so you could jump on and off. The bus is full of prospective sellers and equally a large number of experienced agents who are all engaging with vendors. I am the guy trying to grab hold of that rail as the bus speeds along - hoping I can hop on and get a chance to pitch my offering; there are many buses but they are all speeding along and I don't want to break my arm trying to hop on board. 

 


Does the iBuyer business model represent true innovation in real estate?

by Alistair Helm in


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Last week, a new listing came onto the market in the US – a property for sale in Chandler, Arizona. A 4 bedroom home with a price expectation of around NZ$600,000. Not that interesting you would have thought given the fact that probably close to 20,000 new homes come onto the market every day in the US.

What makes this home different from tens of thousands of others is that the owner of the property is Zillow. That is Zillow; as in the largest real estate website in the US – a property portal.

Think about that for a moment, this would be akin to Trade Me listing for sale a property owned by Trade Me having been bought by Trade Me from a Trade Me member!

Let’s be clear this is not happening in New Zealand. At least not yet, and to be honest I don’t think it is something that suits the New Zealand market. However before getting into all that, let me explain what is going on here.

A new segment of the real estate market emerged about 4 years ago in the US. The ever optimistic, cash rich and somewhat over-hyped tech sector turned its eyes, and its investment dollars to the real estate industry and asked the question – “why is it so hard to sell a property in the US, and why does it take months?”

The answer, and therein the problem, lies in a myriad of archaic systems for legal title-management and exchange; and the equally complex processes for mortgage origination. Both of these in theory being digital processes, naturally the tech investment sector said they could fix and in doing so create the opportunity for a viable business model to arbitrage residential property. This new segment of the industry that has emerged has been dubbed the iBuyer market.

The pioneer of iBuyer was OpenDoor, with the fast follower – Offerpad  and now Zillow with Instant Offers, who far from limiting themselves to just being a real estate website, sees value in this real estate service which can leverage their expertise and knowledge base around property data and valuation modelling.

The business model for iBuyer is simple. A homeowner looking to sell goes online and enters their property details, in what is a matter of hours in most cases, the company comes back with an offer to purchase the property. The offer is at around market-value based on their proprietary algorithm of an Automated Valuation Model (AVM). The seller can literally confirm acceptance and choose a completion date and the sale is then completed, and payment is made on the allotted date. There are naturally legal conditions and inspections as well as deductible fees, but pretty much this has to be the fastest and simplest way to transact real estate. So in theory, you could decide to move and within a week or so you could be moved, cashed up and onto a new life!

The process then moves into top gear with the company undertaking a fast and efficient cosmetic makeover of the property in order to get it back on the market in a matter of weeks for a price that they (and their algorithm) feel is the right market price.

The business model of these iBuyer operations is to act as the sellers’ agent, and the buyers’ agent, as well as the property developer; with the clear intention of flicking the property as fast as possible with a reasonable margin on the purchase price, this they seem to be doing.

With the full sales commission charged to the seller, as well as their representation as the owner for the on-sale, the business model allows for a satisfactory margin through the process as well as any improvement margin.

The core value proposition for this business model is speed and the associated removal of stress which has universal appeal. Just recently a survey undertaken by the Real Estate Authority here in NZ found that 35% of sellers found marketing of their property involving the open homes, the toughest part of the process. The iBuyer service removes this completely. It is critical to appreciate that the core value proposition is all around adding value; and has nothing to do with saving costs or a lower priced offer (a critique I made recently as to the only other aspiring innovations seeking to disrupt the real estate industry).

Whilst not a perfect analogy, the market for used cars is somewhat similar. If you want to trade for another car you can just sell to the dealer for cash or trade in your car, so in theory this is the process for your house – at least in the US at this time.

There are elements of the iBuyer business model that are a true disruptions of the real estate process enabled by technology:

  1. The automated valuation model has become a commodified capability, here in NZ as well as most every country of the world, empowering these companies with the core market information, historically tightly held by real estate professionals
  2. The financing of the properties that these iBuyer companies take on, is enabled by technology as they can leverage the necessary debt financing through whatever financial market structure that suits and is available at the time, packaging the portfolio of properties on-hand thereby optimising lending options
  3. Marketing directly to prospective sellers through targeted marketing and in so doing capturing the selling agent commission
  4. Utilising Internet of Things (IOT) to revolutionise the home viewing process. Once a property owned by the iBuyer company is put on the market, prospective buyers can register and access the property remotely through an app that allows unaccompanied viewings with remote security monitoring

These collectively add significantly to this technology-enabled improvement to the process of real estate, and at first sight would appear to be threatening to the traditional real estate profession. However these iBuyer companies are smart to ensure that their long term ambitions to establish a viable and significant market position are not jeopardised by off-siding the industry of agents. Their business model engages agents with a seller and buyer-side commission structure, positioning themselves to be seen as a fellow competitor in the market rather than a looming destroyer of the market process.

It is important to note that the Zillow iBuyer model is somewhat different to both OpenDoor and Offerpad in that Zillow are actually not purchasing properties in their own name, they are facilitating the market-making between willing sellers and financial investors. They are operating in much the same way as they do with their core business in market-making between buyer - agents - sellers - agents. In this way they are keen to avoid the accusation that they are competing with their customers - real estate agents, especially as they lay out the option for sellers to choose to turn down an 'Instant offer' and sell through an agent.

So having identified what these iBuyer companies provide in their business solution the next key question is – will they succeed?

I believe the answer is yes, but not in the sense of a massive disruption to the overall market. This is key, and as any investor pitch-deck will show, even a very small percentage share of the real estate transaction market in the US represents a significant business opportunity. The estimated value of this market is somewhere around US$60 billion so a mere one tenth of one percent would be US$60m turnover.

There are 2 key issues that the iBuyer business faces that I believe are going to restrict the market opportunity. Firstly there is an inherent risk related to the the volatility of the property market and the downside risk of an iBuyer company being saddled with a large inventory they cannot sell without taking a loss on sale, should the market turn down.

Then secondly there is the complete reliance on the automated valuation. The business simply cannot possibly scale if they were to rely on an army of inspectors. As a consequence their risk profile means that they will only offer the solution to what can be thought of as homogeneous houses. This is easily seen by the markets in which they currently operate – Phoenix, Las Vegas, Charlotte North Carolina, Atlanta, Nashville as well as couple of others in the case of OpenDoor. These markets have a growing suburban belt of new homes and the typical house managed through OpenDoor is recently-built homes with a price around the median sale price between $300,000 and $600,000. This is smart. These houses are a commodity that has a low risk of not finding a buyer coupled with a high confidence factor for automated valuation.

In the US this subset of the market still represents a sizeable market opportunity of around $10bn a year. For New Zealand the business model is unlikely to offer such a lucrative market opportunity. Firstly, very little of NZ housing stock falls into the category of truly homogenous - whilst there have been large scale new housing developments in Auckland that mirror the chosen US markets that have been the target of OpenDoor; and undoubtedly there will be more built in the coming years. This market segment will be small, too small for a company to achieve scale. Secondly the NZ market does not experience the same pain point that the US market suffers from, as a consequence of archaic and protracted transaction process. A NZ property can be marketed and legal transaction completed within weeks if necessary, certainly legal unconditional-sale is achievable within a month from listing day - something not achievable in the US, until now.

