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


Survey Research.jpg

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?

Agent_Selection_-_full_data_reports_June_2018.png

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?

Agent_Selection_-_full_data_reports_June_2018.png

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?

Agent_Selection_-_full_data_reports_June_2018.png

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?

Agent_Selection_-_full_data_reports_June_2018.png

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?

Agent_Selection_-_full_data_reports_June_2018.png

(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?

Agent_Selection_-_full_data_reports_June_2018.png

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

Agent_Selection_-_full_data_reports_June_2018.png

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?

Agent_Selection_-_full_data_reports_June_2018.png

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.