As to the question posed earlier, could Trade Me offer this solution? - they could, especially if they facilitated a market-making environment with verified investors. By following the Zillow playbook they could very nicely then generate a leads-business for agents of ready sellers. That would be a smart solution that might just see Trade Me advertising a property for sale that Trade Me facilitated the agent-sale of, from a Trade Me member to a Trade Me member, financed through a Trade Me member and managed by a Trade Me real estate agent.


Better Homes & Gardens – a new name on the real estate high street

by Alistair Helm in


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Recently I wrote about the new entrant to the real estate digital advertising arena in the shape of the NZME site OneRoof. It’s many years since we saw a portal vie for a place up against the two established incumbents; so it is with real estate companies in the NZ market. The fact is, there have been very few new additions to the brand line up in the past decade or two. I can count just 3 – The Joneses, who crashed and burned in 2008; then a couple of years later in 2010 Mike Pero, and at pretty much the same time Sothebys International. Both of these trading on very well-known brands – one kiwi; one international.

So we now we have the news is that there is to be a new brand to take on the Australian and New Zealand real estate market – Better Homes & Gardens Real Estate. A brand that certainly has contextual relevance, but doesn’t come with any heritage in this market or across the Tasman. First and foremost it's a media brand, a lifestyle brand; most recognised for the well-known magazine and TV channel. The key question though is, can it carve out a place in the real estate high street in New Zealand?

To answer that question you have to dig a little deeper behind the name to look at the organisation that is driving it.  

Better Homes & Gardens Real Estate began life in the US in the 1970’s as a classic brand ‘line extension’ from the original magazine which dates back to the 1920’s. The magazine has been a stable of the Meredith Corporation; a major media company that earlier this year acquired Time Inc for US$2.8bn. The operation of the real estate business ran for 30 years under differing operational management before the brand name was licensed to Realogy, the largest US real estate conglomerate. Realogy Holdings Corporation operates a number of brands in the US and International markets including Century 21, Coldwell Banker, The Corcoran Group and Sothebys International. It is a huge corporation with over 190,000 sales agents in the US and around 100,000 in more than 116 countries around the globe.

The core principle of Better Homes & Gardens Real Estate is to leverage the essence of the parent brand that speaks to people’s aspiration to a lifestyle epitomised in the magazine and then capture that dream through the process of buying or selling a home. This promotional video on the brand's US website embodies this brand principle.

The company has grown to a significant scale in the US market over what has been a fairly short period of time. A lot of the credit for this success can be attributed to the founding CEO Sherry Chris, who I have seen at numerous industry conferences over the years. She is an impressive individual as well as real industry icon. She has driven innovation and technology through the organisation to create a tremendous business.

So that’s the background to this company and this brand; however as to the local NZ or even Australian market opportunity I am sceptical. The US real estate market is so different to most other countries; fundamentally due to the nature of the dual agent role in the transaction process. An agent representing the buyer and a separate agent representing the seller. This for me is why Better Homes & Gardens Real Estate (BHGRE) was adopted so quickly in the US – the buyer side service is inherently lifestyle and aspirational as that is how buyers approach the property process, full of dreams of their new home and BHGRE plays on the media channels to sell this service. However the seller side of real estate is always transactional and seldom embodied by aspirational lifestyle. The stark reality of the seller side of real estate is that sellers face everyday challenges brought about by life changes, be they financial or functional.

The NZ and Australian markets are seller side agent markets and are transactional process driven, even if the outcome they seek is aspirational the sell process is a means to an end. Buyers living in their aspirational mindset are largely left on their own to undertake a self-service process where the property portals take on that role as their aspirational guide. Interestingly as I write that comment I realise how poorly the incumbent NZ property portals deliver on that role.

Now add to that transactional process requirement of sellers' agent role, the significant consolidated operational power within the New Zealand market which I recently analysed where more than half of all offices operate under one of 5 brand banners along the high street, and you have a playing field that does not augur well to the brand positioning of BHGRE. 

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The reality of the real estate industry unlike other consumer services is that a new entrant doesn’t just set up shop, hire staff and start a business. The core of real estate industry, right at the coal face, is individual agents (each one a unique brand) as self employed contractors, that is how the industry works. Any new operation such as BHGRE will have to entice such agents to join their brand and leave their existing brand. It is not only agents, but business owner / licensees who will have to switch brands to enable this new entrant to get a foothold. This situation is not new in this industry, as I have recently commented Ray White has made significant gains by getting other business owners to switch and so it happens with other brands given the franchise nature of the industry.

The only potential entry for BHGRE as I can see it, is to be found in the fact that BHGRE is a part of the Realogy stable of global brands including Century 21 - a brand that in NZ has slipped down the rankings with now around 50 offices. It might just be the base that the franchise holder in Australia and NZ of both Century 21 and BHGRE: Charles Tarbey could use to transition the Century 21 offices to launch BHGRE in NZ. Time will tell and as the article cited states the plans for NZ would follow Australia probably in 2020.

So potentially this could be good news for some business owners and top performing agents as the enticements by a new entrant may be sufficient to make the switch, but so might the competing offers from the major 5 brands. As we know time will tell, but I for one would be surprised to see BHGRE becoming one of the top 5 players anytime soon.


Financial year report - NZ real estate industry FY2018

by Alistair Helm in


The end of the financial year-end provides a perfect time for any company or industry to reflect on the year just completed, and look ahead to the forthcoming year. So I thought it would be of value to undertake such an analysis for the New Zealand real estate industry.

In the financial year ending March 2018 exactly 73,000 residential transactions were completed by the industry, with a turnover of close to $48.5 billion. This I would judge to be called a ‘good’ year by the industry, at least if you consider the last 10 years or so – by no means the best year but equally far from the worst. That latter record would undoubtedly be the 2009 financial year when just 55,000 transactions were completed for a turnover of $22.4 billion. Interestingly the best year of the past decade or so would be last year; for although slightly fewer transactions were completed in 2017 than 2016, the transaction turnover hit a record of $55.2 billion from 87,630 transactions.

The real estate industry is large – employing just over 15,000 individuals who as recorded by the Real Estate Authority (REA) held active licenses. Supporting these active agents would be almost as many in support roles; as well as those in service industries related to the process of real estate sales.

The industry continues to grow and attract new individuals. Over the past 2 years the number of active licenses has grown by around 3% per annum, however the number of new licenses issued fell by 15% in the past year with just under 2,000 new licenses issued in the year to March. That number matched to the number of active licenses demonstrates the churn in this industry. It is well known that close to half of all new entrants to the industry give up before their first anniversary contributing to this overall churn of around 15% per annum.

When it comes to the structure of the industry from the perspective of the major brands, the picture is one of consolidated strength among the recognised high street brands, with more than half of all offices displaying one of the six major brands. Assessing these major brands based on number of offices, Harcourts and Ray White take the top two spots with 180 and 166 offices a piece, far distant to the scale of the next 4 who are close rivals at the level of 60 to 70 offices around the country.

The fact is, the high street is changing and the physical presence of real estate offices is nowadays less a method of lead generation, than it is a branding exercise. This is most evidently shown by the fact that the local real estate office these days will more likely resemble the reception area of a smart lawyer or the ubiquitous local cafe, as compared to the the cluttered desks and reception counter of a decade or so ago. However much the style and design of these offices change, the industry is not immune to the fact that high street presence is a costly form of marketing and the past decade has seen a contraction of their presence.

A decade ago there were close to 1,500 real estate offices around the country, today less than 1,200. This reduction has not though been uniform. Harcourts have certainly retained their leadership with a reduction of less than a dozen offices. Ray White has grown significantly though a combination of new openings and brand switching, most significantly the Re/Max Leaders Group in Wellington and the recent switch of Austar Realty from LJ Hooker in total adding 24 offices as Ray White has grown to edge within 14 offices of Harcourts.

A number of brands has seen significant declines in offices numbers over the period. The Re/Max decline was significantly impacted by the Leaders move to Ray White. First National has declined from 78 to 42 offices, and the combined operation of Harveys & LJ Hooker which merged in 2010 has gone from 111 offices to 76 today.

Conversely on the rise, has been Bayleys up from 60 to 72 and Property Brokers which a decade ago was a regional operation in the Manawatu and Hawkes Bay and now spans across multiple regions of both the North and South Island, more than doubling offices numbers to sit at 41 today. 

The only new entrant to the market has been Mike Pero which has 54 offices. Mike Pero's operation has leveraged their franchise model to expand fast to create this infrastructure however their office support around 170 salespeople equivalent to just over 3 per 'office' whereas across the whole industry the average office supports 12 salespeople.

Whilst the number of offices speaks to high street brand presence and undoubtedly does drive the performance of these brand operators, the scale of each brand in the market is more rightly judged by the number of salespeople or better still transactions. Whilst not universally published, the major brands do make reference on a fairly regular basis as to the scale of their business by transaction, by this means it is possible to make informed estimates as to the scale of each operation. What I find interesting is to take that collected and intuited data and analyse the 'operational efficiency' of each brand by the measure of transaction per office as the final chart below details.

The telling insight this brings, is that Ray White and Harcourts manage very similar levels of transactions per office - around 90 to 100 per annum, whilst Barfoot & Thompson and Bayleys achieve a higher level in the 130 range per office per annum. The average across all 1,200 offices is 74 transactions in the past 12 months per office, with the smaller brands matching the independent operators at around the level of 1 transaction per office per week.

 


The property portal space just got more competitive – welcome OneRoof

by Alistair Helm in ,


 
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Once there was one, then became two, a third lasted but a few years, another made some noises, but soon exited, all was quiet for many years before ethnic diversity spawned a new entrant and then with a rush first one and then another came to challenge the two primary incumbents.
— A historical perspective of NZ's property portals

Such is the history of the past 20 years of the digital real estate classified marketplace, those to which I refer can be seen in the chronology below:

1995 – RealEnz was the first property portal in NZ owned originally by REINZ (Real Estate Institute of NZ). It went through a few iterations and stumbles including a time around the turn of the century when the major 5 real estate companies launched a competitor in Realestate.co.nz which lasted 2 years

2005 – Trade Me launched a property classified portal, initially as a private selling (auctioning) platform it soon focused on advertising and sought out the support of the real estate industry. Ray White were the first to sign up with gradually the rest following until by 2009 all were on the platform

2005 – The REA Group from Australian launched Allrealestate.co.nz, leveraging the platform of the Australian Realestate.com.au site, the investment in NZ was significant with mainstream advertising and incentives for agents

2006 – RealEnz re-branded as Realestate.co.nz under a new ownership 50% REINZ and 50% Property Page NZ Limited (Harcourts, Barfoot & Thompson, Bayleys, Ray White, Harveys, LJ Hooker)

2008 – Allrealestate.co.nz closes operations. It all became unsustainable and their focus was on richer international markets

2009 – Sella.co.nz (owned by APN) expands to offer property classified

2011 – Hougarden launches as Chinese language property portal utilising initially a complete listings feed from Realestate.co.nz

2012 – Sella closes

2015 – Homes.co.nz launches initially as a property valuation portal but from 2017 as a listings portal with first supporters of the major brands being Ray White 

2018 – OneRoof (owned by NZME) launches

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For most of the past dozen years the digital classified property space has been dominated by the two largest incumbents – Realestate.co.nz and Trade Me Property. They have jostled for leadership, challenging from a position of listings supremacy in the case of Realestate.co.nz, and audience supremacy in the case of Trade Me Property.

Now there is a new contender that has been quietly offering a beta version of a site since December – OneRoof, backed by NZME. It is officially live and open for business and that is reason enough to share my thoughts, opinions and perspective on the new challenger.

Firstly the NZ industry has seen challengers come and go. Allrealestate backed by the Australian REA Group made a valiant effort to take on the market between 2005 and 2009 and made a good job of it. If it had not been for greater international opportunities it could well have succeeded as a long term player. The management knew the business, they held a good share of inventory and they had deep marketing pockets at a time when Realstate.co.nz did not, and Trade Me was of the view that marketing budgets were unecessary.

Equally Sella, albeit a clone of Trade Me made serious plays in 2009 and attracted some listings and certainly had an audience but the industry was not keen on a media owned competitor (at the time owned by APN which of course became NZME).

The landscape in 2018 is somewhat different though, and for this reason and the reasons I will explain below, I believe OneRoof could potentially be a very serious player in this market as early as this time next year.

 

User Experience

The OneRoof platforms of website and mobile apps are superb. They are in my judgement better than either Trade Me or Realestate.co.nz and given the turmoil that seems to be inflicting the latter in terms of its ‘new site’ this competitor puts their efforts to shame.

The platform is rich with a diversity of content, combining listings with property data, highly intuitive search functionality and excellent premium listing presentation. You could criticise them and say there is way too much data covering everything from travel times to crime data, local restaurants to property stats. For me it all works; and you can avail yourself of the richness or ignore it as it is far from intrusive.

From a technical standpoint it is interesting that they have chosen to create 2 browser platforms – a desktop and a mobile version. The more normal approach these days is a single fully responsive single browser experience. Having said that Trade Me still operates two browser platforms although they have been beta testing a fully responsive site for quite a while. The Realestate.co.nz new site is fully responsive (however the original Classic site was actually semi-responsive). There are inherent issues running two browser platforms, but equally fully responsive sites with multiple breakpoints are a technical challenge.

The apps on the mobile device for OneRoof are great based on my testing of the iOS app. The app is great with excellent map based search and great user interface design. The full rich diversity of content is as complete on the app as on the browser.

I have to say as a user OneRoof is the best digital platform on the market today.

 

Existing relationships

The huge advantage that OneRoof has over other challengers like Homes and even I have to say Trade Me is the relationship that NZME has with the real estate companies. These parties have been close for decades as the industry have been supportive advertisers in the NZ Herald and strong bonds exist across all the real estate companies. This is an Auckland skewed situation, but there would be few real estate companies around the country that at sometime or other don't advertise in the Herald or any of the other mastheads that the company operates (Bay of Plenty Times, Hawkes Bay Today, Rotorua Daily Post, Northern Advocate and many others across the North Island).

This trusted relationship will have been tested last year when NZME must have engaged the industry to announce their intention to launch OneRoof. That is what I assume. The fact that the site is live indicates that the industry were comfortable (I might judge this as being somewhere between grudging acceptance and supportive dependent upon which real estate company you talked to).

A big question for me is whether NZME will truly package up online and print advertising in easy bundles for agents to sell to vendors or if has been the case over the years the digital sales teams and print sales teams retain their own account books and end up confusing and forcing agents to choose?

All of that having been said the one worrying issue is that given the site was launched in beta in December and now is fully live in April the inventory support is very low. Of the major 5 real estate companies (who also remember own 50% of Realestate.co.nz) only Bayleys has jumped in 100% with listings. It is surprising and somewhat concerning that OneRoof has not secured any other major yet.

 

Media family

As mentioned the ability for bundled package selling of print & digital is a natural opportunity that NZME has created in this new platform, however the media family offers far more.

As the Australian counterparts have shown in both having media parents (Fairfax in the case of Domain) and News Limited (at least as majority owner of REA Group), there is much to be leveraged in the cross median marketing.

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Already the weekly NZ Herald property supplement has tipped its hat to OneRoof, I suspect it will not be long before the supplement is branded OneRoof, mirroring the Domain supplement in the Fairfax newspapers The Sydney Morning Herald and The Age. Equally the News Limited papers have used the branding style of Realestate.com.au in their property supplements.

The media machine that produces the newspapers around the country generates a vast amount of content around property which will be honey for the OneRoof audience adding to engagement.

I suspect it will not be long before OneRoof quietly smothers the fledgling specialist Commercial portal of True Commercial; it has been labouring away for many years but OneRoof Commercial makes more sense - a single platform for all types of real estate... all under OneRoof.

 

Maturity of digital media

There is a significant difference between a new competitor entering the market for real estate advertising now as compared to back in 2005 or 2009. The industry, and by that I mean the main 5 companies have a clearer view of how they operate today in the digital space. They have confidence in their industry owned portal of Realestate.co.nz. They judge that the relationship with Trade Me is balanced and they have not witnessed the total demise of print media.

Therefore in my mind, they are more likely to accept the establishment of OneRoof especially as Homes.co.nz is already an emerging competitor which has the full support in terms of listings from Ray White. This in someways demonstrates the split in the make up of the 5 major real estate companies when it comes to digital media. Ray White have always been the first mover as they were in 2005 supporting Trade Me, they equally supported Trade Me after the pricing fiasco in 2013 when Trade Me needed an ally. So they have with Homes, judging it better to take strategic advantage early on rather than follow the herd. Bayleys equally with a seasoned media person as General Manager in Greg Hornblow, can see the strategic advantage of an early agreement with OneRoof. As for Barfoot & Thompson and Harcourts they are the most staunch supporters and board members of Realestate.co.nz so it is no surprise that they are hedging their bets when it comes to Homes and OneRoof. As for LJ Hooker I don’t know, except to say they have not been known for strategic moves.

 

Burdens of incumbents

OneRoof is fortunate that the digital media landscape is somewhat fluid at this time, in this I am referencing the two main players.

Realestate.co.nz is the industry back-stop, supported by all real estate companies but feeling a little bit like it is floundering, given the current platform evolution on the web. Its strategic role as the price setter, has been a massive success. But I feel that this is now assumed by many in the industry to be what it was, not so much what it is or what it might become.

Trade Me Property is still fighting with a hand tied behind its back as a function of ‘long memories’ in the industry to the price changes back in 2013, this has limited the role it once held as a market leader in terms of business model and technical platform. Trade Me needs to establish a new platform urgently, especially in regard to the browser as the mobile apps are great but agents are not as engaged in the platform as they once were.

 

Market conditions

The property market especially in Auckland has clearly cooled and likely to remain cool for the next period, be that a year or more, with an expectation of sluggish growth as opposed to negative growth in both sales volumes and prices. For the rest of NZ the fact is what Auckland leads the rest follow (in time).

This property market is going to be very interesting for the property portals; for whilst a cooler market spells ‘longer time on market’ with a rising inventory (with the attendant rise in revenue for per-listing services) it may not depress overall advertising spend, quite the opposite as a cluttered market with high inventory will require smarter marketing to get properties to stand head-and-shoulders above the rest. The real estate industry is likely to go through a structural shift with a large number of agents exiting, but the overall size of the cake of advertising spend may not reduce markedly.

Given the requirements of smarter marketing a new entrant with smart premium advertising options matched to package bundling of print and digital could well reap huge rewards – OneRoof is so well placed.

 

The kill switch

With all this believe and positive encouragement for OneRoof you would think the champagne corks may be popping down at their Central Auckland head office, there remains though one nightmare reality. It is that the real estate industry holds the ignition keys – the listings.

As long as OneRoof fails to gain a decent foothold of listings inventory, the consumer will lose interest and repeated marketing attempts to re-attract them may reach a point beyond which the consumer may ignore the site completely. It is one thing for Trade Me Property to continue to succeed with 92% of listings it is a vastly different matter for a new site to offer at best 25% of listings. OneRoof needs to be very careful not to offside the major 5 real estate companies as without them they will struggle to get beyond 35% of the market even with Bayleys.


How vulnerable is the $100+bn property portal industry worldwide?

by Alistair Helm in ,


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In less than 25 years, a whole new industry has been created. Property Portals, these digital platforms that span the globe, aggregate property listings that serve as the primary advertising for the real estate industry. To the consumer this industry provides the most convenient method for searching properties for sale or rent, whether residential, commercial or industrial. Hundreds of millions of consumers every day.

In aggregate this industry of publicly traded and private companies approaches a collective market cap of something like $100+ billion across every corner of the globe.

The largest of the players would be Zillow with a market cap just nudging $10bn as it begins to eke out a decent (adjusted) EBIDTA which rose to 22% from just 2% the year prior on revenues of $1.1bn. This profitability however looks paltry as compared to the profit powerhouse of Rightmove in the UK which consistently exceeds 70% EBIDTA margins on revenues of $340m which is why it supports a market cap of $5bn.

The list goes on through the likes of the REA Group, ImmobilienScout24, VivaReal, Schibsted and many hundreds of others (including in NZ Trade Me and Realestate.co.nz). Suffice to say this business model of aggregating listings of real estate companies for consumer search supported by premium advertising and listings subscriptions makes for a very lucrative business, one that the incumbents will defend through constant innovation, as well as acquisition. However no industry is ever safe from disruption, especially digital platforms.

Whilst I don’t contend that the demise of these property portals is imminent, I do foresee a risk. A risk every bit as real as the global newspaper industry which became the victims of the property portal success as through the 90’s into the new century their real estate advertising goldmine, began to crumble and today has all but disappeared.

So what is this risk and where will it likely come from?

To understand the risk you need to simply look at the portals’ role. They are an aggregator of both sides of the market in which they operate. They aggregated advertised listings and they aggregate a consumer audience. Their global success has been the ‘winner takes all’ model as the aggregation of the largest audience (although in most countries there is a #1 and a #2 leaving the rest in their wake), audience advantage guarantees dominance in listings, so begets the audience.

But stop for a minute and reflect as to the future of search, after all this is what a property portal is, a search engine. The technology revolution for search is voice. The improvements of the past couple of years has been incredible and the next few years will take us forward beyond our current estimation. The reason why, is the accelerated adoption of ‘home’ devices. The Amazon Echo, The Google Home and the Apple HomePod. For a moment ignore the latter and concentrate on the first two. They are the global powerhouses of search and artificial intelligence, coupled with the global reach that would surpass the local audience of any property portal.

So imagine a future state. You’re on the couch and with your Google Home you ask “Hey Google – what properties might I like to see this weekend” – the screen of your choice (TV/ Tablet / Glasses) then starts to display homes for sale open this weekend.

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Let’s look at the mechanics of this scenario. Google Home is paired to your Google account so it knows so much about you – where you live, where you work, where the kids go to school, how far you drive on weekday and weekends, where your relative lives and your friends. Google knows what your style preferences are and what you have bought in the past few years to renovate or decorate your home, it also knows details of your finances and likely as not your mortgage.

So when you ask Google to show you what properties you would want to see this weekend, you don’t need Zillow / Rightmove / REA as intermediaries or their ‘simple’ search filters – location / beds / price.

Google has the listings inventory of every real estate company in every country, they have collated it for years in search logs. They have deep attribute knowledge of every house that has been advertised for over 15 years at least; they also every house’s estimated valuation. It knows the level of your interest in types of houses and more important the best match of you to your future house. So Google will deliver a portfolio that is personalised to a very fine degree for your review. However it will never stop learning leveraging its vast AI capability to do this. Every comment you make when you see a property in this portfolio will be a key signal to adapt the portfolio to better meet your needs by style, condition, location and attributes. Every comment is also a signal which helps other Google customers who benefits from your comments. Should a new property hit the market via the local agency that is the perfect match, it will add this to the morning update it provides before you leave the house in the morning, and schedule a catch up with the local agent optimising you and your partners diaries.

This capability is real and achievable not just by Google but also by Amazon as they have a significant advantage in consumer engagement in a retail sense and richer installed base of Echos. Already more than 1 in 10 US homes has a voice activated home device and that number will only accelerate this year.

What is the goldmine for these two behemoths?   Well Amazon for one, has made that clear just this week – they are after the mortgage market. Real estate is at its heart actually just a vehicle for the far more lucrative finance industry as the largest consumer asset base globally. As for Google, well as an advertising company I think they can come up with ways to monetise the connection between the agent and the buyer that will boost Google’s stock by a healthy $100bn or more!

How do property portals defend against this future threat?

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The smart ones recognise it and are heading down ancillary market routes. Zillow has been after mortgage origination for years, they have recently tested the iBuyer market, but I think the larger bet which has been on their radar for a number of years signalled by their Premier Agent platform is to become Zillow Realty as a broker of scale supporting hundreds of thousands of agents with an infrastructure to allow them to be truly independent contractors with no franchise aside from the Zillow brand. Interestingly Zoopla in the UK has already started earning more revenue from their uSwitch business than the portal space, they can see that the business model of a property portal may just have been an opportunistic industry that is surpassed by the next tech revolution.

Interestingly for those that have the memory of the early internet period there will be a familiar ring to the word portal, after all there was a time in the late 90’s when the river of gold of the early web day flowed from everywhere to Yahoo. Every pre-dot com start up gave up huge equity and most of their revenue to Yahoo to be the access point for their category of product or service as everything for the consumer started at Yahoo – how that once invincible portal has deflated over the past 20 years to a shadow of its former self, valued in ’98 at over $110bn and recently selling to Verizon for $4.5bn. An object lesson for today’s property portals perhaps?


The battle for listings between Trade Me and Realestate.co.nz

by Alistair Helm in


A quiet celebration may well have been heard in the Trade Me office in Wellington earlier this week. Such an event will come as a welcome reprise, for when it comes to the Property division of the company, the last 5 years have not been an easy ride; I should know, as I spent the past 3 years working as part of the team to build out a comprehensive platform of tools for Trade Me members and real estate agents.

The celebration would have been for a milestone in the comparative inventory of properties for sale. As of Monday night the number of active listings of properties for sale (excluding bare land and building sections) advertised on Trade Me totalled 28,883, whilst for their competitor Realestate.co.nz it was 28,876 – a small margin of just 7 listings, but for Trade Me a major milestone. For the first time since late 2013, Trade Me has reasserted its mantle of leadership for the inventory of property for sale.

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The past decade in which digital advertising of property-for-sale has really become established as a critical marketing platform, has seen a somewhat chequered performance by Trade Me; but by no means a smooth road for Realestate.co.nz (I was CEO of Realestate.co.nz from 2006 to 2012).

The initial period up until mid 2010 was the most challenging time for Trade Me. Their initial launch in 2005 was not greeted warmly by the majority of the real estate companies with lacklustre support in the earlier years with the foundational move to get Ray White as an early strategic customer; this lead to key regional operators like Tommy’s and Leaders coming on board, as well as medium sized operators such as Professionals and First National before seeing one-by-one the majors of Bayleys, Barfoot & Thompson and then finally Harcourts bowing to the pressure generated by their agents to list on Trade Me. By 2010 the writing was on the wall that Trade Me was accelerating towards 100% inventory of all property for sale.

Between 2010 and the end of 2013 things could not have looked rosier for Trade Me. That period did see a significant tightening of the overall market, leading to a significant decline in overall listings, however given the fact that Trade Me's business model was a monthly subscription irrespective of listings, the money was rolling in as all offices around the country signed up to Trade Me. For Realestate.co.nz this was not an easy time, as given the unparalleled awareness of the Trade Me brand and its massive audience advantage, fighting for relevance was tough and despite the significantly cheaper subscription offering, offices were wavering on their commitment to this industry-owned site.

All that changed in September 2013 when as anyone with any knowledge of the history of this industry will tell you, Trade Me made a mistake. A mistake that has ended up costing them dearly and creating deep divisions within the industry. It was (if you don’t know) a price change for agents and agencies moving from a subscription to a pay per listing model. The consequence of this mistake was a much publicised boycott by agencies of Trade Me listings which saw a listings' leadership over Realestate.co.nz of 27% in mid 2012 slip to a deficit of 18% by the end of 2014 with overall leadership in inventory conceded in February 2014.

 

Apples with Apples

The figures I have used in this analysis, being the number of listings of property-for-sale, does have one glaring issue which lives under the classic phrase of “comparing apples with apples”. The Trade Me total inventory includes private-for-sale listings and of course Realestate.co.nz being an industry-owned site does not list private sellers . Not wishing to rain on their parade, the sad news is that when an adjustment is made to remove private-for-sale listings from the Trade Me inventory the slim advantage disappears and Realestate.co.nz retains leadership of the market of agent listings of property for sale.

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Thanks to Core Logic I have been able to estimate the extent of private listings from the total Trade Me listings inventory (an estimate based on proportion of private settled sales to total settled sales as a surrogate at least). This revised picture shows that Trade Me still lags Realestate.co.nz for leadership in listings, the margin represents some 2,500 listings with Realestate.co.nz having 9% more agent listings than Trade Me.

 

Regional picture

As ever with real estate there is never a single market, there are multiple markets on a local basis and so it is when it comes to inventory.

Analysing the regional inventory at this time shows that Trade Me can take comfort from the success they have had in the Auckland market, where as of today they hold a leadership in inventory of 3% with 10,277 properties for sale in a market. Adjusting for private-for-sale listings (which are low in this region) means that Trade Me has practically 99% of all the agent listings across Auckland.

In contrast looking to those markets where the 2014 boycott was strongest. Trade Me continues to lag significantly behind, specifically in the Manawatu / Wanganui region as well as the Hawkes Bay. Trade Me in these regions have between 60% and 70% of all agent listings.

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Technology empowered real estate solutions - the low price operators

by Alistair Helm in ,


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My recent article questioning (and answering) why real estate agents had not been killed off, as the internet has disinter-mediated so many other businesses; was published on the NBR website and generated a number of interesting comments. Amongst the more predictable with a focus on private sales vs agents, this comment grabbed my attention:

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The article I wrote, specifically focused on the role of the agent, and how this component of the real estate process continues to be successful, and in my judgement will be so in the foreseeable future. There will be challengers within this industry. In fact there have been challengers in the past, and so I thought it worth examining some of these technology empowered aspiring challengers, so as to more fully answer this comment, and thereby provide a broader picture of the new more digitally focused real estate landscape internationally.

Researching many operations across the main markets of the UK, US and Australia / New Zealand, has highlighted what I think are three key categories of challengers to the (traditional) real estate process. These are what I call 1. The low price operators / 2. The true innovators / 3. The opportunists

Given the number of models to examine, I propose to separate this analysis into 3 separate articles. I'll start here with the first being the low price operators.

Low Price Operators

The commenter in the NBR, cited two UK based real estate operations - Yopa and Purple Bricks. These are but two of what are many operators in the UK market offering an online focused / fixed fee solution. Most charge around £800 for what they claim is a simple, and far more efficient model than traditional estate agents. Take your pick.

 The UK top 10 online estate agents as reviewed by The House Shop - click to read full article

The UK top 10 online estate agents as reviewed by The House Shop - click to read full article

The key thing as ever in examining overseas models is context. The UK real estate market is very different to both the New Zealand and Australian. Firstly there is no equivalent of the Real Estate Authority legislating and overseeing the licensing of agents. More significantly though is the fact that the UK industry is what I judge to be 'low touch' service offering; meaning that as a vendor you engage a local real estate office to market your property (rather than a specific agent). They advertise the property online on the leading portals and handle enquiries and schedule viewing, but largely don't physically leave their office, as you the vendor, will host the interested buyer. The UK process is by comparison to NZ highly protracted (at least in England and Wales - Scotland is very different) in that an offer to buy is not legally binding until the settlement day and as a consequence often up to a third of all "sales" never settle and fall over in the final days and weeks leading up to settlement.

For this 'low touch' service real estate offices typically charge from 1% to 1.5% of the sale price and agents are largely employees of offices. For this reason the online service of the likes of Purple Bricks, emoov, easy property and Yopa are not that far removed from the traditional model. Instead of calling in at a local office, you sign up online and the service provider advertises the property and receives the enquiries and schedules with you the viewings. All this for around eight hundred pounds, compared to an estate agent charging say 1.5% of the average sale price of £225,000 amounting to just over £3,000.

The thing is, most of these operations have been around a while - especially emoov and easy property. It was not until Purple Bricks started to talk about a stock market listing just over 2 years ago and at the same time, investment funds started investigating real estate as a new sector to find a home for large amounts of cheap money, did media pick up on the potential of these startups; and as we all know, where investment money flows, so marketing budgets explode and consumer awareness grows. However as reported by TwentyCI a UK based property data company, whilst these online estate agents have grown year-on-year in absolute terms they barely amount to 6% of the total market. By comparison the NZ private selling market is c. 12%. Added to this is the fact that Purple Bricks (now a listed PLC) and others have recently in the UK tripped-up over a lack of transparency around the fees charged which are not refundable if the property does not sell, as well as finance charges for the deferment of the fees, creating a flood of media coverage likely to impact their growth.

Returning to the comment in the NBR, as to the notion that Savills investment in Yopa is a sign of the burgeoning of this sector in the UK - I would judge it is simply a smart each-way bet by Savills to see if the segment does challenge the incumbents. As for LJ Hooker in Australia, I judge that they got a little too enthused or better put, 'carried away' on the belief that they needed to launch a low price service and that is why they launched Settl which based on the information at the time was due to launch in the second half of 2016, however as yet no service is available - possibly LJ Hooker have got cold feet.

As to any Artificial Intelligence (AI) integration which some of these online agencies purport to offer. They are largely leveraging automated valuation models (AVM) and a rudimentary buyer / seller matching AI which as anyone who understands the principle of a two-sided market place, is only effective when you achieve scale on both sides of the market and none of these operators have anything like enough scale. The smarter use of AI in my view as an example in the UK was the acquisition by Rightmove (the UK's leading property portal) of predictive analytics company The Outside View in 2016, this company's smarts will leverage Rightmove's massive scale advantage of close on twenty years of data to undertake deep AI analytics to be the best at predicting the future sellers in the market thereby powering agent tools as a new business for Rightmove.

Moving away from the UK, Purple Bricks launched in Australia last year and now offer a service through local property experts (who have to be licensed) and who are a point of contact with the consumer through the process for which a fee of $6,000 (VIC / NSW) is charged. A US entry for Purple Bricks is currently underway. Interestingly the recent UK issues of transparency around the liability of consumers to pay the fees even if they don't sell, has now plagued the Australian operation with a $20,000 fine in Queensland as a solution to the avoidance of possible court action after alleged possible breaches of the Australian Consumer Law and the Property Occupations Act.

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New Zealand is not alone and has low price models - 200Square currently has a fixed fee of $4,500 and Tall Poppy have a fixed fee - well actually a sliding fixed fee: $500,000 property price: $12,000 / $1m price: $20,000 / $2m price: $30,000. There are also many operations in NZ charging 1% - most of these price based competitors have been round for many years and of course you may remember the 2007 flash of "The Joneses" with their "flat fee.. not fat fee" of $8,000.

Regardless of whether these various operations are labelled as online estate agents or fixed fee operations, they all stand behind one positioning strategy - they are low priced operators. As any marketing or MBA course will tell you, being the lowest price player in the market is not a sustainable place to build a long term business. A low cost operator now that is a sustainable platform for sure, but these are not low cost operators. The true low cost operation in this industry is the traditional business (as far as in the NZ model) because traditional real estate franchise groups don't employ salespeople, they are made up of local teams of independent commission-only contractors. Low price operations have by their very presence always to be looking over their shoulder to new competitors trying to undercut them, instead of building long term value in their brand and reputation.

Technology has the ability to drive out cost and improve efficiency, but when it comes to the real estate process as outlined in detail in my earlier article, efficiency through technology comes at a cost to the customer, largely that cost is in the loss of a trusted individual deeply engaged in the process end-to-end. For the low price operators such individuals tend to focus on being a pure lister (in the case of Purple Bricks) or a generic customer service answering contact points in the case of the other online agents.

Next article will focus on The True Innovators and finally I will examine The Opportunists


How come the internet has not killed the market for real estate agents?

by Alistair Helm in ,


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This seems to me to be a commonly voiced question. Whether you read the local New Zealand concern voiced as part of a recent REINZ research reportthat questions the ‘you’re doomed’ view of tech” or listen to the renowned team at Freakonomics respond to the question ‘How has the internet not killed the market for Realtors yet?’ as part of their FREAK-quently Asked Questions

The fact is the internet has been around long enough now that doomsayers forecasting that real estate agents would go the way of travel agents and taxi drivers are clearly wrong. Here in NZ as well as many other countries, we have not seen massive, significant or even modest disruption of the role of real estate agents in the real estate process as a function of technology.

I recall the quote I used for many years in industry presentations as a wake-up call to agents to embrace technology rather than fear it:

Agents will not be replaced by technology, they will be replaced by agents with technology
— Peter Williams - CEO Deloitte Digital 2007

It has long been my view that technology has a lot to offer the real estate transaction process, but wholly replace the role of the agent. Forget it. It is not going to happen.

As to why, the simple answer is well wrapped up in this summation that speaks to the true role of an agent:

The transaction process for a residential property is for the majority of people a highly infrequent event. It’s a lengthy and complex process.
It’s a deeply emotional event.

It’s an event that commits people to significant financial liability and most importantly it lies at the very core of Maslow’s hierarchy of needs.

That is why people entering the process want and need the support of a real person, someone on hand, someone they can trust, someone who is proficient with the process and will be their guide, their confidant, their confessor and their advisor

Let me unpack this statement so as to provide clarity, as to why, when you look at the component parts, technology can improve and has improved efficiency and brought greater transparency to the whole process, but when seen as a whole, the process, particularly when it comes to selling a property is way-too-much to allow disintermediation through technology to completely replace the agent of the process.

It is important at this stage to clearly define the real estate process in the NZ context as a seller-side service, as is the case in similar markets like Australia and the UK. It is also fair to say that the buyer side has been significantly affected by technology - easier access to inventory and democratisation of property data both of which have empowered buyers.

As an aside the US is a very different market with both buyer-side and seller-side agent services which makes the transaction far more expensive and complex as it supports twice as many agents, as selling agents cannot advise buyers and visa versa. Added to which the US system still heavily relies on an archaic listing database structure – the less said about this the better!

Let me now share my thoughts on those key components of the process – both real and emotional and thereby better demonstrate the influence of technology as an enabler but not a disrupter.


Infrequent

It is not unheard of for people to live in the same house for decades, equally some people seem to move every few years. For me, I’ve moved 10 times in my adult life which averages out to just less than every 4 years. I understand the average is somewhere between 8 and 12 years. This infrequency leads to a lack of 'learned experience' for the majority of buyers and sellers. The fact is they seldom get to develop skills and experience into the process of selling a property which often leads to a sense of uncertainty and that nagging doubt “that something's changed since the last time we moved?”


Lengthy

For most people selling a property is inextricably linked to buying a property. The elapsed time for a completed move of house is generally measured in months rather than days or weeks. Often people start to consider moving 6 to 9 months before actually physically moving. This protracted process means that people often become distracted by everyday matters especially as the process builds up a head of steam as the critical decision-making date of putting a house on the market has a habit of creeping up on you. So just when you thought you had the time to manage everything yourself, you more than ever need someone to offload onto.


Complex

Buying and selling property is complex. It needs to be. Property rights are at the core of modern democracies. It is the land and the legal rights pertaining to owning land that underpins the property owing process and ensures that you alone own the land upon which the property sits, whether that be a clear freehold title, a more complex unit title, cross-lease or leasehold title, the appropriate correctly documented filings need to be executed correctly and legally. Certainly, digital documentation processes and potentially a blockchain structure will ensure greater surety and efficiency, but this will only be as an aside to the overall process. We are blessed in NZ with one of the most digitally developed system of land registry which means that searching titles and recording title changes is measured in minutes. Many countries suffer from fragmented and un-digitised systems that leads to what is termed “the closing” process commonly taking weeks.


Financial

Property has always been a very large financial transaction, more so these days where typical property prices are up to 10 times the average salary and often far more in the major cities. Such financial transactions are still largely underpinned by mortgages which obligate buyers to 20 years or more of repayments. Certainly, digitised systems and artificial intelligence has and will, ever more in the future, change the process of mortgage origination to the point when applying for a mortgage or changing a mortgage term will be as easy as a PayWave transaction.


Real person

Sure, we are being better served by bots and voice activated artificial intelligence when it comes to booking an Uber or checking on the delivery of a courier, but we are humans not robots and we crave the ability to look eye-to-eye with a person we empower and trust to represent us. Someone who has shown their credentials and who through recommendations and referrals we believe has our best interests at heart to see the process through to the end surmounting any obstacles that may appear on the way – that person is the local real estate agents we select. Someone who is part of the local community part of who we know, someone who will be there now and in the future.


On-hand

It is staggering how human-like the latest Artificial Intelligence human interface is in answering questions, another 5 years and we will be easily convinced we will be talking to a real person on a screen or even in a hologram. This will be great for shopping and informing our everyday lives but when it comes to property purchasing I suspect it will not be until we actually trust AI to transact with another AI, in a very distant future world where every action is AI driven; then we will see the gradual replacement of agents. Until then I think regardless of tech-savviness or age, people selling property want to look deep into the eyes of the local agent who sits in front of them and tells them how this process works and how they will be in good hands.

 


Trust

That indefinable quality that often tops people’s list of real values we seek in people we want to work with and be with. Real estate agents sadly often fail to reach even half way to the likes of doctors and engineers or police on trust ranking professions, but you have to ask yourself what erodes that trust in agents? Is it the experience of you or your friends, or is it a perception created through the media of the few bad-apples that certainly damage the reputation of the many thousands of agents that day-to-day support thousands of customers? Sure, if the industry can’t keep working to eradicate the bad-apples, then trust will continue to be eroded but would you trust an artificial intelligence at the end of a phone line or online interface, more than a real person?


Process

The process of property transaction often seems easy when viewed from the outside. Stick an advert online and in print, host an open home or two, and wait for people to make an offer. Shuttle back and forth between buyer and seller working towards a compromised price and bang. Couple of hours work for c.3% of the selling price. How hard can it be – surely a piece of software can bring the buyer and seller together?

Well the perception and reality could not be further from the truth.

Firstly any business offering the service of real estate for a fee requires to comply with the Real Estate Agents Act 2008 – all parties in the role need to be licensed which requires significant initial training to reach qualification and then on-going training. The property transaction process starts way before any property advert is posted anywhere and requires a deep understanding of legal obligations and background investigations on the property as an agent is acting as a representative of the seller with all the legal implications that can entail with personal and professional liability.

The process of identifying and facilitating the prospective buyers and guiding them through the process has professional obligations as well, and such matters are complex and demanding with the agent at all times seeking the best outcome for their client (the seller) whilst recognising the professional responsibility to the buyer.


Guide

An agent is a critical guide to the process helping all parties understand what happens and when. This requires experience and coordination. Certainly software systems have and will continue to manage and visualise the critical timeline and the path needed to be taken with appropriate notifications and critical-path planning , however as we all know diary alerts and notifications are simply that, notifications, if you don’t have someone overseeing them and acting upon them, they will get ignored or forgotten and the process of real estate transaction needs to be a well-choreographed process guided by a dedicated person with experience.


Confidant & Confessor

Emotions cannot be wholly removed from the real estate transaction and as such you need someone to share your deep concerns with, whether you set out with this intention or not. As the seller you have in your agent a professional who has an obligation of client confidentiality which allows them to help you to succeed in the sale whilst appreciating the possible emotional challenges that lie behind the reasons for the sale, many of which may be the last thing you need or ever would want potential buyers discovering. However agents cannot abdicate their professional responsibility to buyers, they have to truthfully, accurately and honestly represent all the facts pertaining to the property they are acting as agent for – any misrepresentation and they are personally liable.


Advisor

An agent is clearly an advisor in the property process and more than ever technology plays a large part in improving the analysis and representation of property data to better inform all parties, especially when it comes to initial listing price expectation and then on through the process. However, no algorithm, no matter how sophisticated could advise a seller on the options available at the time of say a tender submission when the unique circumstances and market conditions influenced day-to-day by impending and actual transactions of prospective buyers change a market by the actions of these self-same participants as ruled by their head and their heart. The fact is Artificial Intelligence and algorithms are powerful tools that are incredibly effective at crunching masses of data at scale – think of millions of property records and thousands of property sales to come up with automated valuation models, but when it comes down to a couple of properties and a handful of buyers in a local area, no algorithm will be able to advise a seller or buyer in a way that creates confidence and facilitates outcomes that get people to where they want to go with their lives and the houses they want to live in.


A smart professional real estate agent is a role that is made up of a multiplicity of individual roles. Technology can be a powerful enabler to better support many of these roles, but replace them all in one unified system to facilitate property transactions end-to-end? No way. The best agents need to embrace technology and let it be their differentiator.

No country anywhere in the world has yet experienced a radical or significant disintermediation. This is not because the market is not attractive for investors nor so opaque that innovators cannot dissect the roles and processes and seek to reinvent them. The core fact is that real estate is not a global market that has liquidity and substitutional homogeneity. Every real estate transaction happens in a hyper-local environment that involves a tiny subset of customers and every transaction is in some ways ephemeral - never to be repeated or modelled for future. At its heart and to use the language of tech start-ups 'real estate transactions don't scale as a process'. Real estate companies can and do scale, but that is not the same thing and maybe the subject of a future article.


The Real Estate Salesperson Course – some personal insight

by Alistair Helm in ,


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I have spent the past few months undertaking the real estate salesperson course. This course which leads to the ‘Salesperson - National Certificate in Real Estate Level 4’ and is the educational requirement under the Real Estate Agents Act (2008) for anyone who plans a career as a real estate salesperson.

Funny enough, I did attain just such a certificate to practice real estate back in 2005 but at that time let my license lapse, as I never really got started in the industry. So, I decided it was time to re-acquaint myself with the course and have the certificate as part of my commitment to the industry.

The first comment I would make, is that the difference between studying for the certificate in 2005 and today is akin to the difference between Jean Batten’s preparation to fly across the Tasman in 1936 and the preparation that nowadays takes a Boeing 777 across the same Tasman Sea. The outcome is the same, but the attention to detail and adherence to protocols and processes is vastly difference.

In 2005 I remember I rocked up to the Albany Tennis Centre at 9am one Monday morning to participate in a training course undertaken by Unitec along with a dozen other would-be future agents. For the next 2 weeks, I spent 4 hours each morning attending a series of lectures on the core parts of real estate, which largely comprised understanding the laws pertaining to land transfer, as well as some great home-truths of the industry colourfully shared by industry stalwarts. There was some course work and tests which required my time some of the afternoons, but largely the acid test for the certificate came at the end of the second week when I was required to sit in front of an invigilator and demonstrate that I was competent to correctly fill out a Sale & Purchase Agreement. Once able to prove such capability (which took about 20 minutes) I was issued with a real estate certificate and was on my way to practice real estate the very next day. Or so I thought, what actually happened was that I chose a career with Realestate.co.nz a couple of months later!

Let’s now compare that scenario with the reality of training to be a real estate salesperson today.

I chose to enrol with the Open Polytechnic, who I commend wholly as their online course (supported by excellent tutors who are readily available to help) is excellent. However rather than the previous experience of a 2 week semi-part time study, the current course has taken me an elapsed period of just under 6 months. Now, I chose not to pile into the course as a full time student. I recon I spent around 2 to 3 full days a week working through the course papers and undertaking assessments. The Open Polytechnic indicate that each of the 3 papers required for the course would expect to take around 170 hours of study each! So committing yourself full time, you would expect to spend 3 months doing the course.

The course is comprehensive, here are some of the statistics.

  • The course comprises 6 written assessments, 7 online multiple-choice assessments and a final in-person assessment that takes over 90 minutes roleplaying the process of documentation and negotiation of a sale.
     
  • All assessments allow 3 attempts, if you fail after the third go on any assessment, it is back to the start of the whole course again with a new fee payable, which is around $1,000.
     
  • The course work comprising 3 discrete papers is all online and delivered through an excellent application. The scale of the course work is pretty staggering with a total of 280,000 words equivalent to close to 800 A4 pages!
     
  • The written assessments I completed and submitted (and maybe I was a little verbose) totalled 31,000 words written on a total of 90 A4 pages.
     
  • The 7 online multiple choice assessments are timed at an hour in which you have to answer all the questions correctly (with the 3 goes).
     
  • The course work covers a staggering 30 Acts of Parliament, obviously involving the expected Real Estate Agents Act 2008 as well as Land Transfers Act 1952 and the Residential Tenancies Act 1986. However, would you have imagined the course would additionally cover aspects of the Human Rights Act 1993, the Building Act 2004, the Civil Union Act 2004 and the Secret Commissions Act 1910 to name just a few ?

The course naturally covers all the legal aspects of property transactions (as well as some degree of business transactions) in significant detail as well as the legal obligations, as well as focussing significantly on the Code of Conduct of the Real Estate Agents Act Professional Conduct and Client Care Rules 2012. The course material also covers as broad a syllabus as personal brand marketing, all aspects of property marketing, as well as appraisal procedures and the complete process from assessment to settlement.

I feel, having completed the course in a far better position to advise and support buyers and sellers in the process of property appraisal, marketing and transaction than I ever would have done back in 2005. This vastly different entry criteria to the industry is the result of the 2008 Act that set up the Real Estate Authority and improved the standards of procedure and process in the industry. An industry that sadly was all too often lambasted in the media for sloppy procedures and archetypal bad-apples that certainly reinforced the poor reputation of the industry.

As ever such changes do not solve issues overnight. The education threshold on entry to the industry is not retrospective, although on-going training is nowadays mandatory. Bad-apples continue to plague the industry, far less-often than before, and the implications for those that break the law or are found to have breached the code in terms of fines and disbarment are now more significant. However I have confidence that the new entrants to this industry – some 2,000 last year will demonstrate the best of capability and adherence to the laws governing this key process that involves many hundreds of kiwis everyday.